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[Governor Funds-LOGO]
GOVERNOR
FUNDS
SEMI-ANNUAL REPORT
December 31, 1999
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MESSAGE FROM THE CHAIRMAN Governor Funds
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Dear Shareholder:
We are pleased to present this semiannual report for the Governor Funds, which
covers the six-month period from July 1, 1999 to December 31, 1999. Strong
performances by stock market averages such as the Standard & Poor's 500 Stock
Index(1) (S&P 500) and the Nasdaq Composite Index(2) were fueled by large gains
in a small number of growth stocks. Stocks of technology firms, particularly
Internet-related companies, performed exceptionally well during the period. The
economy continued its strong growth, leading investors and the Federal Reserve
Board (the Fed) to worry about a potential increase in inflation. In response,
the Fed raised interest rates twice during the period. Investors anticipated
those rate hikes and sold bonds, pushing yields up and prices down.
We would like to highlight the performance of the Established Growth Fund during
the six-month period. The Fund, which focuses on shares of large-capitalization
growth companies, gained 10.43% (without sales load,)(3) which compared
favorably to the S&P 500's return of 7.70%. The Fund benefited from its
overweighting in the technology and telecommunications sectors.
On the following pages you will find comments from the members of Martindale
Andres & Company, Inc. and Brinson Partners, Inc., who oversee the management of
your Funds. William Martindale and Tom McGarrity of Martindale Andres & Company,
Inc. and Brinson Partners, Inc., respectively, explain the economic and market
factors that influenced both firms' investment decisions during the past six
months. They also offer their outlook for the financial markets for 2000.
In addition, this report includes remarks about each of the individual Funds
from their respective portfolio managers. The discussions should help you to
understand the approach each fund manager takes to pursue Fund objectives. You
will also find a schedule of Fund holdings, with financial highlights and
statements. Please read the information, which is designed to help you
understand the role each Fund can play in your overall portfolio.
Thank you for your investment in the Governor Funds. Please feel free to contact
the Funds at (800) 766-3960 or your investment representative with questions or
comments.
Sincerely,
/s/ Mark Pulaski
Mark Pulaski
Chairman, Governor Funds
President, Keystone Wealth Management Division
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and net
asset value will fluctuate, so that an investors shares, when redeemed, may be
worth more or less than the original cost.
(1)The Standard & Poor's 500 Stock Index is an unmanaged index that is generally
representative of the performance of the large capitalization equity market.
The index does not reflect the deduction of fees associated with a mutual
fund, such as investment management and fund accounting fees. The Fund's
performance reflects the deduction of fees for these value-added services.
Investors cannot invest directly in an index, although they can invest in the
underlying securities.
(2)NASDAQ Composite Index is a market capitalization price-only index that
tracks the performance of domestic common stocks traded on the regular Nasdaq
market, as well as National Market System-traded foreign common stocks and
American Depository Receipts. The index does not reflect the deduction of
fees associated with a mutual fund, such as investment management and fund
accounting fees. The Fund's performance reflects the deduction of fees for
these value-added services. Investors cannot invest directly in an index,
although they can invest in the underlying securities.
(3)The total return for the six-month period ended December 31, 1999, with the
maximum sales load of 5.50% was 4.38%. The total return set forth may reflect
the waiver of a portion of the Fund's advisory or administrative fees for
certain periods since the inception date. In such instances, and without
waiver of fees, total return would have been lower.
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MESSAGE FROM THE SUB-ADVISORS Governor Funds
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Dear Governor Fund Shareholder:
We are pleased to send you this semiannual report for the six months ended
December 31, 1999. Stocks performed well during the period, but bonds performed
poorly. The U.S. economy grew at an unexpectedly strong rate, leading to higher
interest rates despite continued low inflation.
Stocks suffered in the third quarter of 1999, due in large part to rising
interest rates. Large-company stocks as measured by the S&P 500 Index(1) posted
a -6.24% return during the quarter ended September 30, 1999, while the Russell
2000 Index,(2) which measures the performance of small-company stocks, returned
- -6.32%. However, stocks came roaring back during the fourth quarter: The S&P 500
gained 14.87%, while the Russell 2000 gained 18.44%. The outperformance of
small-cap stocks was driven by huge gains from technology and Internet stocks.
The bond market suffered its worst performance since 1994, with the yield on the
30-year Treasury bond rising to 6.50% on December 31, 1999, from 5.95% on July
1, 1999. The U.S. Gross Domestic Product (GDP) grew at an annualized rate of
5.7% in the third quarter and an estimated near 6% in the fourth quarter. These
growth rates are much higher than the level targeted by the Federal Reserve
Board (the Fed). Such strong growth prompted the Fed to try to slow the economy
and avoid rising inflation by raising short-term interest rates twice during the
period.
We expect domestic and overseas stocks to continue to post gains during the
coming months. However, those gains will likely be more modest than they have
been in recent years. It is important to remember that 1999 was the fifth
consecutive year in which stocks posted double-digit gains -- an unprecedented
occurrence, and one that cannot continue indefinitely.
Interest rates may continue to rise going forward. We expect the economy to grow
at a strong rate and inflation to rise slightly in the coming months. In our
opinion, these factors could force the Fed to aggressively raise rates to keep
the economy from overheating, which could reduce returns from financial assets.
It is difficult to predict which asset classes will perform well during a given
period. Consider, for example, in the past six months the strong showing by
small-company shares and international stocks. Rather than bet on such
forecasts, investors should build and maintain well-diversified portfolios that
offer exposure to large-and small-company shares, international investments,
bonds and cash. Such a mix probably will not match the returns of the market's
hottest sectors -- but we expect it should offer reasonable growth at acceptable
risk.
Sincerely,
/s/ William C. Martindale Jr.
William C. Martindale, Jr.
President and Chief Investment Officer
Martindale Andres & Company, Inc.
/s/ Thomas C. McGarity
Thomas C. McGarrity
Executive Director
Brinson Partners, Inc.
This material is authorized for distribution only when preceded or accompanied
by a prospectus. Governors Group Advisors, Inc. serves as the investment
advisor. Martindale Andres & Company, Inc. is the sub-advisor for all the Funds,
except the International Equity Fund, which is sub-advised by Brinson Partners,
Inc. The Funds are distributed by BISYS Fund Services Limited Partnership.
Mutual funds are NOT FDIC INSURED and are not insured by any other government
agency or by the U.S. Government. There is no bank guarantee, and shares of the
Funds may lose value.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and net
asset value will fluctuate, so that investors' shares, when redeemed, may be
worth more or less than the original cost.
(1)The Standard & Poor's 500 Index is an unmanaged index that is generally
representative of the performance of the large-capitalization equity market.
The index does not reflect the deduction of fees associated with a mutual
fund, such as investment management and fund accounting fees. The Fund's
performance reflects the deduction of fees for these value-added services.
Investors cannot invest directly in an index, although they can invest in the
underlying securities.
(2)The Russell 2000 Index is an unmanaged index that is generally representative
of 2,000 small-capitalization stocks in the U.S. stock market. The index does
not reflect the deduction of fees associated with a mutual fund, such as
investment management and fund accounting fees. The Fund's performance
reflects the deduction of fees for these value-added services. Investors
cannot invest directly in an index, although they can invest in the
underlying securities.
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MESSAGE FROM THE SUB-ADVISORS Governor Funds
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THE GOVERNOR ESTABLISHED GROWTH FUND
Q. HOW DID THE ESTABLISHED GROWTH FUND PERFORM RELATIVE TO ITS BENCHMARK INDEX
DURING THE SIX MONTHS ENDED DECEMBER 31, 1999?
A. The Established Growth Fund rose 10.43% (without sales load)(1) during the
period, while the Standard & Poor's 500 Index(2) returned 7.70%.
Q. HOW DID THE STOCK MARKET ENVIRONMENT AFFECT THE FUND'S PERFORMANCE DURING THE
PERIOD?
A. The domestic economy remained strong despite two increases in the federal
funds rate, bringing rates from 4.75% to 5.5%. Investors shifted their focus
to shares of small- and mid-sized company stocks in the fourth quarter, due
in part to attractive valuations in those sectors. The Fund benefited from
an overweighting in the telecommunications and technology sectors, which
performed very well. We kept roughly 98% of the Fund's assets fully invested
throughout the period, and that strategy helped boost the Fund's return
given the rising stock market.
Q. IN WHAT KINDS OF STOCKS OR SECTORS DID YOU FIND OPPORTUNITIES?
A. Companies from various sectors performed well during the period, helping to
boost the Fund's total return. Most notable were Sun Microsystems (3.71% net
of assets) in the technology sector; Nortel Networks (3.72%) and Motorola
(2.71%) in the telecommunications sector; and Morgan Stanley Dean Witter
(4.47%) and Capital One Financial (2.13%) in the financial services sector.
We took some profits in both Sun Microsystems and Morgan Stanley Dean Witter
late in the fourth quarter to capitalize on the tremendous appreciation of
both stocks.*
We eliminated a number of companies' shares from the Fund's portfolio during
the period due to high valuations. Those companies include CNF
Transportation and Fleet Boston. Meanwhile, we added new positions in
Circuit City (0.42%), Walgreen's (0.54%), Carnival Cruise Lines (0.71%), and
EMC Corp. (3.02%). We added to the Fund's existing position in Monsanto
(0.92%), and Wells Fargo & Company (1.64%) and we trimmed the Fund's
holdings in General Electric (3.99%) and Johnson & Johnson (2.23%).*
Q. WHAT IS YOUR OUTLOOK FOR THE STOCK MARKET, AND HOW WILL YOU MANAGE THE FUND
WITH THAT IN MIND?
A. We will continue to look for companies that show promising growth at a
reasonable price. We believe that investors during the coming months will
begin to focus less on overvalued sectors such as technology and
Internet-related companies, and instead look more to valuations to determine
the appeal of a stock. When that occurs, we believe it should help this
Fund's relative performance.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and net
asset value will fluctuate, so that an investor's shares, when redeemed, may be
worth more or less than the original cost.
(1)The total return for the six-month period ended December 31, 1999, with the
maximum sales load of 5.50% was 4.38%. The total return set forth may reflect
the waiver of a portion of the Fund's advisory or administrative fees for
certain periods since the inception date. In such instances, and without
waiver of fees, total return would have been lower.
(2)The Standard & Poor's 500 Index is an unmanaged index that is generally
representative of the performance of the large-capitalization equity market.
The index does not reflect the deduction of fees associated with a mutual
fund, such as investment management and fund accounting fees. The Fund's
performance reflects the deduction of fees for these value-added services.
Investors cannot invest directly in an index, although they can invest in the
underlying securities.
*The Fund's portfolio composition is subject to change.
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MESSAGE FROM THE SUB-ADVISORS Governor Funds
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GOVERNOR AGGRESSIVE GROWTH FUND(+)
Q. HOW DID THE AGGRESSIVE GROWTH FUND PERFORM DURING THE SIX-MONTH PERIOD ENDED
DECEMBER 31, 1999?
A. The Aggressive Growth Fund returned 6.42% (without sales load)(1) for the
period. That compared to a total return of 10.95% for the Russell 2000
Index.(2)
Q. WHAT WERE THE MARKET CONDITIONS FOR SMALL-COMPANY STOCKS?
A. The period was a volatile one for small-company stocks. The Russell 2000
Index, which had performed poorly earlier in the year, gained 18.44% in the
fourth quarter of 1999. This increase was mainly due to a huge influx of
capital into technology shares--most notably, stocks related to the Internet.
Consequently, the stocks with the highest price-to-earnings (P/E) ratios
provided the largest return--in fact, stocks with P/E ratios of 54 or better
were up more than 55% for the fourth quarter.
Q. WHAT WAS YOUR STRATEGY IN THAT ENVIRONMENT? IN WHAT STOCKS OR SECTORS DID YOU
FIND OPPORTUNITIES?
A. We typically maintain at least 95% of the portfolio's assets in stocks, but
we ended the period with cash holdings of 10% due to profit-taking and
takeovers. The large cash position hurt the Fund's return, since the fourth
quarter was such a strong one for small-company shares.
We continued to look for stocks of companies that offered promising growth at
reasonable prices, and we took advantage of the market's volatility to find
bargains in various sectors. Sectors that showed strong performance during
the period included technology services, health-care and semiconductor
equipment.
The Fund benefited from investments in Credence Systems (4.37% of net
assets), a semiconductor manufacturer; and Computer Network Technology
(3.48%), a software and hardware manufacturer for data storage systems.*
New positions included RPM (0.74%), a maker of protective coatings for
flooring and other applications; Monaco Coach (1.66%), a manufacturer of
class A motor coaches; Colorado Medtech (0.49%), a full-service provider of
medical products and services, RSA Securities (2.80%), a data security
company, Telxon (0.58%) and Evergreen Resources (0.71%). We eliminated the
Fund's holdings in Engineering Animation, due to company performance issues.
We also reduced the Fund's holdings in Visx (0.93%) and DeVry (1.75%) after
their stock prices increased.*
Two companies in the Fund were eliminated from our portfolio by mergers or
takeovers: Worthington Foods was acquired by Kellogg Corporation, and
Transaction Network was acquired by PSInet.*
Q. WHAT IS YOUR OUTLOOK FOR THE SMALL-CAP MARKET, AND HOW WILL YOU MANAGE THE
FUND WITH THAT IN MIND?
A. Small-company stocks have trailed the market for a long time, but we believe
that underperformance may be coming to an end. In our opinion, the valuations
of many small- and mid-cap stocks remain very attractive. Moreover, we
believe that investors will recognize the appeal of those valuations during
the coming months. That could be good news for the Fund, which will continue
to hold stocks that trade at attractive levels given the potential of the
underlying firms.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and net
asset value will fluctuate, so that an investor's shares, when redeemed, may be
worth more or less than the original cost.
(+)Small-capitalization funds typically carry additional risks, since smaller
companies generally have a higher risk of failure and, by definition, are not
as well established as "blue-chip" companies. Historically, smaller
companies' stocks have experienced a greater degree of market volatility than
on average.
(1)The total return for the six-month period ended December 31, 1999, with the
maximum sales load of 5.50% was 0.56%. The total return set forth may reflect
the waiver of a portion of the Fund's advisory or administrative fees for
certain periods since the inception date. In such instances, and without
waiver of fees, total return would have been lower.
(2)The Russell 2000 Index is an unmanaged index that is generally representative
of 2,000 small-capitalization stocks in the U.S. stock market. The index does
not reflect the deduction of fees associated with a mutual fund, such as
investment management and fund accounting fees. The Fund's performance
reflects the deduction of fees for these value-added services. Investors
cannot invest directly in an index, although they can invest in the
underlying securities.
*The Fund's portfolio composition is subject to change.
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MESSAGE FROM THE SUB-ADVISORS Governor Funds
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GOVERNOR EMERGING GROWTH FUND(+)
Q. HOW DID THE EMERGING GROWTH FUND PERFORM DURING THE SIX-MONTH PERIOD THROUGH
DECEMBER 31, 1999?
A. The Fund trailed its benchmark during the period. It produced a -0.13%
return (without sales load),(1) compared to 10.95% for the Russell 2000
Index.(2)
Q. WHAT WERE THE CONDITIONS IN THE STOCK MARKET DURING THE PERIOD?
A. Large-company shares dominated the market until the fourth quarter, when the
Russell 2000 posted an 18.44% increase, while the S&P 500 Index(3) gained
14.87%. Technology stocks and growth-oriented companies drove performance in
both sectors, and investors paid little attention to valuations. A "growth
at any price" mentality dominated the marketplace.
Q. HOW DID THAT ENVIRONMENT AFFECT THE FUND'S PERFORMANCE?
A. The Fund trailed its benchmark in part because it underweighted technology.
That sector accounts for 17.8% of the Russell 2000's weighting, versus just
6.1% for the Fund. In addition, the Fund invests in growth at a reasonable
price, so we pay attention to valuation. That discipline adversely affected
the Fund's performance during the period.
Q. WHAT WAS YOUR STRATEGY IN THAT ENVIRONMENT?
A. The Fund stayed with its longer-term discipline of buying shares of well-run
companies at reasonable valuations. In particular, we looked for
opportunities to buy shares of good companies when they traded at attractive
levels because of short-term problems. We added shares of Chirex (1.87% of
assets), a pharmaceutical-services outsourcing firm in mid-December. The
stock traded at attractive levels due to concerns that difficulties at Glaxo
Wellcome, a large client, could hurt profits.*
We also added to the Fund's position in American Woodmark (2.48%), which
makes kitchen cabinets; the shares were attractive due to short-term concerns
about margins. We met with the company's management team and concluded that
the firm will take steps to improve its margins. The stock has rebounded
sharply since we bought it in October.*
We also sold shares of pharmaceutical wholesaler D&K Healthcare Resources due
to questions about its position against larger competitors, and the stock
subsequently declined sharply.*
Q. WHAT ELSE AFFECTED THE FUND'S RETURNS?
A. Two of the Fund's holdings, Transaction Network Services, Inc. and
Worthington Foods, were acquired during the period. Both acquisitions were
made at significant premiums to the existing share price, and that enhanced
the Fund's performance.*
Q. WHAT IS YOUR OUTLOOK FOR THE STOCK MARKET GOING FORWARD?
A. We anticipate the stock market to continue to post gains in the coming
months; however, it is likely they will be more modest than in recent years.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and net
asset value will fluctuate, so that an investor's shares, when redeemed, may be
worth more or less than the original cost.
(+)Small-capitalization funds typically carry additional risks, since smaller
companies generally have a higher risk of failure and, by definition, are not
as well established as "blue-chip" companies. Historically, smaller
companies' stocks have experienced a greater degree of market volatility than
on average.
(1)The total return for the six-month period ended December 31, 1999, with the
maximum sales load of 5.50% was -5.64%. The total return set forth may
reflect the waiver of a portion of the Fund's advisory or administrative fees
for certain periods since the inception date. In such instances, and without
waiver of fees, total return would have been lower.
(2)The Russell 2000 Index is an unmanaged index that is generally representative
of 2,000 small-capitalization stocks in the U.S. stock market. The index does
not reflect the deduction of fees associated with a mutual fund, such as
investment management and fund accounting fees. The Fund's performance
reflects the deduction of fees for these value-added services. Investors
cannot invest directly in an index, although they can invest in the
underlying securities.
(3)The Standard & Poor's 500 Index is an unmanaged index that is generally
representative of the performance of the large capitalization equity market.
The index does not reflect the deduction of fees associated with a mutual
fund, such as investment management and fund accounting fees. The Fund's
performance reflects the deduction of fees for these value-added services.
Investors cannot invest directly in an index, although they can invest in the
underlying securities.
*The Fund's portfolio composition is subject to change.
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MESSAGE FROM THE SUB-ADVISORS Governor Funds
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GOVERNOR INTERNATIONAL EQUITY FUND(+)
Q. HOW DID THE INTERNATIONAL EQUITY FUND PERFORM RELATIVE TO ITS INDEX DURING
THE SIX MONTHS ENDED DECEMBER 31, 1999?
A. The Fund returned 18.00% (without sales load)(1) for the period, versus a
22.12% return for the Morgan Stanley Capital International Europe,
Australasia and Far East Index(2) (MSCI EAFE).
Q. WHAT WERE THE CONDITIONS IN INTERNATIONAL STOCK MARKETS DURING THE PERIOD?
A. Growth stocks continued to dominate throughout the period. They outpaced
value stocks by more than 20 percentage points, showing especially strong
results in the fourth quarter. The technology sector and the
telecommunications sector enjoyed strong runs as companies in both fields
posted strong earnings growth.
A number of Pacific Rim economies gathered momentum during the period, which
we believe helped to boost the Japanese market. Meanwhile, concerns about the
weakness of the euro and inflation in Germany hurt European markets in the
third quarter. Germany bounced back, however, late in the fourth quarter as a
result of fiscal changes including tax policy revisions.
Q. WHAT WAS YOUR STRATEGY IN THAT ENVIRONMENT?
A. We generally seek out companies with attractive valuations in addition to
favored industries and countries. The Fund's weighting in Japan, in
particular was increased during the period (32% of net assets) due to the
country's rebounding economy. The Fund's largest exposure was in Europe, with
18% of assets invested in UK companies and 44% spread throughout continental
Europe. We continued to pursue a value-oriented approach to stock picking,
finding especially attractive bargains among shares of financial services and
basic industry companies.*
Q. WHAT IS YOUR OUTLOOK FOR INTERNATIONAL MARKETS GOING FORWARD?
A. We believe that economies in Japan and Europe will continue to improve during
the coming year. We anticipate strong growth in Europe's financial services
sector, stemming much from continuing corporate mergers and acquisitions
activities.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and net
asset value will fluctuate, so that investor's shares, when redeemed, may be
worth more or less than the original cost.
(+)International investing involves increased risk and volatility.
(1)The total return for the six-month period ended December 31, 1999, with the
maximum sales load of 5.50% was 11.47%. The total return set forth may
reflect the waiver of a portion of the Fund's advisory or administrative fees
for certain periods since the inception date. In such instances, and without
waiver of fees, total return would have been lower.
(2)The Morgan Stanley Capital International Europe, Australasia and Far East
Index (MSCI EAFE) is an unmanaged index that is generally representative of
the performance of stock markets in those regions. The index does not reflect
the deduction of fees associated with a mutual fund, such as investment
management and fund accounting fees. The Fund's performance reflects the
deduction of fees for these value-added services. Investors cannot invest
directly in an index, although they can invest in the underlying securities.
*The Fund's portfolio composition is subject to change.
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MESSAGE FROM THE SUB-ADVISORS Governor Funds
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THE GOVERNOR INTERMEDIATE TERM INCOME FUND
Q. HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED DECEMBER 31, 1999?
A. The Fund posted a total return of 0.26% (without sales load)(1) during the
period. That compares to a 0.56% total return for the Lehman Brothers
Aggregate Bond Index(2) and a 0.44% return for the Lipper Intermediate
Investment Grade Debt Funds Average.(3)
Q. WHAT WERE THE CONDITIONS IN THE TAXABLE BOND MARKET DURING THE PERIOD?
A. The recent period was difficult for bond investors. The yield on the 30-year
Treasury climbed from 5.95% to 6.50% during the period. Bond prices, which
move counter to yields, fell in that environment. Investors worried that
signs of stronger-than-expected economic growth would trigger rising
inflation, forcing the Fed to raise short-term interest rates. Although
continued advances in technology and productivity kept inflation in check,
the Fed did increase short-term rates twice during the period--each time by
0.25 percentage points.
Corporate bonds, agency issues, mortgage-backed securities and asset-backed
securities all outperformed Treasury bonds--which posted especially poor
performance during the period. Mortgage-backed and asset-backed securities
outperformed other sectors in the rising-rate environment and offered
attractive yields relative to Treasuries. Asset-backed securities in
particular were favored by investors due to their attractive yields and their
relatively short maturities.
Q. HOW DID YOU POSITION THE FUND IN THAT ENVIRONMENT?
A. We kept the Fund's duration relatively close to that of its benchmark, the
Lehman Brothers Aggregate Bond Index, due to uncertainty over the direction
of interest rates. The Fund's duration stood at 5.0 years at the beginning of
the period and 4.8 years on December 31, 1999.
The average credit rating of the Fund's portfolio was very high, at AA+. We
invested approximately 80% of the portfolio in government and AAA-rated
issues. That approach helped returns during the period, as demand for
high-quality issues was relatively strong in the uncertain environment.*
Q. HOW DID THE FUND'S ALLOCATION AMONG DIFFERENT SECTORS OF THE BOND MARKET
AFFECT PERFORMANCE?
A. The Fund benefited from its overweighting in agency issues and asset-backed
bonds, which were two of the strongest performing sectors of the bond market
during the period. The attractive yields available on such securities helped
the Fund boost its 30-day yield to 6.5% on December 31, 1999, up from 5.9% at
the beginning of the period. Likewise, our decision to dramatically
underweight Treasuries relative to the Fund's index also boosted performance,
as Treasuries suffered more than other sectors in the rising-rate
environment.
The Fund's sector allocations on December 31, 1999, were as follows:
mortgage-backed securities (35.3% of assets); corporate bonds (18.9%); U.S.
Treasuries (16.1%); asset-backed securities (15.0%); and government agencies
(13.7%), with the remainder in cash and cash equivalents.*
Q. WHAT IS YOUR OUTLOOK FOR THE BOND MARKET GOING FORWARD?
A. We believe the economy will continue to grow at a strong rate and inflation
will rise slightly in the coming months. These factors could force the Fed to
aggressively raise rates in the coming period, especially if the stock market
continues to post strong gains.
Q. HOW WILL YOU POSITION THE FUND TO ADDRESS THOSE CONDITIONS?
A. We will take a somewhat defensive position--with a duration roughly 20%
shorter than that of the Lehman Brothers Aggregate Bond Index--given the
likelihood of interest rate increases. We will also maintain the Fund's
overweighting in asset-backed securities, while underweighting the Treasury
sector. We will continue to favor issues with very strong credit quality, as
lower-quality issues do not offer enough yield advantage to justify their
additional risk.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and net
asset value will fluctuate, so that an investor's shares, when redeemed, may be
worth more or less than the original cost.
(1)The total return for the six-month period ended December 31, 1999, with the
maximum sales load of 4.50% was -4.28%. The total return set forth may
reflect the waiver of a portion of the Fund's advisory or administrative fees
for certain periods since the inception date. In such instances, and without
waiver of fees, total return would have been lower.
(2)The Lehman Brothers Aggregate Bond Index is an unmanaged index that is
comprised of the following Lehman indices: the Lehman Brothers Government
Corporate Bond Index, the Lehman Brothers Mortgage-Backed Securities Index
and the Lehman Brothers Asset-Backed Securities Index. The index does not
reflect the deduction of fees associated with a mutual fund, such as
investment management and fund accounting fees. The Fund's performance
reflects the deduction of fees for these value-added services. Investors
cannot invest directly in an index, although they can invest in the
underlying securities. Investors cannot invest directly in an index, although
they can invest in the underlying securities.
(3)The Lipper Intermediate Investment Grade Debt Funds Average is an average of
the total return of the Fund's in the Lipper Intermediate Investment Grade
Debt Funds Objective which is comprised of managed funds that seek to invest
at least 65% of their assets in investment-grade debt issues (rated in top
four grades) with dollar-weighted average maturities of five to ten years.
*The Fund's portfolio composition is subject to change.
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MESSAGE FROM THE SUB-ADVISORS Governor Funds
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GOVERNOR LIMITED DURATION GOVERNMENT SECURITIES FUND
Q. HOW DID THE FUND PERFORM DURING THE SIX-MONTH PERIOD ENDED DECEMBER 31, 1999?
A. The Fund's total return for the period was 1.48% (without sales load),(1)
compared to 0.17% for the Lipper Short-Intermediate U.S. Government Funds
Average(2) and 1.80% the Lehman Brothers 1-3-Year Government Bond Index.(3)
Q. WHAT WERE THE CONDITIONS IN THE ECONOMY AND THE FIXED-INCOME MARKETS DURING
THE PERIOD?
A. The economy continued its strong growth, creating some inflationary
pressures. As a result, the Fed raised interest rates once just before the
start of the period and twice during the period. Yields increased steadily
throughout the summer in response to the Fed's action, and then climbed more
rapidly following the Fed's August rate hike.
The Fed also put into place mechanisms to provide the market with reserve
liquidity in case the Y2K computer bug caused disruptions in the financial
system. That extra cash flooded the short-term bond market during the last
two weeks of the period, pushing yields down sharply.
Q. HOW DID YOU MANAGE THE FUND IN THAT ENVIRONMENT?
A. We kept the Fund's average maturity relatively short during the period so
that we could reinvest the Fund's assets at higher yields as rates rose. We
lengthened the average maturity somewhat during the final weeks of the
period, as the market showed signs of rebounding. The Fund began and ended
the period with an average maturity of 1.5 years, compared to the benchmark's
average maturity of approximately 1.75 years as of December 31, 1999.*
Q. WHAT TYPES OF SECURITIES DID YOU FAVOR?
A. We overweighted Treasury securities during the period, in part to provide
additional liquidity in case computer problems from Y2K disrupted the
financial markets. Given the uncertain environment, we thought it prudent to
sacrifice a little performance for additional safety.
Q. WHAT IS YOUR OUTLOOK FOR THE ECONOMY AND THE BOND MARKET GOING FORWARD?
A. We anticipate the economy will maintain its strength at least through the
first half of 2000. There are some potential threats to the economy's growth
rate. For example, there is currently too much credit available, which we
believe could result in bad loans leading to a worse slowdown than would
otherwise be the case.
In addition, slow growth in foreign countries has reduced global competition
for resources, possibly offsetting inflation in the United States. Some
overseas economies are rebounding, which could fuel higher prices in this
country.
We believe the Fed will raise interest rates again in the coming months to
protect our economy from those threats. Given that possibility, we may
attempt to maintain an average maturity shorter than that of the Fund's
benchmark. This tactic should provide the Fund with greater liquidity,
allowing us to reinvest the Fund's assets at higher yields if rates do rise.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and net
asset value will fluctuate, so that an investor's shares, when redeemed, may be
worth more or less than the original cost.
(1)The total return for the six-month period ended December 31, 1999, with the
maximum sales load of 3.00% was -1.53%. The total return set forth may
reflect the waiver of a portion of the Fund's advisory or administrative fees
for certain periods since the inception date. In such instances, and without
waiver of fees, total return would have been lower.
(2)The Lehman Brothers 1-3-Year Government Bond Index is an unmanaged index
comprised of U.S. Treasury issues and publicly issued debt of U.S. Government
agencies with maturities of one to three years. The index does not reflect
the deduction of fees associated with a mutual fund, such as investment
management and fund accounting fees. The Fund's performance reflects the
deduction of fees for these value-added services. Investors cannot invest
directly in an index, although they can invest in the underlying securities.
(3)The Lipper Short-Intermediate U.S. Government Funds Average is an average of
the total return of the Funds in the Lipper Short-Intermediate U.S.
Government Funds Objective. The Funds in this objective are managed and
invest at least 65% of their assets in securities issued or guaranteed by the
U.S. government, its agencies, or its instrumentalities, with dollar-weighted
average maturities of one to five years.
*The Fund's portfolio composition is subject to change.
- --------------------------------------------------------------------------------
-8-
<PAGE> 10
MESSAGE FROM THE SUB-ADVISORS Governor Funds
- --------------------------------------------------------------------------------
THE GOVERNOR PENNSYLVANIA MUNICIPAL BOND FUND(+)
Q. HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED DECEMBER 31, 1999?
A. The Fund's total return during the period was -1.08% (without sales load).(1)
That compares to a -2.91% total return for the Lipper Pennsylvania
Intermediate Municipal Debt Fund Index.(2)
Q. WHAT WERE THE CONDITIONS IN THE PENNSYLVANIA MUNICIPAL BOND MARKET DURING THE
RECENT PERIOD?
A. Interest rates rose during most of the period. Investors feared that
stronger-than-expected economic growth would cause the Fed to raise the
federal funds rate to ward off inflation. The Fed eventually did raise rates
two times during the period--in August and November.
The municipal bond market and the overall bond market performed poorly in the
rising interest rate environment. Municipal bonds underperformed taxable
bonds, with the yield on long-term municipal bonds rising by roughly 100
basis points versus approximately 55 basis points for long-term Treasuries.
Investors sold discounted municipal issues near the end of the year to offset
their gains in the equity market. This activity further dampened municipal
bonds' performance.
Q. HOW DID YOU STRUCTURE THE FUND IN THAT ENVIRONMENT?
A. We reduced the Fund's duration slightly, from 6.0 years at the beginning of
the period to 5.7 years by the end. That approach helped the Fund's
performance somewhat, as shorter-term municipal bonds outperformed municipals
with longer maturities. But the Fund's duration remained slightly longer than
the benchmark in order to capture attractive yields for shareholders.*
We also maintained the Fund's high credit quality; as of December 31, 1999,
it stood at AA+. More than half of the portfolio was invested in insured
AAA-rated issues.*
Q. WHAT OTHER STRATEGIES DID YOU EMPLOY TO REDUCE RISK OR BOOST RETURNS?
A. We sold select discounted municipal issues and replaced them with
higher-coupon issues. As a result, the Fund's income distribution yield rose
to 4.7% on December 31, 1999, from 4.3% on July 1, 1999.*
Q. WHAT IS YOUR OUTLOOK FOR THE PENNSYLVANIA MUNICIPAL BOND MARKET GOING
FORWARD?
A. We anticipate relatively strong performance from the Pennsylvania and
national municipal bond markets going forward. In our opinion, many investors
who sold muni bonds late last year to offset stock market gains will likely
re-enter the market in early 2000. We believe the market should benefit from
a relatively low supply of new municipal issues in the coming months.
Q. HOW WILL YOU MANAGE THE FUND IN THAT ENVIRONMENT?
A. We will continue to focus on providing shareholders with attractive levels of
income while maintaining the Fund's high-quality portfolio. We will target a
duration range of between 5.25 years and 5.75 years and will look for ways to
increase the Fund's yield going forward. We will also attempt to maintain the
Fund's well-diversified portfolio to help minimize shareholders' risk.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and net
asset value will fluctuate, so that an investor's shares, when redeemed, may be
worth more or less than the original cost.
(+)The Fund's income may be subject to certain state and local taxes and,
depending on your tax status, the federal alternative minimum tax.
(1)The total return for the six-month period ended December 31, 1999, with the
maximum sales load of 4.50% was -5.50%. The total return set forth may
reflect the waiver of a portion of the Fund's advisory or administrative fees
for certain periods since the inception date. In such instances, and without
waiver of fees, total return would have been lower.
(2)Lipper Pennsylvania Intermediate Municipal Debt Fund Index is comprised of
managed funds that seek to invest at least 65% of their assets in municipal
debt issues that are exempt from taxation in Pennsylvania, with
dollar-weighted average maturities of five to ten years. Investors cannot
invest directly in an index, although they can invest in the underlying
securities.
*The Fund's portfolio composition is subject to change.
- --------------------------------------------------------------------------------
-9-
<PAGE> 11
MESSAGE FROM THE SUB-ADVISORS Governor Funds
- --------------------------------------------------------------------------------
GOVERNOR LIFESTYLE CONSERVATIVE GROWTH FUND
Q. HOW DID THE FUND PERFORM DURING THE SIX-MONTH PERIOD THROUGH DECEMBER 31,
1999?
A. The Governor Lifestyle Conservative Growth Fund ended the period with a
return of 4.21% (without sales load).(1)
As a matter of policy, we allocate a large percent of this Fund's assets to
bonds. Those holdings acted as a drag on overall performance during the
period.
Q. HOW WERE THE FUND'S ASSETS ALLOCATED AMONG DIFFERENT FUNDS DURING THE PERIOD?
A. The breakdown of the Fund's assets as of December 31, 1999, was: 21.9% in the
Governor Established Growth Fund; 10.0% in the Governor Aggressive Growth
Fund; 7.8% in the Governor International Equity Fund; 22.6% in the Governor
Intermediate Term Income Fund; 33.8% in the Governor Limited Duration
Government Securities Fund; the remainder in cash and cash equivalents.*
Q. HOW DID THE STOCK MARKET ENVIRONMENT AFFECT THE FUND'S PERFORMANCE?
A. Some 60% of the stocks traded on the New York Stock Exchange posted negative
returns for the year, with positive returns concentrated in relatively narrow
sectors--in particular, technology and communications services companies.
Governor equity funds performed well in this environment during this period
due to exposure in these sectors.
Q. WHAT WERE THE CONDITIONS IN THE BOND MARKET DURING THIS PERIOD?
A. Interest rates rose during much of the period, reflecting investor concerns
about inflation. The Fed increased short-term interest rates on two separate
occasions from July to December 1999. That hurt bond values and the
performance of this Fund.
Q. WHAT WAS YOUR STRATEGY IN THAT ENVIRONMENT?
A. Our portfolio strategy is based on long-term capital market trends rather
than on short-term changes. We do not believe market timing works over long
periods of time. Moreover, a long-term strategic approach may limit
investors' capital gain taxes and fund transaction costs.
The Fund's allocations during the recent period reflected our belief that
inflation will remain low and corporate productivity will continue to rise.
Those are favorable conditions for growth companies and their stocks as well
as for the bond market over the long term.
Q. WHAT OTHER MOVES DID YOU MAKE TO HELP BOOST THE FUND'S RETURNS?
A. On a quarterly basis we rebalance the Lifestyle Funds, taking some profits
off the table and reinvesting those investments in market sectors or funds
that temporarily have lost ground relative to the other funds in the
Portfolio. This re-balancing helps to keep the funds in line with investors'
expectations and risk profiles and should boost long-term total returns.
Q. WHAT IS YOUR OUTLOOK FOR THE FINANCIAL MARKETS GOING FORWARD? HOW WILL YOU
MANAGE THE FUND WITH THAT IN MIND?
A. We may continue to see a few highly valued growth companies lead the market,
or we could see the growth broaden out to other sectors. Either way, we
believe that careful analysis of individual securities will help separate the
winners from the losers. The stock-and-bond selection skills of the
individual fund managers in the Governor equity funds that make up this
Fund's portfolio will be increasingly important in the year 2000. As for
bonds, we expect that interest rates will move lower at some point after the
first six months of the year. When that happens, we believe the Lifestyle
Conservative Growth Fund's fixed-income investments should perform well.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and net
asset value will fluctuate, so that an investor's shares, when redeemed, may be
worth more or less than the original cost.
(1)The total return for the six-month period ended December 31, 1999, with the
maximum sales load of 4.50% was -0.50%. The total return set forth may
reflect the waiver of a portion of the Fund's advisory or administrative fees
for certain periods since the inception date. In such instances, and without
waiver of fees, total return would have been lower.
*The Fund's portfolio composition is subject to change.
- --------------------------------------------------------------------------------
-10-
<PAGE> 12
MESSAGE FROM THE SUB-ADVISORS Governor Funds
- --------------------------------------------------------------------------------
GOVERNOR LIFESTYLE MODERATE GROWTH FUND
Q. HOW DID THE FUND PERFORM DURING THE SIX-MONTH PERIOD THROUGH DECEMBER 31,
1999?
A. The Governor Lifestyle Moderate Growth Fund ended the period with a return of
6.31% (without sales load).(1)
The Fund benefited from gains by U.S. large-company stocks, particularly
shares of technology companies and telecommunications companies.
International stocks also boosted performance, thanks to a recovery in the
Japanese market and a number of other markets around the world.
Q. HOW DID YOU ALLOCATE THE FUND'S ASSETS DURING THE PERIOD?
A. The breakdown of the Fund's assets as of December 31, 1999, was: 35.0% in the
Governor Established Growth Fund; 12.8% in the Governor Aggressive Growth
Fund; 12.8% in the Governor International Equity Fund; 18.5% in the Governor
Intermediate Term Income Fund; 18.8% in the Governor Limited Duration
Government Securities Fund; and the remainder in cash and cash equivalents.*
Q. HOW DID THE STOCK MARKET ENVIRONMENT AFFECT THE FUND'S PERFORMANCE?
A. Sixty percent of the stocks traded on the New York Stock Exchange posted
negative returns for the year. Governor Funds benefited from their
significant exposure to the strongest market sectors during the recent
period, including shares of technology and communications services companies.
Q. WHAT WAS YOUR STRATEGY IN THAT ENVIRONMENT?
A. We choose the Fund's mix of holdings based upon long-term capital markets
trends rather than on short-term changes. We do not believe market timing
works over long periods of time. A strategic long-term approach limits
turnover, which may reduce investors' capital gains taxes and transaction
costs. During the recent period, the Fund's allocations reflected our belief
that inflation will remain low and corporate productivity will continue to
rise. Those are favorable conditions for growth companies and their stocks.
Q. WHAT OTHER MOVES DID YOU MAKE TO HELP BOOST THE FUND'S RETURNS?
A. We rebalance these funds quarterly, taking some profits off the table and
reinvesting in funds that temporarily have fallen behind due to financial
market shifts. This re-balancing helps to keep the funds in line with
investors' expectations and risk profiles and should boost long-term returns.
Q. WHAT IS YOUR OUTLOOK FOR THE FINANCIAL MARKETS GOING FORWARD? HOW WILL YOU
MANAGE THE FUND WITH THAT IN MIND?
A. A select few, highly valued growth companies may continue to dominate the
market, or the market's gains may broaden out to include other sectors.
Either way, we believe that fundamental analysis of companies will help
separate the winners from the losers. We anticipate that interest rates will
move lower during the second half of the year. We believe this should result
in the Fund's underlying fixed-income funds performing well.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and net
asset value will fluctuate, so that an investor's shares, when redeemed, may be
worth more or less than the original cost.
(1)The total return for the six-month period ended December 31, 1999, with the
maximum sales load of 4.50% was 1.50%. The total return set forth may reflect
the waiver of a portion of the Fund's advisory or administrative fees for
certain periods since the inception date. In such instances, and without
waiver of fees, total return would have been lower.
*The Fund's portfolio composition is subject to change.
- --------------------------------------------------------------------------------
-11-
<PAGE> 13
MESSAGE FROM THE SUB-ADVISORS Governor Funds
- --------------------------------------------------------------------------------
GOVERNOR LIFESTYLE GROWTH FUND
Q. HOW DID THE FUND PERFORM DURING THE SIX MONTHS THROUGH DECEMBER 31, 1999?
A. The Governor Lifestyle Growth Fund ended the period with a return of 7.06%
(without sales load).(1)
U.S. large-company stocks--technology companies and telecommunications
companies, in particular--helped deliver that return. The Fund also benefited
from its exposure to international stocks, which was led by a recovery in the
Japanese market and a number of other markets around the world.
Q. WHAT WAS THE FUND'S ALLOCATION DURING THE PERIOD?
A. The breakdown of the Fund's assets as of December 31, 1999, was: 36.1% in the
Governor Established Growth Fund; 17.7% in the Governor International Equity
Fund; 17.1% in the Governor Aggressive Growth Fund; 7.0% in the Governor
Emerging Growth Fund; 11.9% in the Governor Intermediate Term Income Fund;
9.3% in the Governor Limited Duration Government Securities Fund; and the
remainder in cash and cash equivalents.*
Q. HOW DID THE STOCK MARKET ENVIRONMENT AFFECT THE FUND'S PERFORMANCE?
A. Some of the stocks traded on the New York Stock Exchange posted negative
returns in 1999. Gains were concentrated in a few sectors of the market--in
particular, technology and communications services companies. The Governor
equity funds had good exposure to sectors that performed exceptionally well
late in 1999.
Q. WHAT WAS YOUR STRATEGY IN THAT ENVIRONMENT?
A. We base the Fund's allocations on long-term capital market trends rather than
short-term changes. We do not believe that market timing works over extended
periods of time. Moreover, a strategic long-term approach may limit
investors' capital gains taxes and reduce turnover and related transaction
costs within the funds.
During the recent period, the Fund's allocations reflected our belief that
inflation will remain low and corporate productivity will continue to rise.
Those are favorable conditions for growth companies and their stocks.
Q. WHAT OTHER MOVES DID YOU MAKE TO HELP BOOST THE FUND'S RETURNS?
A. We rebalance the Fund on a quarterly basis, taking some profits off the table
and reinvesting those profits in funds that temporarily have lost ground
relative to the other funds in the portfolio. This re-balancing helps to keep
the Fund in line with investors' expectations and risk profiles and should
boost returns over the long haul.
Q. WHAT IS YOUR OUTLOOK FOR THE STOCK MARKET GOING FORWARD? HOW WILL YOU MANAGE
THE FUND WITH THAT IN MIND?
A. A select few, highly valued growth companies might continue to lead the
charge, or market gains could broaden to include other sectors as well.
Either way, we believe fundamental analysis of companies will help separate
the winners from the losers.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and net
asset value will fluctuate, so that an investor's shares, when redeemed, may be
worth more or less than the original cost.
(1)The total return for the six-month period ended December 31, 1999, with the
maximum sales load of 4.50% was 2.22%. The total return set forth may reflect
the waiver of a portion of the Fund's advisory or administrative fees for
certain periods since the inception date. In such instances, and without
waiver of fees, total return would have been lower.
*The Fund's portfolio composition is subject to change.
- --------------------------------------------------------------------------------
-12-
<PAGE> 14
MESSAGE FROM THE SUB-ADVISORS Governor Funds
- --------------------------------------------------------------------------------
GOVERNOR U.S. TREASURY OBLIGATIONS MONEY MARKET FUND(+)
Q. HOW DID THE FUND PERFORM DURING THE SIX-MONTH PERIOD ENDED DECEMBER 31, 1999?
A. The Fund's 7-day and 7-day effective yields were 4.07% and 4.15%,(1)
respectively, as of December 31, 1999. The Fund's total return for the period
was 2.19%, compared to 2.22% for the Lipper U.S. Treasury Money Market Fund
Index.(2)
Q. WHAT WERE THE CONDITIONS IN THE MONEY MARKETS DURING THE PERIOD?
A. The Fed raised short-term interest rates once just before the period began
and twice during the period. Those rate hikes are meant to reduce the
possibility that the strong economy would lead to inflation. Toward the end
of the period, however, the Fed set up mechanisms to provide additional
liquidity to the financial markets in case of problems stemming from the Y2K
computer bug.
Investors anticipated the Fed's rate hikes and, thus, sold Treasury
securities during much of the period. That selling pushed yields steadily
higher until the last two weeks of December. At that point the market was
flooded by the additional cash the Fed had provided in case of Y2K problems,
and yields fell sharply.
Q. HOW DID YOU MANAGE THE FUND IN THAT ENVIRONMENT?
A. For the most part, we kept the Fund's average maturity shorter than that of
its benchmark. This has made it possible for us to take advantage of
attractive opportunities as they arise. We extended the Fund's average
maturity in June to take advantage of just such an opportunity in securities
that matured in March of 2000. Buying those issues pushed the Fund's average
maturity out to 78 days at the end of June--uncharacteristically long for
this Fund. We subsequently allowed the average maturity to shorten. The Fund
began the period at 78 days and ended the period with an average maturity of
28 days.*
Q. WHAT IS YOUR OUTLOOK FOR THE ECONOMY AND FOR MONEY MARKETS?
A. We anticipate the economy to remain strong through at least the first quarter
of 2000. There are some potential threats to the economy's growth rate. For
example, we believe that there currently is too much credit available, which
we believe could lead to bad loans in a slowdown, making it worse. In
addition, in our opinion, U.S. inflation to this point has been largely held
in check by deflation in overseas economies. Now that those economies appear
to be recovering, inflationary pressures may increase on the domestic
economy. For these reasons, we look ahead to additional rate increases by the
Fed during the coming year.
Q. HOW WILL YOU MANAGE THE FUND IN THAT ENVIRONMENT?
A. We will closely monitor economic developments to see if inflation threatens
the U.S. economy. The Fund will continue to look for opportunities to lock in
additional yield for shareholders. The Fund will attempt to maintain a
relatively short average maturity to ensure that cash will be available to
invest when we find such opportunities.
(+)Shares of the Fund are not insured, or guaranteed by the FDIC or any other
government agency and are not bank deposits or obligations of, or guaranteed
by, Keystone Bank, its parent company or its affiliates. There is no
assurance that the Fund will be able to maintain a stable net asset value of
$1.00 per share. Although the Fund seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in
the Fund.
(1)The 7-Day yield quoted is as of 12/31/99 and reflects fee waivers. Had fees
not been waived, performance would be reduced. The yield quotation more
closely reflects the current earnings of the Fund than does the total return
quotation. Total return figures include reinvestment of dividends and capital
gains. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return
will fluctuate.
(2)The Lipper U.S. Government Money Market Fund Index is a managed index of
funds that seek to invest principally in U.S. Treasury obligations and that
maintain dollar-weighted average maturities of less than 90 days. Investors
cannot invest directly in an index, although they can invest the underlying
securities.
- --------------------------------------------------------------------------------
-13-
<PAGE> 15
MESSAGE FROM THE SUB-ADVISORS Governor Funds
- --------------------------------------------------------------------------------
GOVERNOR PRIME MONEY MARKET FUND(+)
Q. HOW DID THE FUND PERFORM DURING THE SIX-MONTH PERIOD ENDED DECEMBER 31, 1999?
A. The Fund's 7-day and 7-day effective yields as of December 31, 1999, were
5.28% and 5.42% (Investor shares),(1) respectively. The Fund posted a 2.56%
return during the period, compared to the Lipper Money Market Fund Index's
return of 2.46%.(2)
Q. WHAT WERE THE CONDITIONS IN THE MONEY MARKETS DURING THE PERIOD?
A. The Fed raised short-term interest rates twice during the period, after
having raised rates near the end of the previous six-month period. The Fed
was concerned that strong economic growth might lead to inflation, and thus
moved to restrict the monetary supply.
Fears about potential problems resulting from the Y2K computer bug also
affected the money markets during the period. Companies issued less debt as
the new year approached, out of fears that Y2K might disrupt financial
systems. In response, the Fed set up mechanisms to provide reserve liquidity
to the markets in case of Y2K problems.
Rates rose throughout the period, especially on short-term debt. Yields rose
steadily during the summer and then rose faster following the Fed's September
rate hike. During the last two weeks of the period, however, rates dropped
significantly as the market was flooded by cash supplied by the Fed in case
of Y2K problems.
Q. HOW DID YOU MANAGE THE FUND IN THAT ENVIRONMENT?
A. We kept the average maturity of the Fund relatively short during the period.
That strategy allowed us to frequently reinvest the Fund's assets to take
advantage of rising interest rates. We allowed the Fund's maturity to shorten
considerably in September, because the yields available on longer-term issues
in money markets did not present a material advantage over the yield on
shorter issues. The Fund began the period with an average maturity of 26 days
and finished the period with an average maturity of 28 days.
We also were able to anticipate and benefit from a rise in the three-month
London Inter-bank Offer Rate(3) (LIBOR), on which many short-term issues are
based. We correctly predicted that the three-month LIBOR would climb after
the beginning of October, as its maturity rolled into the year 2000 and
companies had to offer higher yields to attract investors. The Fund's short
average maturity allowed us in early October to take advantage of this
phenomenon by buying high-grade commercial paper with significantly higher
yields.
During the final weeks of the period, we experienced large cash inflows,
which coincided with a drop in interest rates. The convergence of those two
events hurt the Fund because we had to invest the new cash at relatively low
yields.
Q. IN WHICH SECTORS OF THE MONEY MARKETS DID YOU FIND OPPORTUNITIES DURING THE
PERIOD?
A. We found the best opportunities in high-grade commercial paper and
variable-rate securities, which were attractive in the rising-rate
environment. Commercial paper offered more attractive yields than Treasury
and agency issues. As always, we bought only the highest-quality commercial
paper.
Q. WHAT IS YOUR OUTLOOK FOR THE ECONOMY AND THE MONEY MARKETS?
A. We anticipate the economy to remain strong into the year 2000. We believe,
however, that there is too much credit available, and that the Fed will raise
interest rates again to counter that problem.
As the year progresses, we will keep a close watch on inflationary pressures.
Relatively weak foreign economies have helped keep U.S. inflation low--but
some of those economies are rebounding now. In our opinion, if that trend
continues, the resulting increase in demand for resources could lead to
global inflation.
Q. HOW WILL YOU MANAGE THE FUND IN THAT ENVIRONMENT?
A. We will attempt to continue to maintain a relatively short average maturity,
which allows us to invest in attractive opportunities as they occur.
(+)Shares of the Fund are not insured or guaranteed by the FDIC or any other
government agency and are not bank deposits or obligations of, or guaranteed
by, Keystone Bank, its parent company or its affiliates. There is no
assurance that the Fund will be able to maintain a stable net asset value of
$1.00 per share. Although the Fund seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in
the Fund.
(1)The 7-Day yield quoted is as of 12/31/99 and reflects fee waivers. Had fees
not been waived, performance would be reduced. The yield quotation more
closely reflects the current earnings of the Fund than does the total return
quotation. Total return figures include reinvestment of dividends and capital
gains. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return
will fluctuate.
(2)The Lipper Money Market Fund Index is a managed index of funds that seek to
invest in high-quality financial instruments rated in the top two grades and
that maintain dollar-weighted average maturities of less than 90 days.
Investors cannot invest directly in an index, although they can invest in the
underlying securities.
(3)London Inter-bank Offer Rate (LIBOR) is the interest rate offered by a
specific group of London banks for U.S. dollar deposits of a stated maturity.
LIBOR is used as a base index for setting rates of some adjustable-rate
financial instruments, including Adjustable Rate Mortgages.
-14-
<PAGE> 16
TABLE OF CONTENTS
Statements of Assets and Liabilities
PAGE 16
Statements of Operations
PAGE 19
Statements of Changes in Net Assets
PAGE 22
Schedules of Portfolio Investments
PAGE 28
Notes to Financial Statements
PAGE 52
Financial Highlights
PAGE 61
-15-
<PAGE> 17
GOVERNOR FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
ESTABLISHED AGGRESSIVE EMERGING INTERNATIONAL
GROWTH GROWTH GROWTH EQUITY
FUND FUND FUND FUND
------------ ------------ ---------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value (cost $138,652,245;
$91,437,961; $8,885,914; $38,249,252,
respectively)............................ $271,204,503 $133,097,189 $9,767,828 $46,590,485
Repurchase agreements, at value (cost $--;
$5,000,000; $--; $--; respectively)...... -- 5,000,000 -- --
Foreign currency, at value (cost $--; $--;
$--; $160,940, respectively)............. -- -- -- 161,358
Interest and dividends receivable.......... 140,407 135,384 12,583 24,675
Receivable for investments sold............ 1,024,091 624,354 -- --
Receivable for capital shares issued....... 2,068 -- -- --
Unamortized organization costs............. 12,739 1,919 -- --
Foreign tax reclaims receivable............ -- -- -- 58,994
Prepaid expenses and other assets.......... 4,079 3,259 775 1,563
------------ ------------ ---------- -----------
Total Assets........................... 272,387,887 138,862,105 9,781,186 46,837,075
------------ ------------ ---------- -----------
LIABILITIES:
Dividends payable.......................... 59,051 -- -- 535,161
Payable for investment purchased........... 871,850 156,375 -- --
Payable for capital shares redeemed........ 126,424 85,926 -- --
Net payable for variation margin on futures
contracts................................ -- -- -- 664,735
Accrued expenses and other liabilities:
Investment advisory fees payable......... 175,110 102,169 5,265 19,046
Administration fees payable.............. 3,407 1,721 120 571
Administrative services fees payable..... 33,837 16,810 -- --
Other liabilities........................ 6,653 18,542 4,164 23,032
------------ ------------ ---------- -----------
Total Liabilities...................... 1,276,332 381,543 9,549 1,242,545
------------ ------------ ---------- -----------
NET ASSETS:
Capital.................................... 127,084,501 93,149,685 8,579,615 37,489,057
Accumulated undistributed (distributions in
excess of) net investment income......... (537) (109,356) (39,856) (41,327)
Accumulated undistributed net realized
gains on investments..................... 11,475,333 3,781,005 349,964 472,495
Net unrealized appreciation from
investments and translation of assets and
liabilities in foreign currencies........ 132,552,258 41,659,228 881,913 7,674,305
------------ ------------ ---------- -----------
Net Assets............................. $271,111,555 $138,480,562 $9,771,636 $45,594,530
============ ============ ========== ===========
Outstanding units of beneficial interest
(shares)............................... 19,631,382 12,743,961 858,167 3,736,223
============ ============ ========== ===========
Net asset value -- redemption price per
share.................................. $ 13.81 $ 10.87 $ 11.39 $ 12.20
============ ============ ========== ===========
Maximum Sales Charge..................... 5.50% 5.50% 5.50% 5.50%
============ ============ ========== ===========
Maximum Offering Price (100%/(100%-
Maximum Sales Charge) of net asset
value adjusted to nearest cent) per
share.................................. $ 14.61 $ 11.50 $ 12.05 $ 12.91
============ ============ ========== ===========
</TABLE>
See notes to financial statements.
-16-
<PAGE> 18
GOVERNOR FUNDS
STATEMENTS OF ASSETS AND LIABILITIES, CONTINUED
DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
LIMITED DURATION PENNSYLVANIA LIFESTYLE
INTERMEDIATE GOVERNMENT MUNICIPAL CONSERVATIVE
TERM INCOME SECURITIES BOND GROWTH
FUND FUND FUND FUND
------------ ---------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value (cost $284,674,572;
$42,334,959; $74,726,981; $--,
respectively).......................... $275,914,156 $42,060,935 $73,610,392 $ --
Investments in affiliates, at value (cost
$--; $--; $--; $247,447,
respectively).......................... -- -- -- 242,889
Repurchase agreements, at value (cost
$--; $9,717,000; $--; $--,
respectively).......................... -- 9,717,000 -- --
------------ ----------- ----------- --------
Total Investments.................... 275,914,156 51,777,935 73,610,392 242,889
Cash..................................... -- 341 -- --
Interest and dividends receivable........ 3,103,045 587,966 992,534 992
Receivable for capital shares issued..... 99,182 -- -- --
Unamortized organization costs........... 18,399 4,319 8,801 --
Prepaid expenses and other assets........ 4,696 1,904 1,079 --
------------ ----------- ----------- --------
Total Assets......................... 279,139,478 52,372,465 74,612,806 243,881
------------ ----------- ----------- --------
LIABILITIES:
Dividends payable........................ 1,653,347 249,843 403,935 2,463
Accrued expenses and other liabilities:
Investment advisory fees payable....... 98,383 17,154 33,448 39
Administration fees payable............ 3,680 658 1,160 --
Administrative services fees payable... 12,416 -- 4,203 --
12b-1 fees payable..................... -- -- -- 7
Other liabilities...................... 23,866 23,939 18,888 911
------------ ----------- ----------- --------
Total Liabilities.................... 1,791,692 291,594 461,634 3,420
------------ ----------- ----------- --------
NET ASSETS:
Capital.................................. 300,129,769 53,623,184 79,088,138 232,838
Accumulated undistributed (distributions
in excess of) net investment income.... 13,050 5,681 (2,187) --
Accumulated undistributed net realized
gains/(losses) on investments.......... (14,034,617) (773,970) (3,818,190) 12,181
Net unrealized depreciation of
investments............................ (8,760,416) (774,024) (1,116,589) (4,558)
------------ ----------- ----------- --------
Net Assets........................... $277,347,786 $52,080,871 $74,151,172 $240,461
============ =========== =========== ========
Outstanding units of beneficial
interest (shares).................... 30,071,248 5,369,390 7,644,774 23,123
============ =========== =========== ========
Net asset value -- redemption price per
share................................ $ 9.22 $ 9.70 $ 9.70 $ 10.40
============ =========== =========== ========
Maximum Sales Charge................... 4.50% 3.00% 4.50% 4.50%
============ =========== =========== ========
Maximum Offering Price (100%/(100%-
Maximum Sales Charge) of net asset
value adjusted to nearest cent) per
share................................ $ 9.65 $ 10.00 $ 10.16 $ 10.89
============ =========== =========== ========
</TABLE>
See notes to financial statements.
-17-
<PAGE> 19
GOVERNOR FUNDS
STATEMENTS OF ASSETS AND LIABILITIES, CONTINUED
DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
U.S. TREASURY
LIFESTYLE OBLIGATIONS
MODERATE LIFESTYLE MONEY PRIME
GROWTH GROWTH MARKET MONEY MARKET
FUND FUND FUND FUND
--------- --------- ------------- ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value (cost $--; $--; $11,094,414;
$250,701,771, respectively)............................ $ -- $ -- $11,094,414 $250,701,771
Investments in affiliates, at value (cost $887,506;
$656,512; $--; $--, respectively)...................... 876,167 662,235 -- --
Repurchase agreements, at value (cost $--; $--;
$9,306,000; $72,099,000, respectively)................. -- -- 9,306,000 72,099,000
-------- -------- ----------- ------------
Total Investments.................................... 876,167 662,235 20,400,414 322,800,771
Interest and dividends receivable........................ 3,198 2,214 193,569 765,707
Receivable for capital shares issued..................... 573 350 -- 80,314
Unamortized organization costs........................... -- -- 4,348 9,094
Prepaid expenses and other assets........................ -- -- 1,662 5,942
-------- -------- ----------- ------------
Total Assets......................................... 879,938 664,799 20,599,993 323,661,828
-------- -------- ----------- ------------
LIABILITIES:
Dividends payable........................................ 8,221 6,753 74,251 1,348,077
Payable for capital shares redeemed...................... -- -- -- 26
Accrued expenses and other liabilities:
Investment advisory fees payable....................... 128 93 3,953 63,883
Administration fees payable............................ -- -- 49 3,458
Administrative services fees payable................... -- -- 149 14,003
12b-1 fees payable..................................... 36 27 -- --
Other liabilities...................................... 2,669 1,725 24,726 52,947
-------- -------- ----------- ------------
Total Liabilities.................................... 11,054 8,598 103,128 1,482,394
-------- -------- ----------- ------------
NET ASSETS:
Capital.................................................. 819,113 609,461 20,495,743 322,176,843
Accumulated undistributed (distributions in excess of)
net investment income.................................. (1) -- 1,890 3,531
Accumulated undistributed net realized gains/(losses) on
investments............................................ 61,110 41,017 (619) (940)
Net unrealized appreciation of investments............... (11,338) 5,723 -- --
-------- -------- ----------- ------------
Net Assets............................................. $868,884 $656,201 $20,497,014 $322,179,434
======== ======== =========== ============
Net Assets............................................... 868,884 656,201 20,497,014 --
Investor Shares........................................ -- -- -- 318,274,999
S Shares............................................... -- -- -- 3,904,435
-------- -------- ----------- ------------
Total Net Assets..................................... 868,884 656,201 20,497,014 322,179,434
======== ======== =========== ============
Outstanding units of beneficial interest (shares)........ 78,518 57,629 20,497,633
Investor Shares........................................ -- -- -- 318,275,398
S Shares............................................... -- -- -- 3,904,435
-------- -------- ----------- ------------
Total Shares......................................... 78,518 57,629 20,497,633 322,179,833
======== ======== =========== ============
Net asset value
Net asset value -- redemption price per share.......... $ 11.07 $ 11.39 $ 1.00 --
======== ======== ===========
Offering and redemption price per share -- Investor
Shares............................................... $ 1.00
============
Offering and redemption price per share -- S Shares.... $ 1.00
============
Maximum Sales Charge................................... 4.50% 4.50% -- --
======== ======== =========== ============
Maximum Offering Price (100%/(100%-Maximum Sales
Charge) of net asset value adjusted to nearest cent)
per share............................................ $ 11.59 $ 11.93 $ 1.00(a) $ 1.00(a)
======== ======== =========== ============
</TABLE>
- ---------------
(a) Maximum offering price and redemption price are the same for the U.S.
Treasury Obligations Money Market Fund and the Prime Money Market Fund.
See notes to financial statements.
-18-
<PAGE> 20
GOVERNOR FUNDS
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
ESTABLISHED AGGRESSIVE EMERGING INTERNATIONAL
GROWTH GROWTH GROWTH EQUITY
FUND FUND FUND FUND
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income........................... $ 51 $ 55,084 $ 2,487 $ 9,032
Dividend income........................... 1,349,942 523,067 42,824 190,066
----------- ----------- ----------- ----------
Total Investment Income................ 1,349,993 578,151 45,311 199,098
----------- ----------- ----------- ----------
EXPENSES:
Investment advisory fees.................. 949,370 653,864 60,509 259,277
Administration fees....................... 189,875 98,080 7,261 31,113
Administrative services fees.............. 139,367 74,802 -- --
Accounting fees........................... 39,900 21,902 17,097 39,357
Legal & audit fees........................ 32,047 15,904 5,769 8,062
Transfer agent fees....................... 37,197 26,862 19,982 11,815
Other expenses............................ 16,766 13,303 12,549 17,938
----------- ----------- ----------- ----------
Total Expenses before voluntary fee
reductions............................. 1,404,522 904,717 123,167 367,562
Less: Expenses voluntarily reduced..... (234,179) (219,044) (38,000) (183,568)
----------- ----------- ----------- ----------
Net Expenses.............................. 1,170,343 685,673 85,167 183,994
----------- ----------- ----------- ----------
Net Investment Income/(Loss).............. 179,650 (107,522) (39,856) 15,104
----------- ----------- ----------- ----------
REALIZED/UNREALIZED GAINS/(LOSSES) ON
INVESTMENTS:
Net realized gains on investment
transactions........................... 41,969,715 14,170,604 393,288 988,499
Net change in unrealized appreciation/
(depreciation) of investments and
translation of assets and liabilities
in foreign currencies.................. (15,997,359) (5,455,090) (361,695) 6,039,884
----------- ----------- ----------- ----------
Net realized/unrealized gains/(losses) on
investments............................ 25,972,356 8,715,514 31,593 7,028,383
----------- ----------- ----------- ----------
Change in net assets resulting from
operations............................. $26,152,006 $ 8,607,992 $ (8,263) $7,043,487
=========== =========== =========== ==========
</TABLE>
See notes to financial statements.
-19-
<PAGE> 21
GOVERNOR FUNDS
STATEMENTS OF OPERATIONS, CONTINUED
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
LIMITED DURATION PENNSYLVANIA LIFESTYLE
INTERMEDIATE GOVERNMENT MUNICIPAL CONSERVATIVE
TERM INCOME SECURITIES BOND GROWTH
FUND FUND FUND FUND
------------ ---------------- ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income......................... $ 9,933,179 $1,632,439 $ 2,637,019 $ --
Dividend income......................... 273,703 2,331 70,413 5,111
----------- ---------- ----------- ----------
Total Investment Income.............. 10,206,882 1,634,770 2,707,432 5,111
----------- ---------- ----------- ----------
EXPENSES:
Investment advisory fees................ 915,949 158,412 326,570 251
Administration fees..................... 228,989 39,603 81,643 --
Administrative services fees............ 48,699 -- 17,635 --
12b-1 fees.............................. -- -- -- 502
Accounting fees......................... 49,587 17,661 19,948 --
Legal & audit fees...................... 31,454 4,969 14,436 --
Transfer agent fees..................... 14,945 12,143 13,174 536
Other expenses.......................... 49,428 15,573 21,443 117
----------- ---------- ----------- ----------
Total Expenses before voluntary fee
reductions........................... 1,339,051 248,361 494,849 1,406
Less: Expenses voluntarily reduced... (511,405) (88,447) (182,335) (100)
----------- ---------- ----------- ----------
Net Expenses............................ 827,646 159,914 312,514 1,306
----------- ---------- ----------- ----------
Net Investment Income................... 9,379,236 1,474,856 2,394,918 3,805
----------- ---------- ----------- ----------
REALIZED/UNREALIZED GAINS/(LOSSES) ON
INVESTMENTS:
Net realized gains/(losses) on
investment transactions.............. (7,724,420) (150,266) (3,818,190) 12,258
Net change in unrealized appreciation/
(depreciation) of investments........ (884,018) (545,844) 335,243 (5,807)
----------- ---------- ----------- ----------
Net realized/unrealized gains/(losses)
on investments....................... (8,608,438) (696,110) (3,482,947) 6,451
----------- ---------- ----------- ----------
Change in net assets resulting from
operations........................... $ 770,798 $ 778,746 $(1,088,029) $ 10,256
=========== ========== =========== ==========
</TABLE>
See notes to financial statements.
-20-
<PAGE> 22
GOVERNOR FUNDS
STATEMENTS OF OPERATIONS, CONTINUED
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
LIFESTYLE U.S. TREASURY
MODERATE LIFESTYLE OBLIGATIONS PRIME
GROWTH GROWTH MONEY MARKET MONEY MARKET
FUND FUND FUND FUND
----------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income.......................... $ -- $ -- $ 480,100 $7,794,975
Dividend income.......................... 14,730 9,736 5,288 8,364
----------- ---------- ----------- ----------
Total Investment Income............... 14,730 9,736 485,388 7,803,339
----------- ---------- ----------- ----------
EXPENSES:
Investment advisory fees................. 763 462 38,717 568,805
Administration fees...................... -- -- 14,519 213,303
Administrative services fees............. -- -- 1,936 74,936
12b-1 fees............................... 1,526 923 -- --
Accounting fees.......................... -- -- 16,619 46,914
Legal & audit fees....................... -- -- 5,163 26,236
Transfer agent fees...................... 1,598 939 12,389 43,471
Other expenses........................... 418 302 1,777 5,548
----------- ---------- ----------- ----------
Total Expenses before voluntary fee
reductions............................ 4,305 2,626 91,120 979,213
Less: Expenses voluntarily reduced.... (305) (184) (22,746) (334,174)
----------- ---------- ----------- ----------
Net Expenses............................. 4,000 2,442 68,374 645,039
----------- ---------- ----------- ----------
Net Investment Income.................... 10,730 7,294 417,014 7,158,300
----------- ---------- ----------- ----------
REALIZED/UNREALIZED GAINS/(LOSSES) ON
INVESTMENTS:
Net realized gains on investment
transactions.......................... 61,293 41,117 -- --
Net change in unrealized depreciation of
investments........................... (19,800) (4,956) -- --
----------- ---------- ----------- ----------
Net realized/unrealized gains on
investments........................... 41,493 36,161 -- --
----------- ---------- ----------- ----------
Change in net assets resulting from
operations............................ $ 52,223 $ 43,455 $ 417,014 $7,158,300
=========== ========== =========== ==========
</TABLE>
See notes to financial statements.
-21-
<PAGE> 23
GOVERNOR FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
ESTABLISHED AGGRESSIVE
GROWTH FUND GROWTH FUND
--------------------------- ---------------------------
FOR THE FOR THE
SIX MONTHS SIX MONTHS
ENDED FOR THE ENDED FOR THE
DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED
1999 JUNE 30, 1999 JUNE 30,
(UNAUDITED) 1999 (UNAUDITED) 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income/(loss)......... $ 179,650 $ 1,034,161 $ (107,522) $ (58,101)
Net realized gains on investment
transactions...................... 41,969,715 24,578,381 14,170,604 10,181,975
Net change in unrealized
appreciation/ (depreciation) of
investments....................... (15,997,359) 12,590,276 (5,455,090) 1,881,793
------------ ------------ ------------ ------------
Net increase in net assets resulting
from operations................... 26,152,006 38,202,818 8,607,992 12,005,667
------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income........... (182,697) (1,032,871) -- --
In excess of net investment income... -- -- -- (105,843)
From net realized gains on
investments....................... (54,637,729) (6,183,277) (18,983,848) (4,572,481)
------------ ------------ ------------ ------------
Change in net assets from shareholder
distributions..................... (54,820,426) (7,216,148) (18,983,848) (4,678,324)
------------ ------------ ------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued.......... 24,719,910 29,313,640 32,970,508 26,556,930
Dividends reinvested................. 53,892,601 1,760,051 18,728,504 1,516,422
Cost of shares redeemed.............. (39,269,606) (60,435,568) (42,354,203) (31,500,681)
------------ ------------ ------------ ------------
CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS......................... 39,342,905 (29,361,877) 9,344,809 (3,427,329)
------------ ------------ ------------ ------------
CHANGE IN NET ASSETS................... 10,674,485 1,624,793 (1,031,047) 3,900,014
NET ASSETS:
Beginning of period.................. 260,437,070 258,812,277 139,511,609 135,611,595
------------ ------------ ------------ ------------
End of period........................ $271,111,555 $260,437,070 $138,480,562 $139,511,609
============ ============ ============ ============
SHARE TRANSACTIONS:
Issued............................... 1,749,196 2,116,552 3,014,060 2,621,388
Reinvested........................... 4,241,724 127,638 1,936,764 147,909
Redeemed............................. (2,763,961) (4,248,252) (3,816,570) (3,042,992)
------------ ------------ ------------ ------------
Change in shares....................... 3,226,959 (2,004,062) 1,134,254 (273,695)
============ ============ ============ ============
</TABLE>
See notes to financial statements.
-22-
<PAGE> 24
GOVERNOR FUNDS
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL
GROWTH FUND EQUITY FUND
--------------------------- ---------------------------
FOR THE FOR THE
SIX MONTHS SIX MONTHS
ENDED FOR THE ENDED FOR THE
DECEMBER 31, PERIOD ENDED DECEMBER 31, PERIOD ENDED
1999 JUNE 30, 1999 JUNE 30,
(UNAUDITED) 1999* (UNAUDITED) 1999*
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income/(loss)......... $ (39,856) $ (1,899) $ 15,104 $ 405,453
Net realized gains on investment
transactions...................... 393,288 484,120 988,499 68,534
Net change in unrealized
appreciation/(depreciation) of
investments and translation of
assets and liabilities in foreign
currencies........................ (361,695) 1,243,609 7,043,487 1,634,421
------------ ------------ ------------ ------------
Net increase/(decrease) in net assets
resulting from operations......... (8,263) 1,725,830 8,047,090 2,108,408
------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income........... -- (46,465) -- --
In excess of net investment income... -- -- (511,261) --
From net realized gains on
investments....................... (456,341) (22,739) (1,046,422) --
------------ ------------ ------------ ------------
Change in net assets from shareholder
distributions..................... (456,341) (69,204) (1,557,683) --
------------ ------------ ------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued.......... 485,120 8,975,061 3,742,939 40,525,924
Dividends reinvested................. 391,298 14,626 177,070 --
Cost of shares redeemed.............. (566,793) (719,697) (3,828,124) (3,128,752)
------------ ------------ ------------ ------------
CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS......................... 309,625 8,269,990 (3,559,169) 37,397,172
------------ ------------ ------------ ------------
CHANGE IN NET ASSETS................... (154,979) 9,926,616 2,930,238 39,505,580
NET ASSETS:
Beginning of period.................. 9,926,616 -- 39,505,580 --
------------ ------------ ------------ ------------
End of period........................ $ 9,771,637 $ 9,926,616 $ 42,435,818 $ 39,505,580
============ ============ ============ ============
SHARE TRANSACTIONS:
Issued............................... 43,263 896,222 338,225 4,030,322
Reinvested........................... 36,400 1,360 15,895 --
Redeemed............................. (49,992) (69,086) (347,161) (301,058)
------------ ------------ ------------ ------------
Change in shares....................... 29,671 828,496 6,959 3,729,264
============ ============ ============ ============
</TABLE>
- ---------------
* Commencement of operations of the Emerging Growth Fund and the International
Equity Fund was July 1, 1998 and February 9, 1999, respectively.
See notes to financial statements.
-23-
<PAGE> 25
GOVERNOR FUNDS
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
LIMITED DURATION
INTERMEDIATE TERM GOVERNMENT
INCOME FUND SECURITIES FUND
--------------------------- ---------------------------
FOR THE FOR THE
SIX MONTHS SIX MONTHS
ENDED FOR THE ENDED FOR THE
DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED
1999 JUNE 30, 1999 JUNE 30,
(UNAUDITED) 1999 (UNAUDITED) 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income................ $ 9,379,236 $ 17,720,374 $ 1,474,856 $ 2,291,433
Net realized losses on investment
transactions...................... (7,724,420) (3,585,583) (150,266) (623,703)
Net change in unrealized depreciation
of investments.................... (884,018) (12,283,842) (545,844) (150,654)
------------ ------------ ------------ ------------
Net increase in net assets resulting
from operations................... 770,798 1,850,949 778,746 1,517,076
------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income........... (9,373,786) (17,714,534) (1,469,102) (2,296,318)
From net realized gains on
investments....................... -- (3,274,801) -- (13,860)
------------ ------------ ------------ ------------
Change in net assets from shareholder
distributions..................... (9,373,786) (20,989,335) (1,469,102) (2,310,178)
------------ ------------ ------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued.......... 28,141,736 88,095,203 8,237,053 37,267,026
Dividends reinvested................. 2,638,635 2,942,950 173,002 149,304
Cost of shares redeemed.............. (50,810,122) (41,483,981) (7,679,675) (13,942,370)
------------ ------------ ------------ ------------
CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS......................... (20,029,751) 49,554,172 730,380 23,473,960
------------ ------------ ------------ ------------
CHANGE IN NET ASSETS................... (28,632,739) 30,415,786 40,024 22,680,858
NET ASSETS:
Beginning of period.................. 305,980,525 275,564,739 52,040,847 29,359,989
------------ ------------ ------------ ------------
End of period........................ $277,347,786 $305,980,525 $ 52,080,871 $ 52,040,847
============ ============ ============ ============
SHARE TRANSACTIONS:
Issued............................... 2,997,819 8,809,597 841,120 3,734,444
Reinvested........................... 280,846 296,108 17,684 15,031
Redeemed............................. (5,435,367) (4,165,244) (784,661) (1,400,696)
------------ ------------ ------------ ------------
Change in shares....................... (2,156,702) 4,940,461 74,143 2,348,779
============ ============ ============ ============
</TABLE>
See notes to financial statements.
-24-
<PAGE> 26
GOVERNOR FUNDS
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
LIFESTYLE
PENNSYLVANIA MUNICIPAL CONSERVATIVE
BOND FUND GROWTH FUND
--------------------------- ---------------------------
FOR THE FOR THE
SIX MONTHS SIX MONTHS
ENDED FOR THE ENDED FOR THE
DECEMBER 31, YEAR ENDED DECEMBER 31, PERIOD ENDED
1999 JUNE 30, 1999 JUNE 30,
(UNAUDITED) 1999 (UNAUDITED) 1999*
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income................ $ 2,394,918 $ 5,125,738 $ 12,258 $ 619
Net realized gains/(losses) on
investment transactions........... (3,818,190) 472,648 (5,807) 6
Net change in unrealized
appreciation/(depreciation) of
investments....................... 335,243 (3,417,082) 10,256 1,249
------------ ------------ ------------ ------------
Net increase/(decrease) in net assets
resulting from operations......... (1,088,029) 2,181,304 16,707 1,874
------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income........... (2,396,993) (5,259,960) -- (610)
From net realized gains/(losses) on
investments....................... (88,712) (735,831) (3,897) --
------------ ------------ ------------ ------------
Change in net assets from shareholder
distributions..................... (2,485,705) (5,995,791) (3,897) (610)
------------ ------------ ------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued.......... 6,466,684 31,772,680 89,860 148,755
Dividends reinvested................. 93,231 117,634 1,799 100
Cost of shares redeemed.............. (40,727,850) (34,868,136) (7,676) --
------------ ------------ ------------ ------------
CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS......................... (34,167,935) (2,977,822) 78,106 148,855
------------ ------------ ------------ ------------
CHANGE IN NET ASSETS................... (37,741,669) (6,792,309) 90,916 150,119
NET ASSETS:
Beginning of period.................. 111,892,841 118,685,150 150,119 --
------------ ------------ ------------ ------------
End of period........................ $ 74,151,172 $111,892,841 $ 241,035 $ 150,119
============ ============ ============ ============
SHARE TRANSACTIONS:
Issued............................... 650,372 3,054,131 8,931 14,773
Reinvested........................... 9,388 11,314 180 10
Redeemed............................. (4,148,780) (3,354,136) (771) --
------------ ------------ ------------ ------------
Change in shares....................... (3,489,020) (288,691) 8,340 14,783
============ ============ ============ ============
</TABLE>
- ---------------
* Commencement of operations of the Lifestyle Conservative Growth Fund was
February 3, 1999.
See notes to financial statements.
-25-
<PAGE> 27
GOVERNOR FUNDS
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
LIFESTYLE LIFESTYLE
MODERATE GROWTH
GROWTH FUND FUND
---------------------------- ----------------------------
FOR THE FOR THE
SIX MONTHS SIX MONTHS
ENDED FOR THE ENDED FOR THE
DECEMBER 31, PERIOD ENDED DECEMBER 31, PERIOD ENDED
1999 JUNE 30, 1999 JUNE 30,
(UNAUDITED) 1999* (UNAUDITED) 1999*
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income................ $ 10,730 $ 739 $ 7,294 $ 32
Net realized gains on investment
transactions...................... 61,293 192 41,117 12
Net change in unrealized
appreciation/(depreciation) of
investments....................... (19,800) 8,462 (4,956) 10,679
------------ ------------ ------------ ------------
Net increase in net assets resulting
from operations................... 52,223 9,393 43,455 10,723
------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income........... (10,781) (689) (7,294) (95)
From net realized gains on
investments....................... (375) -- (100) --
------------ ------------ ------------ ------------
Change in net assets from shareholder
distributions..................... (11,156) (689) (7,394) (95)
------------ ------------ ------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued.......... 565,001 285,686 413,120 207,387
Dividends reinvested................. 3,241 258 635 95
Cost of shares redeemed.............. (25,467) (9,606) (11,427) (298)
------------ ------------ ------------ ------------
CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS......................... 542,775 276,338 402,328 207,184
------------ ------------ ------------ ------------
CHANGE IN NET ASSETS................... 583,842 285,042 438,389 217,812
NET ASSETS:
Beginning of period.................. 285,042 -- 217,812 --
------------ ------------ ------------ ------------
End of period........................ $ 868,884 $ 285,042 $ 656,201 $ 217,812
============ ============ ============ ============
SHARE TRANSACTIONS:
Issued............................... 53,642 27,887 38,393 20,235
Reinvested........................... 313 26 60 9
Redeemed............................. (2,422) (928) (1,039) (29)
------------ ------------ ------------ ------------
Change in shares....................... 51,533 26,985 37,414 20,215
============ ============ ============ ============
</TABLE>
- ---------------
* Commencement of operations of the Lifestyle Moderate Growth Fund and the
Lifestyle Growth Fund was February 4, 1999 and February 18, 1999,
respectively.
See notes to financial statements.
-26-
<PAGE> 28
GOVERNOR FUNDS
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
U.S. TREASURY OBLIGATIONS PRIME MONEY
MONEY MARKET FUND MARKET FUND
--------------------------- ---------------------------
FOR THE FOR THE
SIX MONTHS SIX MONTHS
ENDED FOR THE ENDED FOR THE
DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED
1999 JUNE 30, 1999 JUNE 30,
(UNAUDITED) 1999 (UNAUDITED) 1999*
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income................ $ 417,014 $ 914,884 $ 7,158,300 $ 11,840,184
Net realized losses on investment
transactions...................... -- -- -- (940)
Net change in unrealized depreciation
of investments.................... -- (25) -- --
------------ ------------ ------------ ------------
Net increase/(decrease) in net assets
resulting from operations......... 417,014 914,859 7,158,300 11,839,244
------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income........... (417,014) (914,884) -- --
Investor Shares................... -- -- (7,122,706) (11,837,016)
S Shares.......................... -- -- (35,594) (3,168)
------------ ------------ ------------ ------------
Change in net assets from shareholder
distributions..................... (417,014) (914,884) (7,158,300) (11,840,184)
------------ ------------ ------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued.......... 18,509,607 38,220,231 -- --
Dividends reinvested................. 50,943 215,526 -- --
Cost of shares redeemed.............. (17,638,479) (42,380,450) -- --
------------ ------------ ------------ ------------
CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS......................... 922,071 (3,944,693) 59,933,227 44,386,323
------------ ------------ ------------ ------------
CHANGE IN NET ASSETS**................. 922,071 (3,944,718) 59,933,227 44,385,383
NET ASSETS:
Beginning of period.................. 19,574,943 23,519,661 262,246,207 217,860,824
------------ ------------ ------------ ------------
End of period........................ $ 20,497,014 $ 19,574,943 $322,179,434 $262,246,207
============ ============ ============ ============
SHARE TRANSACTIONS:
Issued............................... 18,509,607 38,220,231 -- --
Reinvested........................... 50,943 215,526 -- --
Redeemed............................. (17,638,479) (42,380,450) -- --
------------ ------------ ------------ ------------
Change in shares**..................... 922,071 (3,944,693) 59,933,227 44,386,323
============ ============ ============ ============
</TABLE>
- ---------------
* Effective April 19, 1999, the Fund designated the existing shares as Investor
Shares and commenced the offering of S Shares.
**Represents combination of Investor Shares and S Shares from Prime Money Market
information.
See notes to financial statements.
-27-
<PAGE> 29
GOVERNOR FUNDS
ESTABLISHED GROWTH FUND
(UNAUDITED)
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- --------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS (98.7%):
Aerospace/Defense--Equipment (3.2%):
18,750 Honeywell International,
Inc......................... $ 1,081,641
110,000 Loral Space & Communications
Ltd. (b).................... 2,674,375
65,000 Textron, Inc.................. 4,984,687
------------
8,740,703
------------
Agriculture (0.9%):
70,000 Monsanto Corp................. 2,493,750
------------
Automotive (1.7%):
58,000 DaimlerChrysler AG............ 4,538,500
------------
Automotive Parts (0.8%):
29,800 Autoliv, Inc.................. 871,650
45,000 Dana Corp..................... 1,347,188
------------
2,218,838
------------
Banks (2.2%):
50,000 First Union Corp.............. 1,640,625
110,000 Wells Fargo Co................ 4,448,125
------------
6,088,750
------------
Beverages (2.1%):
100,000 Coca-Cola Co.................. 5,825,000
------------
Chemicals (1.4%):
60,000 Hercules, Inc................. 1,672,500
50,000 Rohm and Haas Co.............. 2,034,375
------------
3,706,875
------------
Computer Networks (3.7%):
130,000 Sun Microsystems, Inc. (b).... 10,066,875
------------
Computer Software (10.0%):
80,000 America Online, Inc........... 6,034,999
60,000 Automatic Data Processing,
Inc......................... 3,232,500
42,000 Citrix Systems, Inc. (b)...... 5,166,000
80,000 Computer Associates
International, Inc.......... 5,595,000
150,000 Compuware Corp. (b)........... 5,587,500
3,000 Intertrust Technologies
Corp........................ 352,875
10,000 Lycos, Inc. (b)............... 795,625
------------
26,764,499
------------
Computers--Main & Mini (2.8%):
100,000 Compaq Computer Corp.......... 2,706,250
75,000 EMC Corp...................... 8,193,750
45,000 International Business
Machines Corp............... 4,860,000
------------
15,760,000
------------
</TABLE>
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- --------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS (CONTINUED):
Cosmetics/Personal Care (3.2%):
80,000 Procter & Gamble Co........... $ 8,765,000
------------
Diversified/Conglomerate (4.0%):
70,000 General Electric Co........... 10,832,500
------------
Electronic Components (7.4%):
10,000 Analog Devices................ 930,000
20,000 Micron Technology, Inc........ 1,555,000
50,000 Motorola, Inc................. 7,362,500
75,000 Texas Instruments, Inc........ 7,265,625
100,000 Nortel Networks Corp.......... 10,100,000
------------
27,213,125
------------
Electronics (3.0%):
10,000 Solectron Corp. (b)........... 951,250
------------
Financial Services (9.0%):
120,000 Capital One Financial Corp.... 5,782,500
100,000 Fannie Mae.................... 6,243,750
85,000 Morgan Stanley Dean Witter
Discover & Co............... 12,133,749
------------
24,159,999
------------
Food Processing & Packaging (1.0%):
120,000 ConAgra, Inc.................. 2,707,500
------------
Furniture & Furnishings (1.8%):
35,000 Armstrong World Industries,
Inc......................... 1,168,125
110,000 Lancaster Colony Corp......... 3,643,750
------------
4,811,875
------------
Leisure (0.7%):
40,000 Carnival Corp., CL A.......... 1,912,500
------------
Medical--Hospital Management Services
(0.1%):
140,000 Genesis Health Ventures, Inc.
(b)......................... 288,750
------------
Medical Instruments (2.6%):
190,000 Medtronic, Inc................ 6,923,125
------------
Medical--Health Management Organization
(1.2%):
60,000 UnitedHealth Group............ 3,187,500
------------
Mining (0.5%):
30,000 Potash Corp. of Saskatchewan,
Inc......................... 1,445,625
------------
Oil & Gas (4.5%):
140,000 Coastal Corp.................. 4,961,250
90,809 Exxon Mobil Corp.............. 7,315,800
50,000 El Paso Energy Corp........... 1,940,625
------------
14,217,675
------------
</TABLE>
Continued
-28-
<PAGE> 30
GOVERNOR FUNDS
ESTABLISHED GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- --------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS (CONTINUED):
Pharmaceuticals (8.2%):
40,000 Forest Labs, Inc. (b)......... $ 2,457,500
65,000 Johnson & Johnson............. 6,053,124
45,000 Lilly (Eli) & Co.............. 2,992,500
51,000 Merck & Co., Inc.............. 3,420,188
70,000 Schering-Plough Corp.......... 2,953,125
51,000 Warner Lambert Co............. 4,178,813
------------
22,055,250
------------
Restaurants (1.0%):
130,000 Wendy's International, Inc.... 2,681,250
------------
Retail (1.0%):
25,000 Circuit City Stores, Inc...... 1,126,563
50,000 Walgreens Co.................. 1,462,500
------------
2,589,063
------------
Retail--Apparel (2.5%):
150,000 Gap, Inc...................... 6,900,000
------------
Telecommunications (6.2%):
130,000 Sprint Corp. FON Group........ 8,750,625
30,000 Sprint Corp. PCS Group (b).... 3,075,000
100,000 Vodafone Group PLC, ADR....... 4,950,000
------------
16,775,625
------------
Telecommunications-Services and
Equipment (2.2%):
15,000 Allegiance Telecom, Inc.
(b)......................... 1,383,750
55,000 Broadwing, Inc................ 2,028,125
45,000 McLeod USA, Inc. (b).......... 2,649,375
------------
6,061,250
------------
Textile (1.1%):
250,000 Unifi, Inc.................... 3,078,125
------------
</TABLE>
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- --------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS (CONTINUED):
Tools (1.2%):
70,000 Danaher Corp.................. $ 3,377,500
------------
Transportation (0.1%):
15,000 Burlington Northern Santa Fe
Corp........................ 363,750
------------
Utilities--Gas & Pipeline (1.8%):
160,000 Williams Cos., Inc............ 4,890,000
------------
Utilities--Telephone (1.9%):
97,500 MCI Worldcom, Inc............. 5,173,594
------------
Total Common Stocks................. 267,565,621
------------
INVESTMENT COMPANY SECURITIES (1.3%):
16,600 Federated Government
Obligation Fund............. 16,600
2,617,776 Federated Prime Obligation
Fund........................ 2,617,777
1,004,232 Governor Prime Money Market
Fund........................ 1,004,232
2 Governor U.S. Treasury
Obligations Money Market
Fund........................ 2
------------
Total Investment Company
Securities...................... 3,638,611
------------
DAILY SWEEP VEHICLE (0.0%):
271 Bank of New York Cash Sweep... 271
------------
Total Daily Sweep Vehicle........... 271
------------
Total Investments
(Cost $138,652,245)
(a)--100.03%...................... 271,204,503
Liabilities in excess of other
assets--(.03)%........................ (92,948)
------------
TOTAL NET ASSETS--100.0%............ $271,111,555
============
</TABLE>
- ---------
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation......................... $141,283,791
Unrealized depreciation......................... (8,731,533)
------------
Net unrealized appreciation..................... $132,552,258
============
</TABLE>
(b) Represents non-income producing securities.
<TABLE>
<S> <C>
ADR -- American Depository Receipt
AG -- Company (Austria, Germany, Switzerland)
</TABLE>
See notes to financial statements.
-29-
<PAGE> 31
GOVERNOR FUNDS
AGGRESSIVE GROWTH FUND
(UNAUDITED)
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- --------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS (92.2%):
Aerospace/Defense--Equipment (3.0%):
75,000 Cordant Technologies, Inc..... $ 2,475,000
30,000 Northrop Grumman Corp......... 1,621,875
------------
4,096,875
------------
Automotive Parts (3.1%):
110,000 Gentex Corp. (b).............. 3,052,500
100,000 Mascotech, Inc................ 1,268,750
------------
4,321,250
------------
Banks (1.4%):
100,000 Amsouth Bancorporation........ 1,931,250
------------
Capital Goods (1.3%):
20,000 Illinois Tool Works, Inc...... 1,351,250
70,000 Lydall, Inc. (b).............. 463,750
------------
1,815,000
------------
Chemicals (4.7%):
130,000 Airgas, Inc. (b).............. 1,235,000
90,000 Lesco, Inc.................... 1,530,000
100,000 RPM, Inc./Ohio................ 1,018,750
65,000 Valspar Corp.................. 2,721,875
------------
6,505,625
------------
Communication--Equipment (0.2%):
100,000 Transcrypt International, Inc.
(b)......................... 300,000
------------
Computer Networks (3.7%):
210,000 Computer Network Tech Corp.
(b)......................... 4,816,875
30,000 FVC.com, Inc. (b)............. 350,625
------------
5,167,500
------------
Computer Software (14.9%):
95,000 Affiliated Computer Services,
Inc. (b).................... 4,369,999
100,000 Ansys, Inc. (b)............... 1,100,000
50,000 Applied Graphics Technologies,
Inc. (b).................... 431,250
60,000 AXENT Technologies, Inc.
(b)......................... 1,260,000
100,000 Compuware Corp. (b)........... 3,725,000
15,000 Diversinet Corp. (b).......... 330,000
105,000 Drexler Technology Corp.
(b)......................... 1,023,750
50,000 RSA Security, Inc. (b)........ 3,875,000
25,000 Symantec Corp. (b)............ 1,465,625
100,000 Systems & Computer Technology
Corp. (b)................... 1,625,000
35,000 Wind River Systems (b)........ 1,286,250
------------
20,491,874
------------
</TABLE>
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- --------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS (CONTINUED):
Computers (4.0%):
75,000 Computer Horizons Corp. (b)... $ 1,214,063
150,000 Hutchinson Technology, Inc.
(b)......................... 3,187,500
22,500 RadiSys Corp. (b)............. 1,147,500
------------
5,549,063
------------
Educational Services (3.2%):
50,000 DBT Online, Inc. (b).......... 1,218,750
130,000 DeVry, Inc. (b)............... 2,421,250
60,000 Modis Professional Services,
Inc. (b).................... 855,000
------------
4,495,000
------------
Electrical Equipment (4.7%):
90,000 C-Cube Microsystems, Inc.
(b)......................... 5,602,500
70,000 Cirrus Logic, Inc. (b)........ 931,875
------------
6,534,375
------------
Electronic Components (2.2%):
55,000 ATMI, Inc. (b)................ 1,818,438
40,000 Coherent, Inc. (b)............ 1,070,000
3,000 SBS Technologies, Inc. (b).... 109,500
------------
2,997,938
------------
Financial Services (1.5%):
70,000 Financial Federal Corp. (b)... 1,596,875
82,500 Willis Lease Finance Corp.
(b)......................... 531,094
------------
2,127,969
------------
Financial-Securities Brokers (3.0%):
90,000 Legg Mason, Inc............... 3,262,500
50,000 United Asset Management
Corp........................ 928,125
------------
4,190,625
------------
Food & Related (3.2%):
95,000 U.S. Foodservice (b).......... 1,591,250
60,000 Whole Foods Market, Inc.
(b)......................... 2,782,500
------------
4,373,750
------------
Furniture & Furnishings (2.9%):
20,000 American Woodmark Corp........ 485,000
90,000 Bush Industries, Inc.......... 1,546,875
95,000 Leggett & Platt, Inc.......... 2,036,563
------------
4,068,438
------------
Homebuilders--Mobile Homes (3.0%):
40,000 Fleetwood Enterprises, Inc.... 825,000
90,000 Monaco Coach Corp. (b)........ 2,300,625
50,000 Winnebago Industries, Inc..... 1,003,125
------------
4,128,750
------------
</TABLE>
Continued
-30-
<PAGE> 32
GOVERNOR FUNDS
AGGRESSIVE GROWTH FUND
(UNAUDITED)
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- --------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS (CONTINUED):
Household Products (0.6%):
50,000 Tupperware Corp............... $ 846,875
------------
Insurance (1.6%):
35,000 Arthur J. Gallagher &
Company..................... 2,266,250
------------
Machinery & Equipment (2.2%):
130,000 Flow International Corp.
(b)......................... 1,478,750
210,000 PSC, Inc. (b)................. 1,548,750
------------
3,027,500
------------
Medical--Biotechnology (2.9%):
50,600 Chirex, Inc. (b).............. 740,025
30,000 Incyte Pharmaceuticals, Inc.
(b)......................... 1,800,000
200,000 Integra Lifesciences Corp.
(b)......................... 1,181,250
60,000 Interneuron Pharmaceuticals,
Inc. (b).................... 343,125
------------
4,064,400
------------
Medical--Hospital Management Services (1.0%):
50,000 Cerner Corp. (b).............. 984,375
200,000 Genesis Health Ventures, Inc.
(b)......................... 412,500
------------
1,396,875
------------
Medical Equipment & Supplies (10.7%):
60,000 Alkermes, Inc. (b)............ 2,947,500
85,000 Colorado Medtech, Inc. (b).... 680,000
140,000 Mentor Corp. Minnesota........ 3,613,750
70,000 St. Jude Medical, Inc. (b).... 2,148,125
140,000 Syncor International Corp.
(b)......................... 4,077,499
25,000 VISX, Inc. (b)................ 1,293,750
------------
14,760,624
------------
Oil & Gas (2.1%):
50,000 Evergreen Resources, Inc.
(b)......................... 987,499
55,000 Forest Oil Corp. (b).......... 725,313
100,000 Patina Oil & Gas Corp......... 862,500
123,000 Range Resources Corp.......... 392,063
------------
2,967,375
------------
Technology Equipment (4.9%):
75,000 CFM Technologies, Inc. (b).... 726,563
70,000 Credence Systems Corp. (b).... 6,054,999
------------
6,781,562
------------
</TABLE>
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- --------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS (CONTINUED):
Telecommunication--Equipment (2.9%):
140,000 Digi International, Inc.
(b)......................... $ 1,461,250
55,000 ECI Telecommunications,
Ltd......................... 1,739,375
50,000 Telxon Corp................... 800,000
------------
4,000,625
------------
Telecommunications--Services and Equipment (0.2%):
50,000 PictureTel Corp. (b).......... 215,625
------------
Textile (1.7%):
190,000 Unifi, Inc. (b)............... 2,339,375
------------
Utilities--Electric (1.4%):
110,000 Trigen Energy Corp............ 1,911,250
------------
Total Common Stocks................. 127,673,618
------------
INVESTMENT COMPANY SECURITIES (3.9%):
213,561 Federated Government
Obligation Fund............. 213,561
4,162,253 Federated Prime Obligation
Fund........................ 4,162,253
570,933 Governor Prime Money Market
Fund........................ 570,933
476,824 Governor U.S. Treasury
Obligations Money Market
Fund........................ 476,824
------------
Total Investment Company
Securities.......................... 5,423,571
------------
REPURCHASE AGREEMENTS (3.6%):
5,000,000 Lehman Brothers, dated
12/31/99, 2.99%, matures
1/3/00, Proceeds at maturity
$5,001,245 (Collateralized
by 5,120,000 Fannie Mae,
0.00%, 1/27/00, market value
= $5,100,032)............... 5,000,000
------------
Total Repurchase Agreements......... 5,000,000
------------
Total (Cost $96,437,961)
(a)--99.7%.......................... 138,097,189
Other assets in excess of
liabilities--.03%..................... 383,373
------------
TOTAL NET ASSETS--100.0%.......... $138,480,562
============
</TABLE>
- ---------
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation......................... $ 55,923,001
Unrealized depreciation......................... (14,263,773)
------------
Net unrealized appreciation..................... $ 41,659,228
============
</TABLE>
(b) Represents non-income producing securities.
See notes to financial statements.
-31-
<PAGE> 33
GOVERNOR FUNDS
EMERGING GROWTH FUND
(UNAUDITED)
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- --------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS (91.3%):
Automotive Parts (5.1%):
15,000 Impco Technologies, Inc.
(b)......................... $ 209,063
9,000 Strattec Security Corp. (b)... 291,375
------------
500,438
------------
Commercial Services (0.9%):
5,000 RCM Technologies, Inc. (b).... 86,250
------------
Computer Software (10.7%):
18,000 Advanced Communications
Systems, Inc. (b)........... 344,249
15,000 AXENT Technologies, Inc.
(b)......................... 315,000
4,000 SPSS, Inc. (b)................ 101,000
17,500 Systems & Computer Technology
Corp. (b)................... 284,375
------------
1,044,624
------------
Construction Materials (4.0%):
15,500 Dayton Superior Corp. (b)..... 251,875
6,500 LSI Industries, Inc........... 140,563
------------
392,438
------------
Containers (2.0%):
9,000 Mobile Mini, Inc. (b)......... 193,500
------------
Educational Services (2.1%):
24,000 Quest Education Corp. (b)..... 210,000
------------
Electronic Components (8.4%):
12,500 Aavid Thermal Technologies,
Inc. (b).................... 307,031
12,500 Parlex Corp. (b).............. 328,906
5,000 SBS Technologies, Inc. (b).... 182,500
------------
818,437
------------
Financial Services (7.1%):
17,500 Financial Federal Corp. (b)... 399,218
6,500 Linc Capital, Inc. (b)........ 30,875
10,000 Medallion Financial Corp...... 179,375
13,000 Willis Lease Finance Corp.
(b)......................... 83,688
------------
693,156
------------
Furniture & Furnishings (3.4%):
10,000 American Woodmark Corp........ 242,500
5,000 CompX International, Inc...... 91,875
------------
334,375
------------
Insurance (1.4%):
25,000 Gainsco, Inc.................. 134,375
------------
Leisure (0.3%):
6,000 Brass Eagle, Inc. (b)......... 30,000
------------
</TABLE>
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- --------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS (CONTINUED):
Machinery & Equipment (4.8%):
20,000 A.S.V., Inc. (b).............. $ 272,500
2,500 Applied Science & Technology
(b)......................... 83,086
25,000 Lancer Corp. (b).............. 115,625
------------
471,211
------------
Manufacturing (2.9%):
20,000 Koala Corp. (b)............... 280,000
------------
Medical--Biotechnology (1.3%):
8,500 Neose Technologies, Inc.
(b)......................... 122,188
------------
Medical Equipment & Supplies (15.7%):
20,000 Colorado Medtech, Inc. (b).... 160,000
30,000 Endocardial Solutions, Inc.
(b)......................... 262,500
22,000 ICU Medical, Inc. (b)......... 335,500
10,000 Merdian Diagnostics, Inc...... 72,500
15,000 Sterile Recoveries, Inc.
(b)......................... 103,125
8,000 Surmodics, Inc. (b)........... 240,000
12,500 Syncor International Corp.
(b)......................... 364,062
------------
1,537,687
------------
Medical Services (2.6%):
10,000 Hooper Holmes, Inc............ 257,500
------------
Metal Fabricate/Hardware (1.0%):
15,000 Sun Hydraulics Corp........... 97,500
------------
Oil & Gas (4.6%):
15,000 Evergreen Resources, Inc.
(b)......................... 296,250
14,000 Patina Oil & Gas Corp......... 120,750
10,000 Range Resources Corp.......... 31,875
------------
448,875
------------
Pharmaceuticals (1.9%):
12,500 Chirex, Inc. (b).............. 182,813
------------
Real Estate Investment Trust (0.7%):
11,000 ElderTrust.................... 67,375
------------
Recreational Vehicles (2.5%):
12,500 National RV Holdings, Inc.
(b)......................... 240,625
------------
Restaurants (2.1%):
25,000 Taco Cabana--Cl A (b)......... 203,125
------------
Retail--Special Line (1.7%):
10,000 Hibbett Sporting Goods, Inc.
(b)......................... 170,000
6,600 West Marine Inc............... 54,450
------------
224,450
------------
Telecommunications--Services and Equipment (3.5%):
10,000 Tollgrade Communications, Inc.
(b)......................... 345,000
------------
Total Common Stocks................. 8,915,942
------------
</TABLE>
Continued
-32-
<PAGE> 34
GOVERNOR FUNDS
EMERGING GROWTH FUND
(UNAUDITED)
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- --------- ------------------------------ ------------
<C> <S> <C>
INVESTMENT COMPANY SECURITIES (8.7%):
342,744 Federated Government
Obligation Fund............. $ 342,744
364,391 Federated Prime Obligation
Fund........................ 364,391
144,738 Governor Prime Money Market
Fund........................ 144,738
13 Governor U.S. Treasury
Obligations Money Market
Fund........................ 13
------------
Total Investment Company
Securities.......................... 851,886
------------
Total Investments
(Cost $8,885,914) (a)--100.0%..... 9,767,828
Other assets in excess of
liabilities--0.0%..................... 3,808
------------
TOTAL NET ASSETS--(100.0)%.......... $ 9,771,636
============
</TABLE>
- ---------
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation......................... $1,811,286
Unrealized depreciation......................... (929,373)
----------
Net unrealized appreciation..................... $ 881,913
==========
</TABLE>
(b) Represents non-income producing securities.
See notes to financial statements.
-33-
<PAGE> 35
GOVERNOR FUNDS
INTERNATIONAL EQUITY FUND
(UNAUDITED)
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- --------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS (100.3%):
AUSTRALIA (3.6%):
Airlines (0.1%):
9,600 Qantas Airways Ltd............ $ 23,867
------------
Banks (0.8%):
12,600 National Australia Bank
Ltd......................... 192,074
23,800 Westpac Banking Corp., Ltd.... 163,606
------------
355,680
------------
Broadcasting & Publishing (0.4%):
20,200 News Corp., Ltd............... 195,462
------------
Building Products (0.2%):
22,200 Boral Ltd..................... 34,277
19,600 CSR Ltd....................... 47,447
------------
81,724
------------
Commercial Services (0.1%):
2,000 Brambles Industries Ltd....... 55,118
------------
Financial Services (0.2%):
6,500 Lend Lease Corp., Ltd......... 90,751
------------
Insurance (0.3%):
7,800 AMP Ltd....................... 85,886
12,710 QBE Insurance Group Ltd....... 59,040
------------
144,926
------------
Metals (0.2%):
5,200 Rio Tinto Ltd................. 111,320
------------
Mining (0.4%):
11,300 Broken Hill Proprietary Co.,
Ltd......................... 147,868
7,000 WMC Ltd....................... 38,470
------------
186,338
------------
Oil & Gas (0.1%):
16,200 Santos Ltd.................... 43,985
------------
Packaging and Containers (0.1%):
7,000 Amcor Ltd..................... 32,672
------------
Retail--Specialty Stores (0.1%):
16,900 Woolworths Ltd................ 57,938
------------
Telecommunications (0.6%):
48,100 Telstra Corp., Ltd............ 260,567
------------
1,640,348
------------
AUSTRIA (0.1%):
Tobacco (0.1%):
1,100 Austria Tabakwerke AG......... 53,214
------------
</TABLE>
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- --------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS (CONTINUED):
BELGIUM (1.2%):
Banks (0.1%):
680 KBC Bancassurance Holding..... $ 36,666
------------
Financial Services (0.8%):
9,960 Fortis AG..................... 359,567
------------
Utilities--Electric (0.3%):
460 Electrabel SA................. 150,674
------------
546,907
------------
DENMARK (0.5%):
Utilities--Telephone (0.5%):
3,000 Tele Danmark A/S.............. 223,115
------------
FINLAND (2.8%):
Insurance (0.6%):
7,500 Sampo Insurance Co., Ltd...... 262,293
------------
Paper Products (0.7%):
7,800 UPM-Kymmene Oyj............... 314,449
------------
Telecommunication--Equipment (1.5%):
3,800 Nokia Oyj..................... 689,370
------------
1,266,112
------------
FRANCE (9.9%):
Airlines (0.3%):
7,770 Groupe Air France (b)......... 148,789
------------
Auto Parts (0.2%):
2,330 Michelin (C.G.D.E.), Class
B........................... 91,583
------------
Banks (2.1%):
6,040 Banque Nationale de Paris..... 557,606
1,430 Societe Generale.............. 332,923
------------
890,529
------------
Building Products (0.5%):
1,290 Compagnie de Saint Gobain..... 242,734
------------
Chemicals-Specialty (0.7%):
2,040 L'Air Liquide................. 341,710
------------
Commercial Services (0.4%):
2,216 Vivendi....................... 200,224
------------
Electrical and Electronics (0.6%):
7,820 Thomson CSF................... 258,431
------------
Food Products & Services (0.9%):
1,130 Carrefour Supermarche SA...... 208,527
920 Groupe Danone................. 216,970
------------
425,497
------------
Insurance (0.3%):
1,140 AXA........................... 159,015
------------
</TABLE>
Continued
-34-
<PAGE> 36
GOVERNOR FUNDS
INTERNATIONAL EQUITY FUND
(UNAUDITED)
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- --------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS (CONTINUED):
FRANCE, CONTINUED:
Machinery & Equipment (0.4%):
2,310 Schneider Electric SA......... $ 181,478
------------
Oil & Gas (0.8%):
7 Elf Aquitaine SA.............. 1,079
2,889 Total Fina SA, Class B........ 385,798
------------
386,877
------------
Pharmaceuticals (0.6%):
4,790 Rhone-Poulenc SA.............. 278,553
------------
Telecommunication -- Equipment (0.5%):
1,020 Alcatel SA.................... 234,386
------------
Utilities--Telephone (1.6%):
5,260 France Telecom SA............. 696,059
------------
4,535,865
------------
GERMANY (9.2%):
Auto Parts (0.3%):
7,350 Continental AG................ 147,043
------------
Automotive (1.0%):
5,250 Bayerische Motoren Werke AG... 160,324
3,700 DaimlerChrysler AG............ 287,882
------------
448,206
------------
Banks (1.2%):
4,122 Deutsche Bank AG.............. 348,343
4,050 Dresdner Bank AG.............. 220,417
------------
568,760
------------
Chemicals (1.2%):
11,100 Bayer AG...................... 525,795
------------
Computer Software (0.3%):
300 SAP AG........................ 147,852
------------
Industrial Goods and Services (2.6%):
6,000 Siemens AG.................... 763,749
7,450 Veba AG....................... 362,284
------------
1,126,033
------------
Insurance (0.8%):
1,102 Allianz AG.................... 370,402
------------
Machinery & Equipment (1.0%):
1,950 Mannesmann AG................. 470,691
------------
Utilities--Telephone (0.8%):
5,250 Deutsche Telekom AG........... 374,089
------------
4,178,871
------------
</TABLE>
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- --------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS (CONTINUED):
HONG KONG (0.2%):
Real Estate (0.2%):
13,000 Henderson Land Development.... $ 83,441
------------
ITALY (3.1%):
Banks (0.5%):
17,000 San Paolo-IMI SpA............. 231,130
------------
Food Products & Services (0.2%):
16,000 La Rinascente SpA............. 102,720
------------
Insurance (0.4%):
6,000 Assicurazioni Generali........ 198,345
------------
Oil & Gas (0.8%):
61,000 ENI SpA....................... 335,675
------------
Real Estate (0.0%):
18,000 Beni Stabili SpA (b).......... 6,349
------------
Telecommunications (0.7%):
27,000 TIM SpA....................... 301,781
------------
Utilities--Telephone (0.5%):
17,000 Telecom Italia SpA............ 239,868
------------
1,415,868
------------
JAPAN (33.4%):
Auto Parts (0.7%):
7,000 Bridgestone Corp.............. 153,898
6,000 Denso Corp.................... 143,053
------------
296,951
------------
Automotive (1.9%):
9,000 Honda Motor Co., Ltd.......... 334,180
11,000 Toyota Motor Corp............. 532,050
------------
866,230
------------
Banks (1.8%):
20,000 Asahi Bank Ltd................ 123,119
21,000 Bank of Tokyo-Mitsubishi
Ltd......................... 292,201
12,000 Dai-Ichi Kangyo Bank Ltd...... 111,980
10,000 Fuji Bank Ltd................. 97,030
15,000 Sumitomo Bank Ltd............. 205,052
------------
829,382
------------
Brewery (0.3%):
14,000 Kirin Brewery Co., Ltd........ 147,059
------------
Building Products (0.6%):
8,000 Daikin........................ 108,657
19,000 Obayashi Corp................. 89,672
10,000 Sekisui House Ltd............. 88,431
------------
286,760
------------
</TABLE>
Continued
-35-
<PAGE> 37
GOVERNOR FUNDS
INTERNATIONAL EQUITY FUND
(UNAUDITED)
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- --------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS (CONTINUED):
JAPAN (CONTINUED):
Chemicals (0.3%):
30,000 Sumitomo Chemical Co., Ltd.... $ 140,707
------------
Commercial Services (0.4%):
800 Benesse Corp.................. 192,300
------------
Computer Software (0.6%):
300 Softbank Corp................. 286,691
------------
Computers (2.1%):
21,000 Fujitsu Ltd................... 956,224
------------
Consumer Goods and Services (0.5%):
8,000 KAO Corp...................... 227,868
------------
Electrical and Electronics (9.3%):
5,100 Fanuc Co., Ltd................ 648,339
15,000 Matsushita Electric Industrial
Co., Ltd.................... 414,794
1,000 Murata Manufacturing Co.,
Ltd......................... 234,512
20,000 NEC Corp...................... 475,865
13,000 NGK Insulators Ltd............ 96,414
500 Rohm Co., Ltd................. 205,198
4,000 Secom Co., Ltd................ 439,711
3,200 Sony Corp..................... 947,431
5,000 Sumitomo Electric Inds........ 57,700
3,000 TDK Corp...................... 413,621
2,000 Tokyo Electron Ltd............ 273,598
------------
4,207,183
------------
Financial Services (2.9%):
2,500 Acom Co., Ltd................. 244,528
21,000 Nomura Securities Co., Ltd.... 378,591
2,300 Orix Corp..................... 517,355
1,000 Takefuji Corp................. 124,976
------------
1,265,450
------------
Food Products & Services (0.2%):
4,000 Nissin Food Products Co.,
Ltd......................... 94,000
------------
Insurance (0.3%):
11,000 Tokio Marine & Fire Insurance
Co.......................... 128,444
------------
Medical Equipment & Supplies (0.5%):
3,000 Hoya Corp..................... 235,978
------------
Office Equipment & Services (0.9%):
10,000 Canon, Inc.................... 396,717
------------
Office Furnishings (0.1%):
4,000 Kokuyo Co..................... 53,156
------------
</TABLE>
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- --------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS (CONTINUED):
JAPAN (CONTINUED):
Pharmaceuticals (1.7%):
7,000 Dai-Ichi Pharmaceutical
Corp........................ $ 90,903
9,000 Sankyo Co., Ltd............... 184,679
5,000 Santen Pharmaceutical Co.,
Ltd......................... 82,324
8,000 Takeda Chemical Industries.... 394,762
------------
752,668
------------
Printing & Publishing (0.2%):
7,000 Dai Nippon Printing Co.,
Ltd......................... 111,491
------------
Real Estate (0.5%):
24,000 Mitsubishi Estate Co., Ltd.... 233,809
------------
Retail (1.2%):
2,000 Ito-Yokado Co., Ltd........... 216,924
2,000 Seven -- Eleven Japan......... 316,592
------------
533,516
------------
Steel (0.4%):
85,000 Nippon Steel Corp............. 198,505
------------
Telecommunications (0.9%):
11 NTT Mobile Communications
Network, Inc................ 422,415
------------
Textile (0.3%):
15,000 Kuraray Co., Ltd.............. 151,700
------------
Toys (0.8%):
2,200 Nintendo Co., Ltd............. 365,019
------------
Transportation (1.3%):
37 East Japan Railway Co......... 199,209
20,000 Kamigumi Co., Ltd............. 84,034
8,000 Yamato Transport Co., Ltd..... 309,556
------------
592,799
------------
Utilities--Electric (0.3%):
5,100 Tokyo Electric Power.......... 136,545
------------
Utilities--Gas & Pipeline (0.3%):
49,000 Osaka Gas Co., Ltd............ 117,784
------------
Utilities--Telephone (1.9%):
51 Nippon Telegraph & Telephone
Corp........................ 872,093
------------
Wholesale Distribution (0.2%):
13,000 Mitsubishi Corp............... 100,225
------------
15,199,669
------------
</TABLE>
Continued
-36-
<PAGE> 38
GOVERNOR FUNDS
INTERNATIONAL EQUITY FUND
(UNAUDITED)
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- --------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS (CONTINUED):
NETHERLANDS (5.0%):
Banks (1.9%):
8,774 ABN Amro Holding NV........... $ 219,303
10,554 ING Groep NV.................. 637,573
------------
856,876
------------
Broadcasting & Publishing (0.6%):
22,900 Elsevier NV................... 273,726
------------
Food Products & Services (0.4%):
3,142 Unilever NV CVA............... 173,660
------------
Oil & Gas (0.6%):
4,500 Royal Dutch Petroleum Co...... 275,975
------------
Transportation (0.4%):
5,700 TNT Post Group NV............. 163,438
------------
Utilities--Telephone (1.1%):
5,357 Royal KPN NV.................. 523,168
------------
2,266,843
------------
NEW ZEALAND (0.3%):
Brewery (0.1%):
13,400 Lion Nathan Ltd............... 31,082
------------
Business & Public Services (0.0%):
11,500 Auckland International Airport
Ltd......................... 17,384
------------
Paper Products (0.1%):
17,900 Carter Holt Harvey Ltd........ 23,326
31,700 Fletcher Challenge Paper...... 22,142
------------
45,468
------------
Telecommunications (0.1%):
12,100 Telecom Corp. of New Zealand
Ltd......................... 56,764
------------
150,698
------------
NORWAY (0.2%):
Paper Products (0.2%):
2,000 Norske Skogindustrier ASA..... 104,219
------------
PORTUGAL (0.7%):
Utilities--Electric (0.3%):
8,400 Electricidade de Portugal
SA.......................... 146,715
------------
Utilities--Telephone (0.4%):
14,800 Portugal Telecom SA........... 162,437
------------
309,152
------------
SINGAPORE (0.9%):
Banks (0.4%):
18,784 United Overseas Bank.......... 165,806
------------
</TABLE>
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- --------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS (CONTINUED):
SINGAPORE (CONTINUED):
Broadcasting & Publishing (0.5%):
12,000 Singapore Press Holdings...... $ 260,125
------------
425,931
------------
SPAIN (3.3%):
Banks (1.3%):
4,500 Banco Popular Espanol SA...... 293,662
24,002 Banco Santander Central
Hispano SA.................. 271,900
------------
565,562
------------
Tobacco (0.8%):
25,760 Altadis SA.................... 368,664
------------
Utilities--Electric (0.3%):
7,748 Endesa SA..................... 153,912
------------
Utilities--Telephone (0.9%):
16,387 Telefonica SA (b)............. 409,588
------------
1,497,726
------------
SWEDEN (3.7%):
Banks (0.6%):
47,560 Nordbanken Holding AB......... 279,910
------------
Financial Services (0.4%):
13,770 Investor AB................... 194,501
------------
Furniture & Furnishings (0.8%):
14,510 Electrolux AB, Series B....... 365,500
------------
Telecommunication--Equipment (1.5%):
10,230 Telefonaktiebolaget LM
Ericsson, Class B........... 658,671
------------
Tobacco (0.4%):
53,910 Swedish Match AB.............. 188,465
------------
1,687,047
------------
SWITZERLAND (4.0%):
Commercial Services (0.4%):
257 Adecco SA, Registered......... 200,100
------------
Food Products & Services (0.8%):
204 Nestle SA, Registered......... 373,646
------------
Pharmaceuticals (2.2%):
316 Novartis AG, Registered....... 463,901
40 Roche Holding AG.............. 474,695
------------
938,596
------------
Utilities--Telephone (0.6%):
730 Swisscom AG, Registered....... 295,190
------------
1,807,532
------------
</TABLE>
Continued
-37-
<PAGE> 39
GOVERNOR FUNDS
INTERNATIONAL EQUITY FUND
(UNAUDITED)
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- --------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS (CONTINUED):
UNITED KINGDOM (18.2%):
Aerospace/Defense (0.1%):
9,862 British Aerospace PLC......... $ 65,305
------------
Airlines (0.3%):
20,000 British Airways PLC........... 130,500
------------
Banks (2.1%):
8,000 Barclays PLC.................. 230,249
15,000 HSBC Holdings PLC............. 209,075
40,000 Lloyds TSB Group PLC.......... 500,358
------------
939,682
------------
Beverages (0.6%):
36,000 Diageo PLC.................... 289,555
------------
Broadcasting & Publishing (1.7%):
34,000 Reed International PLC........ 254,524
19,500 Trinity Mirror PLC............ 208,178
26,000 United News & Media PLC....... 331,322
------------
794,024
------------
Coal (0.0%):
29,000 RJB Mining PLC................ 14,988
------------
Consumer Goods and Services (0.3%):
14,000 Reckitt & Colman PLC.......... 131,259
------------
Food Products & Services (1.0%):
85,000 Tesco PLC..................... 258,436
24,000 Unilever PLC.................. 176,563
------------
434,999
------------
Industrial Goods and Services (0.3%):
36,000 Charter PLC................... 154,080
------------
Insurance (1.6%):
15,000 Allied Zurich PLC............. 176,732
20,000 Prudential Corp. PLC.......... 394,085
21,000 Royal & Sun Alliance Insurance
Group PLC................... 159,919
------------
730,736
------------
Manufacturing (0.8%):
93,000 FKI PLC....................... 360,490
------------
Medical Equipment & Supplies (0.4%):
30,000 Nycomed Amersham PLC.......... 186,786
------------
Mining (0.7%):
14,000 RIO Tinto PLC................. 338,040
------------
Oil & Gas (1.3%):
57,000 BP Amoco Co. PLC.............. 573,078
------------
</TABLE>
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- --------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS (CONTINUED):
UNITED KINGDOM (CONTINUED):
Pharmaceuticals (1.5%):
5,115 Astrazeneca PLC............... $ 212,148
16,000 Glaxo Wellcome PLC............ 452,228
------------
664,376
------------
Restaurants (0.3%):
24,400 Greenalls Group PLC........... 116,255
------------
Retail-General Merchandise (0.5%):
44,000 House of Fraser PLC........... 54,009
38,000 Marks & Spencer PLC........... 180,899
------------
234,908
------------
Telecommunication--Equipment (0.9%):
23,000 Marconi PLC................... 406,948
------------
Transportation (0.3%):
9,000 Peninsular & Orient Steam
Navigation Co............... 150,156
------------
Utilities--Electric (1.5%):
42,000 National Power PLC............ 243,185
24,000 Powergen PLC.................. 172,493
34,000 Scottish & Southern Energy
PLC......................... 271,409
------------
687,087
------------
Utilities--Telephone (1.3%):
24,000 British Telecom PLC........... 586,475
------------
Utilities--Water (0.7%):
12,000 Thames Water PLC.............. 149,623
30,000 Yorkshire Water PLC........... 169,585
------------
319,208
------------
8,308,935
------------
Total Common Stocks................. 45,701,493
------------
PREFERRED STOCKS (0.1%):
AUSTRALIA (0.1%)
Broadcasting & Publishing (0.1%):
7,500 News Corp., Ltd............... 64,035
------------
Total Preferred Stocks.............. 64,035
------------
DAILY SWEEP VEHICLE (1.8%):
824,958 Bank of New York Cash Sweep... 824,958
------------
Total Daily Sweep Vehicle........... 824,958
------------
Total
(Cost $38,249,252) (a)--102.2%.... 46,590,485
------------
Liabilities in excess of other
assets--(2.2)%...................... (995,955)
------------
TOTAL NET ASSETS--100.0%............ $ 45,594,530
============
</TABLE>
Continued
-38-
<PAGE> 40
GOVERNOR FUNDS
INTERNATIONAL EQUITY FUND
(UNAUDITED)
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
DECEMBER 31, 1999
- ---------
(a) Represents cost for financial reporting purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation......................... $10,459,586
Unrealized depreciation......................... (2,118,353)
-----------
Net unrealized appreciation..................... $ 8,341,233
===========
</TABLE>
(b) Represents non-income producing securities.
At December 31, 1999, the Fund's open forward currency contracts were as
follows:
<TABLE>
<CAPTION>
UNREALIZED
DELIVERY CONTRACT MARKET APPRECIATION/
CURRENCY DATE VALUE VALUE (DEPRECIATION)
-------- -------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
LONG CONTRACTS:
Australian Dollar........................................... 2/9/00 $ 1,876,992 $ 1,906,557 $ 29,565
British Pound............................................... 2/9/00 979,095 968,164 (10,931)
Euro........................................................ 2/9/00 5,898,395 5,567,278 (331,117)
Swiss Franc................................................. 2/9/00 938,123 884,473 (53,650)
Swedish Krona............................................... 2/9/00 1,417,910 1,345,557 (72,353)
----------- ----------- ---------
TOTAL LONG CONTRACTS........................................ $11,110,515 $10,672,029 $(438,486)
----------- ----------- ---------
SHORT CONTRACTS:
British Pound............................................... 2/9/00 $ 4,057,072 $ 4,034,015 $ 23,057
Euro........................................................ 2/9/00 1,669,675 1,619,572 50,103
Japanese Yen................................................ 2/9/00 4,862,837 5,162,246 (299,409)
----------- ----------- ---------
TOTAL SHORT CONTRACTS....................................... $10,589,584 $10,815,833 $(226,249)
=========== =========== =========
</TABLE>
-39-
<PAGE> 41
GOVERNOR FUNDS
INTERMEDIATE TERM INCOME FUND
(UNAUDITED)
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- --------- ------------------------------ ------------
<C> <S> <C>
ASSET BACKED SECURITIES (15.0%):
Banks (4.2%):
7,000,000 Case Equipment Loan Trust,
5.77%, 8/15/05, Series
1999-A, Class A4............ $ 6,760,180
5,000,000 Mellon Bank, 6.02%, 11/25/13,
Series 1999-1, Class A2..... 4,848,150
------------
11,608,330
------------
Financial Services (10.8%):
5,000,000 First USA Credit Card Master
Trust, 6.42%, 3/17/05,
Series 1997-6, Class A...... 4,932,250
5,000,000 Honda Auto Lease Trust, 6.65%,
7/15/05, Series 1999-A,
Class A5.................... 4,964,650
5,500,000 MBNA Master Credit Card Trust,
6.60%, 4/16/07, Series
1999-M, Class A............. 5,414,145
5,000,000 MBNA Master Credit Card Trust,
7.00%, 2/15/12, Series
1999-J, Class A............. 4,900,850
5,000,000 PP&L Transition Bond Co., LLC,
6.60%, 3/25/05, Series
1999-1, Class A3............ 4,931,400
5,000,000 Residential Asset Securities
Corp., 6.11%, 5/25/25,
Series 1999-KS1, Class
AI3......................... 4,850,150
------------
29,993,445
------------
Total Asset Backed Securities....... 41,601,775
------------
CORPORATE BONDS (18.9%):
Banks (2.2%):
6,000,000 First of America Bank, 7.75%,
7/15/04..................... 6,135,000
------------
Data Processing & Reproduction (1.8%):
5,000,000 Electronic Data Systems,
7.125%, 10/15/09............ 4,881,250
------------
Financial Services (9.7%):
5,000,000 Daimlerchrysler, 6.63%,
9/21/01..................... 4,975,000
5,000,000 Ford Motor Credit Co., 7.50%,
6/15/04..................... 5,025,000
7,000,000 General Electric Capital
Corp., 6.81%, 11/3/03....... 6,930,000
</TABLE>
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- --------- ------------------------------ ------------
<C> <S> <C>
CORPORATE BONDS (CONTINUED):
Financial Services (continued):
5,000,000 Lehman Brothers Holdings,
7.25%, 10/15/03............. $ 4,956,250
5,000,000 Salomon Smith Barney Holdings,
6.75%, 2/15/03.............. 4,931,250
------------
26,817,500
------------
Food Products & Services (1.6%):
5,000,000 Pepsi Bottling Group, Inc.,
7.00%, 3/1/29............... 4,543,750
------------
Retail (1.8%):
5,000,000 Wal-Mart Stores, 6.875%,
8/10/09..................... 4,868,750
------------
Telecommunications (1.8%):
5,000,000 MCI Worldcom, Inc., 7.75%,
4/1/07...................... 5,081,250
------------
Total Corporate Bonds............... 52,327,500
------------
U.S. GOVERNMENT AGENCY SECURITIES (13.7%):
Federal Home Loan Bank (1.7%):
5,000,000 6.30%, 6/3/09................. 4,744,800
------------
Freddie Mac (1.8%):
5,000,000 7.625%, 9/9/09, Callable
9/9/02 @ 100................ 4,947,100
------------
Fannie Mae (10.2%):
7,000,000 6.00%, 1/14/05................ 6,701,520
5,000,000 6.23%, 7/21/08................ 4,601,250
8,000,000 6.25%, 5/15/29................ 7,140,000
10,000,000 7.00%, 12/25/29............... 9,900,000
------------
28,342,770
------------
Total U.S. Government Agency
Securities............................ 38,034,670
------------
U.S. TREASURY SECURITIES (16.1%):
U.S. Treasury Bonds (10.3%):
10,000,000 11.625%, 11/15/02............. 11,354,900
15,000,000 8.125%, 5/15/21............... 17,192,250
------------
28,547,150
------------
U.S. Treasury Notes (5.8%):
10,000,000 7.00%, 7/15/06................ 10,240,000
6,000,000 6.125%, 8/15/07............... 5,851,620
------------
16,091,620
------------
Total U.S. Treasury Securities...... 44,638,770
------------
</TABLE>
Continued
-40-
<PAGE> 42
GOVERNOR FUNDS
INTERMEDIATE TERM INCOME FUND
(UNAUDITED)
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- --------- ------------------------------ ------------
<C> <S> <C>
U.S. GOVERNMENT AGENCY/MORTGAGE
BACKED SECURITIES (24.2%):
Fannie Mae (7.8%):
6,432,241 7.00%, 12/1/11, Pool
#313224..................... $ 6,384,128
6,547,213 6.50%, 7/1/28, Pool #437799... 6,185,021
9,280,328 7.00%, 2/1/29, Pool #481890... 8,983,172
------------
21,552,321
------------
Freddie Mac (13.6%):
41,150 5.50%, 4/1/14, Gold, Pool
#E76204..................... 38,280
7,366,261 7.00%, 9/1/14, Pool #E00746... 7,286,631
9,918,873 7.50%, 9/1/19, Pool #C90293... 9,869,477
10,000,000 6.00%, 1/15/24, Class PE,
Series 2137................. 9,272,500
11,383,175 7.50%, 7/1/29, Pool #C00854... 11,269,343
------------
37,736,231
------------
Government National Mortgage Association (2.8%):
7,970,295 7.50%, 9/20/29, Pool #2810.... 7,846,118
------------
Total U.S. Government Agency/Mortgage
Backed Securities.................
67,134,670
------------
U.S. GOVERNMENT GUARANTEED/MORTGAGE
BACKED SECURITIES (11.1%):
Government National Mortgage Association
(11.1%):
6,168,367 6.25%, 3/20/22, Class B,
Series 1998-7............... 5,946,676
4,637,531 7.50%, 2/20/28, Pool #2549.... 4,583,504
5,850,759 7.00%, 7/20/28, Pool #2616.... 5,650,078
7,363,475 6.50%, 8/20/28, Pool #2630.... 6,902,816
14,748 6.25%, 10/15/28, Pool
#484545..................... 13,633
7,834,897 7.00%, 12/15/28, Pool
#426720..................... 7,579,558
------------
Total U.S. Government
Guaranteed/Mortgage Backed
Securities........................ 30,676,265
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- --------- ------------------------------ ------------
<C> <S> <C>
INVESTMENT COMPANY SECURITIES (0.5%):
73,895 Federated Government
Obligation Fund............. $ 73,895
1,425,104 Federated Prime Obligation
Fund........................ 1,425,104
292 Federated Treasury Fund....... 292
177 Governor Prime Money Market
Fund........................ 177
914 Governor U.S. Treasury
Obligations Money Market
Fund........................ 914
------------
Total Investment Company
Securities.......................... 1,500,382
------------
DAILY SWEEP VEHICLE (0.0%):
124 Bank of New York Cash Sweep... 124
------------
Total Daily Sweep Vehicle........... 124
------------
Total Investments
(Cost $284,674,572) (a)--99.5%.... 275,914,156
Other assets in excess of
liabilities--.05%................. 1,433,630
------------
TOTAL NET ASSETS--100.0%............ $277,347,786
============
</TABLE>
- ---------
Percentages indicated are based on net assets of $277,347,785.99
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized depreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation......................... $ 58,660
Unrealized depreciation......................... (8,819,076)
-----------
Net unrealized depreciation..................... $(8,760,416)
===========
</TABLE>
MTN -- Medium Term Note
See notes to financial statements.
-41-
<PAGE> 43
GOVERNOR FUNDS
LIMITED DURATION GOVERNMENT SECURITIES FUND
(UNAUDITED)
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ---------- ------------------------------ ------------
<C> <S> <C>
U.S. TREASURY SECURITIES (65.3%):
U.S. Treasury Notes (65.3%):
9,000,000 5.375%, 1/31/00............... $ 9,002,610
10,000,000 7.50%, 11/15/01............... 10,215,699
5,000,000 6.125%, 12/31/01.............. 4,987,500
5,000,000 6.00%, 8/15/04................ 4,919,500
5,000,000 5.875, 11/15/04............... 4,900,350
------------
Total U.S. Treasury Securities....... 34,025,659
------------
U.S. GOVERNMENT AGENCY/MORTGAGE
BACKED SECURITIES (3.6%):
Fannie Mae (0.0%):
8 10.00%, 10/1/00, Pool
#19294...................... 8
------------
Freddie Mac (3.6%):
1,803,728 9.00%, 4/1/16, Pool #B70012... 1,892,778
------------
Total U.S. Government Agency/Mortgage
Backed Securities................ 1,892,786
------------
U.S. GOVERNMENT GUARANTEED SECURITIES
(9.7%):
Private Export Funding Company (9.7%):
4,000,000 7.90%, 3/31/00................ 4,020,000
1,000,000 8.40%, 7/31/01................ 1,026,250
------------
Total U.S. Government Guaranteed
Securities....................... 5,046,250
------------
U.S. GOVERNMENT GUARANTEED/MORTGAGE
BACKED SECURITIES (1.9%):
Government National Mortgage Association
(1.9%):
91,786 8.50%, 2/15/17, Pool
#203632..................... 95,084
37,313 8.50%, 4/15/17, Pool
#189291..................... 38,666
345,262 8.50%, 7/15/21, Pool
#307983..................... 358,100
201,376 8.50%, 7/15/21, Pool
#306066..................... 208,863
302,938 8.50%, 1/15/23, Pool
#341948..................... 314,107
------------
Total U.S. Government Guaranteed/
Mortgage Backed Securities....... 1,014,820
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ---------- ------------------------------ ------------
<C> <S> <C>
INVESTMENT COMPANY SECURITIES (0.2%):
81,420 Federated Government
Obligation Fund............. $ 81,420
------------
Total Investment Company
Securities........................... 81,420
------------
REPURCHASE AGREEMENTS (18.7%):
4,933,000 Merrill Lynch Securities,
Inc., dated 12/31/99, 3.00%,
matures 1/3/00, Proceeds at
maturity $4,934,233
(Collateralized by 8,649,000
U.S. Government Agencies,
0.00%--3.375%,
1/28/00--5/30/11, Market
Value = $5,031,742)......... 4,933,000
4,784,000 Lehman Brothers, dated
12/31/99, 2.95%, matures
1/3/00, Proceeds at maturity
$4,785,176 (Collateralized
by 14,945,000 Fannie Mae
Strip, 0.00%, 11/1/29,
Market Value =
$4,880,090)................. 4,784,000
------------
Total Repurchase Agreements.......... 9,717,000
------------
Total Investments (Cost
$52,551,959)(a)
99.4%..............................
51,777,935
Other assets in excess of
liabilities--.06%.................... 302,936
------------
TOTAL NET ASSETS--100.0%............. $ 52,080,871
============
</TABLE>
- ---------
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized depreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation......................... $ 8
Unrealized depreciation......................... (774,032)
---------
Net unrealized depreciation..................... $(774,024)
=========
</TABLE>
See notes to financial statements.
-42-
<PAGE> 44
GOVERNOR FUNDS
PENNSYLVANIA MUNICIPAL BOND FUND
(UNAUDITED)
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- --------- ------------------------------ ------------
<C> <S> <C>
MUNICIPAL BONDS (98.2%):
Pennsylvania (98.2%):
1,450,000 Allegheny County, Pennsylvania
Airport Revenue, 5.75%,
1/1/06, MBIA, AMT........... $ 1,491,688
2,000,000 Allegheny County, Pennsylvania
Airport Revenue, 5.75%,
1/1/10, MBIA, AMT........... 2,040,000
1,330,000 Berks County, Pennsylvania
Municipal Authority, 7.10%,
5/15/22, Prerefunded 5/15/04
@ 100, FGIC................. 1,449,700
1,000,000 Bethlehem, Pennsylvania Area
School District, Series A,
6.50%, 9/1/00, AMBAC........ 1,015,620
2,065,000 Bethlehem, Pennsylvania Water
Authority, Series A, 6.30%,
11/15/15, Prerefunded
11/15/02 @ 100, MBIA........ 2,157,925
2,080,000 Blair County, Pennsylvania
Hospital Health Care Bond,
5.30%, 8/15/17, Callable
8/15/07 @ 102, MBIA......... 1,921,400
1,900,000 Central Dauphin, Pennsylvania
School District, 6.00%,..... 1,938,000
1,070,000 Charleroi, Pennsylvania Area
School Authority, Series C,
5.75%, 10/1/14, Callable
10/1/09 @ 100, FGIC......... 1,072,675
1,000,000 College Township, Pennsylvania
Water Authority, 6.125%,
1/1/29, Callable 1/1/07 @
100, Asset Gty.............. 973,750
1,880,000 College Township, Pennsylvania
Water Authority, 6.20%,
1/1/24, Callable 1/1/07 @
100, Asset Gty.............. 1,858,850
250,000 Dauphin County, Pennsylvania
General Authority Health
Center, Tressler Lutheran
Services, Series A, 5.90%,
1/1/00...................... 250,000
1,000,000 Delaware River Port Authority,
Pennsylvania & New Jersey
Revenue, 5.40%, 1/1/14,
Callable 1/1/10 @ 100,
FSA......................... 982,500
</TABLE>
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- --------- ------------------------------ ------------
<C> <S> <C>
MUNICIPAL BONDS (CONTINUED):
Pennsylvania (continued):
1,470,000 Eastern York School District,
Pennsylvania, 5.45%, 9/1/15,
Callable 3/1/05 @ 100,
FGIC........................ $ 1,435,088
1,000,000 Hempfield, Pennsylvania School
District, Lancaster County,
6.40%, 8/15/05, Prerefunded
8/15/02 @ 100, FGIC......... 1,041,250
1,800,000 Indiana County, Pennsylvania
Industrial Development
Authority, Series A, 5.875%,
11/1/29, Callable 11/1/06 @
100, AMBAC.................. 1,716,750
3,780,000 Lancaster County, Pennsylvania
Solid Waste Management
Authority, 5.25%, 12/15/07,
AMBAC....................... 3,775,274
1,000,000 Northampton County,
Pennsylvania Higher
Education Authority, Lehigh
University, 6.00%, 9/1/01... 1,022,500
2,155,000 Northampton County,
Pennsylvania Higher
Education Authority, Lehigh
University, 6.90%,
10/15/06.................... 2,284,300
2,000,000 Pennsylvania Housing Financial
Agency, 6.10%, 4/1/21,
Callable 10/1/09 @ 100,
AMT......................... 1,972,500
3,300,000 Pennsylvania Intergovermental
Cooperation Authority,
5.50%, 6/15/11, Callable
6/15/06 @ 100, FGIC......... 3,312,374
1,375,000 Pennsylvania State Higher
Education Assistance Agency,
Student Loan Revenue, Series
A, 6.80%, 12/1/00, FGIC..... 1,405,388
1,425,000 Pennsylvania State Higher
Education Facilities
Authority, Thomas Jefferson
University, Series A, 5.90%,
8/15/00..................... 1,440,248
2,000,000 Pennsylvania State Higher
Education, Duquesne
University, Series A, 7.00%,
4/1/10, Callable 4/1/01 @
100, MBIA................... 2,057,500
</TABLE>
Continued
-43-
<PAGE> 45
GOVERNOR FUNDS
PENNSYLVANIA MUNICIPAL BOND FUND
(UNAUDITED)
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- --------- ------------------------------ ------------
<C> <S> <C>
MUNICIPAL BONDS (CONTINUED):
Pennsylvania (continued):
1,500,000 Pennsylvania State Industrial
Development Authority
Revenue, Economic
Development, 5.00%, 7/1/00,
AMBAC....................... $ 1,506,600
1,250,000 Pennsylvania State Industrial
Development Authority
Revenue, Economic
Development, Series A,
7.00%, 1/1/11, Prerefunded
7/1/01 @ 102................ 1,318,750
1,820,000 Pennsylvania State Public
School Building Authority
Revenue, School District of
York, Series A, 4.85%,
2/15/16, Callable 2/15/08 @
100, FGIC................... 1,587,950
1,000,000 Pennsylvania State Turnpike,
Series J, 6.40%, 12/1/00,
FGIC........................ 1,020,640
2,500,000 Pennsylvania State, First
Series, 5.30%, 5/1/04....... 2,546,875
1,000,000 Pennsylvania State, Second
Series, 5.80%, 7/1/04....... 1,040,000
1,000,000 Philadelphia, Pennsylvania Gas
Works, 14th Series, 5.50%,
7/1/04, FSA................. 1,028,750
6,160,000 Philadelphia, Pennsylvania
Hospitals & Higher Education
Facilities Authority
Revenue, Series A, 5.00%,
5/15/11, Callable 5/15/08 @
101......................... 5,713,399
1,000,000 Philadelphia, Pennsylvania
Hospitals & Higher Education
Facilities Authority,
Children's Hospital, Series
A, 6.50%, 2/15/21,
Prerefunded 2/15/02 @ 102... 1,055,000
1,520,000 Philadelphia, Pennsylvania
School District, Series B,
5.50%, 9/1/15, Prerefunded
9/1/05 @ 102, AMBAC......... 1,588,400
1,500,000 Philadelphia, Pennsylvania
Water & Wastewater Revenue,
5.00%, 12/15/05, AMBAC...... 1,503,750
</TABLE>
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- --------- ------------------------------ ------------
<C> <S> <C>
MUNICIPAL BONDS (CONTINUED):
Pennsylvania (continued):
1,575,000 Philadelphia, Pennsylvania
Water & Wastewater Revenue,
5.50%, 6/15/15, Callable
6/15/03 @ 102, FSA.......... $ 1,525,781
1,000,000 Philadelphia, Pennsylvania
Water & Wastewater Revenue,
6.25%, 8/1/02, MBIA......... 1,040,000
3,500,000 Philadelphia, Pennsylvania
Water & Wastewater Revenue,
Series A, 5.00%, 8/1/13,
Callable 8/1/7 @ 102,
AMBAC....................... 3,255,000
1,000,000 Philadelphia, Pennsylvania,
5.00%, 5/15/02, FGIC........ 1,008,750
2,500,000 Radnor Township, Pennsylvania
School District, 5.75%,
3/15/19, Callable 3/15/07 @
100......................... 2,421,875
1,700,000 Sayre, Pennsylvania Health
Care Facilities Authority,
Series A, 6.60%, 3/1/01,
AMBAC....................... 1,738,250
1,485,000 Stroudsburg, Pennsylvania Area
School District, 5.25%,
10/1/12, Callable 10/1/08 @
100, FGIC................... 1,433,025
1,850,000 York County, Pennsylvania
Industrial Development
Authority, 6.25%, 7/1/02.... 1,898,563
------------
72,846,638
------------
Total Municipal Bonds............... 72,846,638
------------
INVESTMENT COMPANY SECURITIES (1.0%):
763,753 Federated Pennsylvania
Municipal Cash Fund......... 763,753
1 Federated Pennsylvania
Municipal Cash Trust
Service..................... 1
------------
Total Investment Company
Securities.......................... 763,754
------------
Total Investments
(Cost $74,726,981) (a)--99.2%..... 73,610,392
Other assets in excess of
liabilities--0.8%................. 540,780
------------
TOTAL NET ASSETS--100.0%............ $ 74,151,172
============
</TABLE>
Continued
-44-
<PAGE> 46
GOVERNOR FUNDS
PENNSYLVANIA MUNICIPAL BOND FUND
(UNAUDITED)
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
DECEMBER 31, 1999
- ---------
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized depreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation......................... $ 352,672
Unrealized depreciation......................... (1,469,261)
-----------
Net unrealized depreciation..................... $(1,116,589)
===========
</TABLE>
<TABLE>
<S> <C>
Asset Gty -- Asset Guaranty
AMBAC -- AMBAC Indemnity Corp.
AMT -- Alternative Minimum Tax Paper
FGIC -- Insured by the Financial Guaranty Insurance Corp.
FNMA -- Fannie Mae
FSA -- Financial Security Assurance Corp.
MBIA -- Insured by the Municipal Bond Insurance Assoc.
</TABLE>
See notes to financial statements.
-45-
<PAGE> 47
GOVERNOR FUNDS
LIFESTYLE CONSERVATIVE GROWTH FUND
(UNAUDITED)
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- --------- ------------------------------ --------
<C> <S> <C>
AFFILIATED MUTUAL FUNDS (101.0%):
EQUITY FUNDS (39.7%):
2,213 Governor Aggressive Growth
Fund........................ $ 24,055
3,807 Governor Established Growth
Fund........................ 52,573
1,537 Governor International Equity
Fund........................ 18,746
--------
95,374
--------
FIXED INCOME FUNDS (56.4%):
5,915 Governor Intermediate Term
Income Fund................. 54,533
8,378 Governor Limited Duration
Government Securities
Fund........................ 81,262
--------
135,795
--------
MONEY MARKET FUNDS (4.9%):
11,720 Governor U.S. Treasury
Obligations Money Market
Fund........................ 11,720
--------
Total Affiliated Mutual Funds....... 242,889
--------
Total Investments
(Cost $247,447) (a)--101.01%...... 242,889
Liabilities in excess of
other assets--(1.01)%........... (2,428)
--------
TOTAL NET ASSETS-- 100.0%........... $240,461
========
</TABLE>
- ---------
(a) Represents cost for financial reporting purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation......................... $ 2,514
Unrealized depreciation......................... (7,072)
-------
Net Unrealized depreciation..................... $(4,558)
=======
</TABLE>
See notes to financial statements.
-46-
<PAGE> 48
GOVERNOR FUNDS
LIFESTYLE MODERATE GROWTH FUND
(UNAUDITED)
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- --------- ------------------------------ --------
<C> <S> <C>
AFFILIATED MUTUAL FUNDS (100.8%):
EQUITY FUNDS (60.7%):
10,267 Governor Aggressive Growth
Fund........................ $111,606
22,027 Governor Established Growth
Fund........................ 304,190
9,125 Governor International Equity
Fund........................ 111,321
--------
527,117
--------
FIXED INCOME FUNDS (37.3%):
17,430 Governor Intermediate Term
Income Fund................. 160,705
16,865 Governor Limited Duration
Government Securities
Fund........................ 163,590
--------
324,295
--------
MONEY MARKET FUNDS (2.8%):
24,755 Governor U.S. Treasury
Obligations Money Market
Fund........................ 24,755
--------
Total Affiliated Mutual Funds....... 876,167
--------
Total Investments
(Cost $887,506) (a)--100.8%....... 876,167
Liabilities in excess of other
assets--(0.8)%..................... (7,283)
--------
TOTAL NET ASSETS--100.0%............ $868,884
========
</TABLE>
- ---------
(a) Represents cost for financial reporting purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation......................... $ 13,273
Unrealized depreciation......................... (24,611)
--------
Net Unrealized depreciation..................... $(11,338)
========
</TABLE>
See notes to financial statements.
-47-
<PAGE> 49
GOVERNOR FUNDS
LIFESTYLE GROWTH FUND
(UNAUDITED)
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- --------- ------------------------------ --------
<C> <S> <C>
AFFILIATED MUTUAL FUNDS (100.9%):
EQUITY FUNDS (77.9%):
10,306 Governor Aggressive Growth
Fund........................ $112,021
4,049 Governor Emerging Growth
Fund........................ 46,114
17,162 Governor Established Growth
Fund........................ 237,002
9,513 Governor International Equity
Fund........................ 116,062
--------
511,199
--------
FIXED INCOME FUNDS (21.1%):
8,441 Governor Intermediate Term
Income Fund................. 77,829
6,280 Governor Limited Duration
Government Securities
Fund........................ 60,921
--------
138,750
--------
MONEY MARKET FUNDS (1.9%):
12,286 Governor U.S. Treasury
Obligations Money Market
Fund........................ 12,286
--------
Total Affiliated Mutual Funds....... 662,235
--------
Total Investments
(Cost $656,512) (a)--100.9%....... 662,235
Liabilities in excess of other
assets--(0.9)%..................... (6,034)
--------
TOTAL NET ASSETS--100.0%............ $656,201
========
</TABLE>
- ---------
(a) Represents cost for financial reporting purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation......................... $ 17,801
Unrealized depreciation......................... (12,078)
--------
Net Unrealized appreciation..................... $ 5,723
========
</TABLE>
See notes to financial statements.
-48-
<PAGE> 50
GOVERNOR FUNDS
U.S. TREASURY OBLIGATIONS MONEY MARKET FUND
(UNAUDITED)
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
- --------- ------------------------------ -----------
<C> <S> <C>
U.S. TREASURY SECURITIES (34.1%):
U.S. Treasury Bills (9.7%):
2,000,000 5.21%, 1/13/00.............. $ 1,996,527
-----------
U.S. Treasury Notes (24.4%):
5,000,000 5.375%, 1/31/00............. 5,000,542
-----------
Total U.S. Treasury Securities...... 6,997,069
-----------
U.S. GOVERNMENT GUARANTEED SECURITIES (19.6%):
Private Export Funding Company (19.6%):
4,000,000 7.90%, 3/31/00.............. 4,026,814
-----------
Total U.S. Government
Guaranteed Securities........... 4,026,814
-----------
INVESTMENT COMPANY SECURITIES (0.3%):
70,531 Federated Treasury Fund....... 70,531
-----------
Total Investment Company
Securities........................ 70,531
-----------
U.S. TREASURY SECURITY COLLATERALIZED
REPURCHASE AGREEMENTS (45.5%):
4,400,000 Lehman Brothers, dated
12/31/99, 2.00%, matures
1/3/00, Proceeds at maturity
$4,400,733 (Collateralized
by 4,380,000 U.S. Treasury
Notes, 6.625%, 3/31/02,
Market Value =
$4,488,550)................. 4,400,000
4,906,000 Merrill Lynch Securities,
Inc., dated 12/31/99, 3.00%,
matures 1/3/00, Proceeds at
maturity $4,907,227
(Collateralized by 5,150,000
U.S. Treasury Bonds, 6.25%,
8/15/23, Market Value =
$5,005,169)................. 4,906,000
-----------
Total U.S. Treasury Security
Collateralized Repurchase
Agreements.............................. 9,306,000
-----------
Total Investments (Amortized Cost
$20,400,414) (a)--99.5%........... 20,400,414
Other assets in excess of
liabilities--.05%................. 96,600
-----------
TOTAL NET ASSETS--100.0%............ $20,497,014
===========
</TABLE>
- ---------
(a) Cost for federal income tax and financial reporting purposes are the same.
-49-
<PAGE> 51
GOVERNOR FUNDS
PRIME MONEY MARKET FUND
(UNAUDITED)
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
- ---------- ------------------------------ ------------
<C> <S> <C>
COMMERCIAL PAPER (42.7%):
Agriculture (2.4%):
7,835,000 Monsanto Co., 5.92%,
1/31/00..................... $ 7,796,347
------------
Automotive (7.5%):
12,000,000 Daimler-Chrysler, 5.94%,
1/27/00..................... 11,948,520
12,000,000 Ford Motor Credit, 5.94%,
1/19/00..................... 11,964,360
------------
23,912,880
------------
Banks (7.5%):
12,000,000 Allied Signal, 5.93%,
1/24/00..................... 11,954,537
12,000,000 Zions Bancorp, 6.13%,
1/20/00..................... 11,961,177
------------
23,915,714
------------
Consumer Goods and Services (10.8%):
9,000,000 Nike Inc., 5.88%, 1/31/00..... 8,955,900
14,000,000 Proctor & Gamble, 5.86%,
1/25/00..................... 13,945,307
12,000,000 General Electric Capital
Corp., 5.95%, 1/27/00....... 11,948,433
------------
34,849,640
------------
Insurance (3.1%):
10,000,000 Metlife Funding, 5.96%,
1/31/00..................... 9,950,333
------------
Machinery-Diversified (1.2%):
4,000,000 WW Grainger, 5.85%, 2/28/00... 3,962,300
------------
Retail (4.3%):
14,000,000 7-Eleven Inc., 5.97%,
1/10/00..................... 13,979,105
------------
Telecommunications (5.9%):
14,000,000 AT&T Corp, 5.84%, 2/24/00..... 13,877,360
5,000,000 Motorola, 5.87%, 1/28/00...... 4,977,988
------------
18,855,348
------------
Total Commercial Paper............... 137,221,667
------------
CORPORATE BONDS (22.0%):
Banking & Financial Services (6.8%):
10,000,000 Goldman Sachs & Co.*, 6.29%,
7/14/00..................... 10,005,770
12,000,000 JP Morgan Co.*, 6.42%,
7/6/00...................... 11,998,953
------------
22,004,723
------------
Banks (3.1%):
10,000,000 American Express Corp.*,
5.69%, 4/27/00.............. 10,000,000
------------
Beverages (3.1%):
10,000,000 Anheuser Busch, Inc.*, 4.90%,
6/16/00..................... 9,997,299
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
- ---------- ------------------------------ ------------
<C> <S> <C>
CORPORATE BONDS (CONTINUED):
Financial Services (3.7%):
12,000,000 GMAC, 5.98%, 1/27/2000........ $ 11,948,173
------------
Food Products & Services (3.1%):
10,000,000 Albertsons, 6.44%, 7/14/00.... 9,997,895
------------
Retail (2.2%):
7,000,000 Lowe's Inc., 6.95%, 2/15/00... 7,014,433
------------
Total Corporate Bonds................ 70,962,523
------------
U.S. GOVERNMENT AGENCY SECURITIES (7.1%):
10,000,000 Federal National Mortgage
Association, 5.61%,
8/9/00...................... 9,996,981
3,000,000 Federal Farm Credit Bank,
5.625%, 2/1/00.............. 2,998,592
10,000,000 Student Loan Marketing
Association, 6.04%,
2/16/00..................... 10,000,000
------------
Total U.S. Government Agency
Securities......................... 22,995,573
------------
U.S. TREASURY SECURITIES (6.0%):
20,000,000 U.S. Treasury Bill, 5.40%,
6/29/00..................... 19,460,000
------------
Total U.S. Treasury Securities....... 19,460,000
------------
INVESTMENT COMPANY SECURITIES (0.1%):
62,008 Federated Treasury Fund....... 62,008
------------
Total Investment Company
Securities......................... 62,008
------------
U.S. GOVERNMENT AGENCY SECURITY COLLATERALIZED
REPURCHASE AGREEMENTS (22.3%):
34,769,000 Lehman Brothers, dated
12/31/99, 3.00%, matures
1/3/00. Proceeds at maturity
$34,777,692 (Collateralized
by $35,464,541 U.S.
Government Agencies,
7.00% -- 8.00%,
9/1/23 -- 4/1/24, Market
Value = $33,646,503)........ 34,769,000
10,330,000 Merrill Lynch Securities,
Inc., dated 12/31/99, 3.00%,
matures 1/3/00. Proceeds at
maturity $10,332,582
(Collateralized by
$10,537,283 U.S. Government
Securities, 0.00%,
3/26/09 -- 10/3/22, Market
Value = $10,537,283)........ 10,330,000
</TABLE>
Continued
-50-
<PAGE> 52
GOVERNOR FUNDS
PRIME MONEY MARKET FUND
(UNAUDITED)
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
- ---------- ------------------------------ ------------
<C> <S> <C>
U.S. GOVERNMENT AGENCY SECURITY COLLATERALIZED
REPURCHASE AGREEMENTS, CONTINUED:
27,000,000 Painewebber, dated 12/31/99,
3.10%, matures 1/3/00.
Proceeds at maturity
$27,006,975 (Collateralized
by $27,542,664 GNMA,
6.00% -- 8.00%,
7/15/13 -- 11/15/28, Market
Value = $27,382,496)........ $ 27,000,000
------------
Total U.S. Government
Agency Security Collateralized
Repurchase Agreements.............. 72,099,000
------------
Total Investments (Amortized Cost
$322,800,771) (a)--100.2%.......... 322,800,771
Liabilities in excess of other
assets--(0.2)%...................... (621,337)
------------
TOTAL NET ASSETS--100.0%............. $322,179,434
============
</TABLE>
- ---------
(a) Cost for federal income tax and financial reporting purposes are the same.
* Denotes variable rate security. Rate presented represents rate in effect on
December 31, 1999. Maturity date reflects next rate change date.
See notes to financial statements.
-51-
<PAGE> 53
GOVERNOR FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
(UNAUDITED)
1. ORGANIZATION:
The Governor Funds (the "Trust") was organized on September 3, 1998 as a
successor to the KeyPremier Funds. The Trust is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company established as a Delaware business trust. The
Trust is authorized to issue an unlimited number of shares that are units
of beneficial interest, without par value. The Trust offers shares of the
following series: 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, the U.S.
Treasury Obligations Money Market Fund, and the Prime Money Market Fund
(collectively, the "Funds" and individually, a "Fund"). Governors Group
Advisors, Inc., a wholly owned subsidiary of Keystone Financial, Inc.,
serves as investment advisor to the Funds.
The Prime Money Market Fund is authorized to issue two classes of shares:
Investor Shares and S Shares. Each class of shares has substantially
identical rights and privileges except with respect to fees paid under
shareholder servicing or distribution plans, expense allocable exclusively
to each class of shares, voting rights on matters affecting each class of
shares, and the exchange privilege of each class of shares. The other funds
are each offered in a single class of shares.
The Funds' investment objectives are as follows:
<TABLE>
<CAPTION>
FUND OBJECTIVE
---- ---------
<S> <C>
Established Growth Fund Growth of capital with some current
income as a secondary objective
Aggressive Growth Fund Growth of capital
Emerging Growth Fund Long-term growth of capital
International Equity Fund Capital appreciation
Intermediate Term Income Fund Current income with long-term growth
of capital as a secondary objective
Limited Duration Government Securities Fund Current income with preservation of
capital as a secondary objective
Pennsylvania Municipal Bond Fund Income which is exempt from both
federal income tax and Pennsylvania
state income taxes and preservation of
capital
Lifestyle Conservative Growth Fund Capital appreciation and income
Lifestyle Moderate Growth Fund Capital appreciation with income as a
secondary objective
Lifestyle Growth Fund Capital appreciation
</TABLE>
Continued
-52-
<PAGE> 54
GOVERNOR FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
FUND OBJECTIVE
---- ---------
<S> <C>
U.S. Treasury Obligations Money Market Fund Current income with liquidity and
stability of principal
Prime Money Market Fund Current income with liquidity and
stability of principal
</TABLE>
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by
the Trust in the preparation of its financial statements. The policies are
in conformity with generally accepted accounting principles. The
preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of income
and expenses for the period. Actual results could differ from those
estimates.
SECURITIES VALUATION:
Investments of the U.S. Treasury Obligations Money Market Fund and the
Prime Money Market Fund (collectively, "the money market funds"), are
valued at amortized cost, which approximates market value. Under the
amortized cost method, discount or premium is amortized on a constant
basis to the maturity of the security. In addition, each of the money
market funds may not a) purchase any instrument with a remaining
maturity greater than 397 calendar days unless such investment is
subject to a demand feature, or b) maintain a dollar-weighted average
portfolio maturity which exceeds 90 days.
Investments in common and preferred stocks, corporate bonds, commercial
paper, municipal securities and U.S. Government securities of the
Established Growth Fund, Aggressive Growth Fund, Emerging Growth Fund,
International Equity Fund, Intermediate Term Income Fund, Limited
Duration Government Securities Fund, and Pennsylvania Municipal Bond
Fund (collectively, "the variable net asset value funds"), are valued
based upon the current available prices in the principal market in which
such securities are normally traded. Investments in investment companies
are valued at their net asset values as reported by such companies.
Other securities for which quotations are not readily available are
valued at their fair value under procedures established by the Trust's
Board of Trustees, including the use of approved independent pricing
services. The differences between the cost and market values of
investments held by the variable net asset value funds are reflected as
either unrealized appreciation or depreciation. All debt portfolio
securities with a remaining maturity of 60 days or less are valued at
amortized cost, which approximates market value. All debt securities
with a remaining maturity greater than 60 days are valued at market
value.
SECURITY TRANSACTIONS AND RELATED INCOME:
Security transactions are accounted for on the date the security is
purchased or sold (trade date). Interest income is recognized on the
accrual basis and includes, where applicable, the amortization
Continued
-53-
<PAGE> 55
GOVERNOR FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999
(UNAUDITED)
of premium or discount. Dividend income is recorded on the ex-dividend
date. Gains or losses realized on sales of securities are determined by
comparing the identified cost of the security lot sold with the net
sales proceeds.
REPURCHASE AGREEMENTS:
The Funds may acquire repurchase agreements from financial institutions
which the Funds' sub-advisors, Martindale Andres & Co., Inc. and Brinson
Partners, Inc. deem creditworthy under guidelines approved by the Board
of Trustees, subject to the seller's agreement to repurchase such
securities at a mutually agreed-upon date and price. The repurchase
price generally equals the price paid by each 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, is required to maintain the value
of collateral held pursuant to the agreement at not less than the
repurchase price (including accrued interest). Securities subject to
repurchase agreements are held by the Funds' custodian or another
qualified custodian or in the Federal Reserve/Treasury book-entry
system.
FOREIGN CURRENCY TRANSLATION:
The accounting records of the Trust are maintained in U.S. dollars.
Investment securities and other assets and liabilities of the
International Equity Fund denominated in a foreign currency are
translated into U.S. dollars at current exchange rates. Purchases and
sales of securities, income receipts and expense payments are translated
into U.S. dollars at the exchange rate on the dates of the transactions.
The portion of realized gains or losses and unrealized appreciation or
depreciation from investments due to fluctuations in foreign currency
exchange rates is not separately disclosed. Such fluctuations are
included with the net realized and unrealized gain or loss from
investments.
Realized foreign exchange gains or losses arise from sales and
maturities of securities, sales of foreign currencies, currency exchange
fluctuations between the trade and settlement dates of securities
transactions, and the difference between the amount of assets and
liabilities recorded and the U.S. dollar equivalent of the amounts
actually received or paid. Net unrealized foreign exchange gains and
losses arise from changes in the value of assets and liabilities,
including investments in securities, resulting from changes in currency
exchange rates.
FUTURES CONTRACTS:
The Established Growth Fund, Aggressive Growth Fund, Emerging Growth
Fund, International Equity Fund, Intermediate Term Income Fund and
Pennsylvania Municipal Bond Fund may invest in long or short futures
contracts for hedging purposes, to increase total return (i.e. for
speculative purposes) or to maintain liquidity. These Funds bear the
risk arising from changes in the value of these financial instruments.
At the time a Fund enters into a futures contract it is required to make
a margin deposit with the custodian of the specified amount of liquid
assets. Subsequent payments,
Continued
-54-
<PAGE> 56
GOVERNOR FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999
(UNAUDITED)
known as "variation margin," are made or received by the Fund each day,
depending on the daily fluctuations in the fair value of the underlying
security. Should the market conditions move unexpectedly, the Fund may
not achieve the anticipated benefits of the financial futures contracts
and may realize a loss. The Statements of Operations reflect gains and
losses as realized for closed futures contracts and as unrealized for
any open futures contracts. There were no open futures contracts as of
December 31, 1999.
FORWARD FOREIGN CURRENCY CONTRACTS:
The International Equity fund may invest in forward foreign currency
contracts. A forward foreign currency contract ("forward") is an
agreement between two parties to buy and sell a currency at a set price
on a future date. The market value of the forward fluctuates with
changes in currency exchange rates. The forward is marked-to-market
daily and the change in market value is recorded by a Fund as unrealized
appreciation or depreciation. When the forward is closed, the Fund
records a realized gain or loss equal to the fluctuation in value during
the period the forward was open. A Fund could be exposed to risk if
counterparty is unable to meet the terms of a forward or if the value of
the currency changes unfavorably. Activity in forward foreign currency
contracts during the period ended December 31, 1999 was primarily for
hedging exposure to foreign currency fluctuations between trade date and
settle date related to security transactions.
DIVIDENDS TO SHAREHOLDERS:
Dividends from net investment income are declared daily and distributed
monthly for the money market funds. Dividends from net investment income
are declared and distributed monthly for the Intermediate Term Income,
Limited Duration Government Securities, and Pennsylvania Municipal Bond
Funds. Dividends from net investment income are declared and distributed
quarterly for the Established Growth, Aggressive Growth, Lifestyle
Conservative Growth, Lifestyle Moderate Growth, and Lifestyle Growth
Funds. Dividends from net investment income are declared and distributed
semi-annually for the Emerging Growth Fund. Dividends from net
investment income are declared and distributed annually for the
International Equity Fund. Distributable net realized capital gains, if
any, are declared and distributed annually for each of the Funds.
Additional distributions are also made to the Funds' shareholders to the
extent necessary to avoid the federal excise tax on certain
undistributed income and net capital gains of registered investment
companies.
The amounts of dividends from net investment income and of distributions
from net realized gains are determined in accordance with federal income
tax regulations, which may differ from generally accepted accounting
principles. These "book/tax" differences are either considered temporary
or permanent in nature. To the extent these differences are permanent in
nature, such amounts are reclassified within the composition of net
assets based on their federal tax-basis treatment; temporary differences
do not require reclassification. Dividends and distributions to
shareholders which exceed net investment income and net realized capital
gains for financial reporting purposes but not for tax purposes are
reported as dividends in excess of net investment income and net
realized gains, however for tax purposes, they are reported as
distributions of capital.
Continued
-55-
<PAGE> 57
GOVERNOR FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999
(UNAUDITED)
ORGANIZATION COSTS:
All expenses incurred in connection with each Fund's organization and
registration under the 1940 Act and the Securities Act of 1933 were paid
by that Fund, except for the Emerging Growth Fund. Such expenses, except
those of the Emerging Growth Fund, are amortized over a period of five
years commencing with the date of the initial public offering.
On June 30, 1998 the Trust adopted Statement of Position (SOP) 98-5,
"Reporting on the Costs of Start-Up Activities." Under the provisions of
SOP 98-5, costs associated with organizing a fund which commences
operating subsequent to June 30, 1998, must be expensed as incurred and
may not be amortized over future periods.
Accordingly, costs incurred in connection with the organization of the
International Equity Fund, Lifestyle Conservative Growth Fund, Lifestyle
Moderate Growth Fund and Lifestyle Growth Fund were expensed as incurred
and are included in "Other Expenses" in the accompanying Statements of
Operations.
OTHER:
The Funds may maintain a cash balance with their custodian and receive a
reduction of their custody fees and expenses for the amount of interest
earned on such uninvested cash balances. For financial reporting
purposes, for the six months ended December 31, 1999, custodian fees and
expenses and expenses paid by third parties were less than $100 per
fund.
There was no effect on net investment income. The Funds could have
invested such cash amounts in an income-producing asset if they had not
agreed to a reduction of fees or expenses under the expense offset
arrangement with their custodian.
3. RELATED PARTY TRANSACTIONS:
Investment advisory services are provided to the Funds by Governors Group
Advisors, Inc. (the "Advisor"). The Advisor has entered into a Sub-Advisory
Agreement with Martindale Andres & Company, Inc., also a wholly owned
subsidiary of Keystone Financial, Inc., for each of the Funds other than
the International Equity Fund. The Advisor has also entered into a
Sub-Advisory Agreement with Brinson Partners, Inc., a wholly owned
subsidiary of UBS AG, for the International Equity Fund. Under the terms of
the investment advisory agreement, the Advisor is entitled to receive fees
from the Funds based on a percentage of the average net assets of each
Fund. Fees payable under the Sub-Advisory Agreements are borne by the
Advisor, and not by the Funds.
BISYS Fund Services Limited Partnership, ("BISYS") and BISYS Fund Services
Ohio, Inc. ("BISYS, Ohio") are subsidiaries of The BISYS Group, Inc.
Certain officers and trustees of the Trust are affiliated with BISYS. The
Funds make no direct payments to these affiliated officers and trustees.
Continued
-56-
<PAGE> 58
GOVERNOR FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999
(UNAUDITED)
Governors Group Advisors, Inc. serves the fund as co-administrator, and
BISYS Ohio and BISYS serve the fund as co-administrator and distributor,
respectively. Pursuant to the management and administration agreement, the
Funds pay BISYS and the Advisor a monthly fee for their services at an
annual rate of 0.15% of the aggregate average daily net assets of the Funds
except for the Lifestyle Funds. BISYS Ohio serves the Funds as transfer
agent and mutual fund accountant. For these services to the Funds, BISYS
Ohio receives an annual per fund fee computed daily and paid monthly.
The Trust has adopted an Administrative 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 Keystone
Financial Inc. and its correspondent and affiliated banks and BISYS, for
providing recordkeeping and/or administrative support services to their
customers who are the beneficial or record owners of a Fund. The
compensation, which is paid monthly, under the Administrative Services Plan
is a fee computed daily at an annual rate of the average daily net asset
value of each of the funds.
The Trust has adopted a Distribution Plan under Rule 12b-1 under the 1940
Act (the "12b-1 Plan") pursuant to which the Lifestyle Conservative Growth
Fund, Lifestyle Moderate Growth Fund and Lifestyle Growth Fund
(collectively, the "Lifestyle Funds") are authorized to reimburse BISYS
("the Distributor"). Amounts paid to the Distributor under the 12b-1 Plan
may be used by the Distributor to pay securities broker dealers or other
financial intermediaries for providing personal services to shareholders of
the Lifestyle Funds, including responding to inquiries, providing
information to shareholders about their Lifestyle Fund accounts,
establishing and maintaining accounts and records, processing dividend and
distribution payments, arranging for bank wires, assisting in transactions,
and changing account information. Under the 12b-1 Plan, each Lifestyle Fund
may reimburse the Distributor at an annual rate of up to 0.50% of the
average daily net assets of each Lifestyle Fund.
BISYS is also entitled to receive commissions on sales of shares of the
variable net asset value funds. For the six months ended December 31, 1999,
BISYS received $130,150 from commissions earned on sales of shares of the
variable net asset value funds, of which $4,400 was reallowed to
broker-dealers affiliated with Keystone Financial, Inc.
The variable net asset value funds invest a portion of their assets in the
money market funds. To avoid duplicate fees, the money market funds remit
to any variable net asset value funds invested therein, an amount equal to
all fees assessed on the assets invested in such funds.
Expenses for the Trust include legal fees paid to Drinker Biddle & Reath
LLP. A partner of that firm serves as secretary of the Trust.
Fees may be voluntarily reduced to assist the Funds in maintaining
competitive expense ratios.
Continued
-57-
<PAGE> 59
GOVERNOR FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999
(UNAUDITED)
Information regarding these transactions is as follows for the six months
ended December 31, 1999:
<TABLE>
<CAPTION>
INTERMEDIATE
ESTABLISHED AGGRESSIVE EMERGING INTERNATIONAL TERM
GROWTH GROWTH GROWTH EQUITY INCOME
FUND FUND FUND FUND FUND
----------- ---------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT ADVISORY FEES:
Annual fee before voluntary fee
reductions (percentage of
average net assets)............. 0.75% 1.00% 1.25% 1.25% 0.60%
Voluntary fee reductions.......... $189,875 $196,159 $36,306 $176,308 $457,975
ADMINISTRATIVE SERVICES FEES:
Annual fee before voluntary fee
reductions (percentage of
average net assets)............. 0.25% 0.25% 0.25% 0.25% 0.25%
Voluntary fee reductions.......... $ 44,304 $ 22,885 $ 1,694 $ 7,260 $ 53,430
</TABLE>
<TABLE>
<CAPTION>
LIMITED DURATION PENNSYLVANIA LIFESTYLE LIFESTYLE
GOVERNMENT MUNICIPAL CONSERVATIVE MODERATE LIFESTYLE
SECURITIES BOND GROWTH GROWTH GROWTH
FUND FUND FUND FUND FUND
---------------- ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
INVESTMENT ADVISORY FEES:
Annual fee before voluntary fee
reductions (percentage of
average net assets)........... 0.60% 0.60% 0.25% 0.25% 0.25%
Voluntary fee reductions........ $79,206 $163,285 $ 100 $ 305 $ 184
ADMINISTRATIVE SERVICES FEES:
Annual fee before voluntary fee
reductions (percentage of
average net assets)........... 0.25% 0.25% -- -- --
Voluntary fee reductions........ $ 9,241 $ 19,050 $ -- $ -- $ --
</TABLE>
<TABLE>
<CAPTION>
U.S. TREASURY
OBLIGATIONS
MONEY PRIME
MARKET MONEY MARKET
FUND FUND
------------- ------------
<S> <C> <C>
INVESTMENT ADVISORY FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets)...................... 0.40% 0.40%
Voluntary fee reductions.................................. $19,358 $284,403
ADMINISTRATIVE SERVICES FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets)...................... 0.25% 0.25%
Voluntary fee reductions.................................. $ 3,388 $ 49,771
</TABLE>
Continued
-58-
<PAGE> 60
GOVERNOR FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999
(UNAUDITED)
4. PURCHASES AND SALES OF SECURITIES:
Purchases and sales of portfolio securities (excluding short-term
securities) for the variable net asset value funds for the six months ended
December 31, 1999, are as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
---------- ----------
<S> <C> <C>
Established Growth Fund..................................... $5,798,382 $6,162,133
Aggressive Growth Fund...................................... 4,735,858 5,077,921
Emerging Growth Fund........................................ 831,919 370,619
International Equity Fund................................... 3,350,229 3,732,013
Intermediate Term Income Fund............................... 14,881,250 28,705,096
Limited Duration Government Securities Fund................. 9,950,781 8,036,359
Pennsylvania Municipal Bond Fund............................ 4,949,880 34,869,937
Lifestyle Conservative Growth Fund.......................... 884 112
Lifestyle Moderate Growth Fund.............................. 78,012 1,115
Lifestyle Growth Fund....................................... 89,285 278
</TABLE>
5. CAPITAL SHARE TRANSACTIONS:
Capital share transactions for the Prime Money Market Fund were as follows:
<TABLE>
<CAPTION>
PRIME MONEY MARKET FUND
---------------------------------
SIX MONTHS YEAR
ENDED ENDED
DECEMBER 31,1999 JUNE 30, 1999
---------------- -------------
<S> <C> <C>
CAPITAL TRANSACTIONS:
Investor Shares:
Proceeds from shares issued........................... $322,919,440 $538,446,396
Dividends reinvested.................................. 746,965 1,410,478
Cost of shares redeemed............................... (266,952,536) (496,155,628)
------------ ------------
Investor Shares capital transactions.................. 56,713,869 43,701,246
------------ ------------
S Shares:
Proceeds from shares issued........................... $ 5,423,870 $ 1,059,052
Cost of shares redeemed............................... (2,204,512) (373,975)
------------ ------------
S Shares capital transactions......................... 3,219,358 685,077
------------ ------------
Change in net assets from capital transactions........ $ 59,933,227 $ 44,386,323
============ ============
SHARE TRANSACTIONS:
Investor Shares:
Issued................................................ 322,919,440 538,446,396
Reinvested............................................ 746,965 1,410,478
Redeemed.............................................. (266,952,536) (496,155,628)
------------ ------------
Change in Investor Shares............................. 56,713,869 43,701,246
------------ ------------
</TABLE>
Continued
-59-
<PAGE> 61
GOVERNOR FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PRIME MONEY MARKET FUND
---------------------------------
SIX MONTHS YEAR
ENDED ENDED
DECEMBER 31,1999 JUNE 30, 1999
---------------- -------------
<S> <C> <C>
S Shares:
Issued................................................ 5,423,870 1,059,052
Redeemed.............................................. (2,204,512) (373,975)
------------ ------------
Change in S Shares.................................... 3,219,358 685,077
------------ ------------
Change in shares from capital transactions............ $ 59,933,227 $ 44,386,323
============ ============
</TABLE>
6. CONCENTRATION OF CREDIT RISK:
The Pennsylvania Municipal Bond Fund invests substantially all of its
assets in a non-diversified portfolio of tax-exempt debt obligations issued
by the state of Pennsylvania and its authorities and agencies. The issuers'
abilities to meet their obligations may be affected by economic or
political developments in the state of Pennsylvania.
The Pennsylvania Municipal Bond Fund had the following concentrations by
sector at December 31, 1999 (as a percentage of total investments): Insured
59.9%, Prerefunded 14.8%, Revenue 16.7%, General Obligation 7.5%,
Investment Company/Cash 1.1%.
7. SUBSEQUENT EVENTS:
At a meeting held on February 3, 2000, the Board of Trustees of the Trust
approved the liquidation of the Emerging Growth Fund. It is expected that
the liquidation will be effected on or about March 31, 2000. The Emerging
Growth Fund has begun and will continue to sell its portfolio securities
and invest in short-term obligations and cash in order to effect the
liquidation. Shareholders can redeem and exchange their shares of the
Emerging Growth Fund at any time prior to liquidation. Effective February
3, 2000, the Trust no longer accepts requests to purchase shares of the
Emerging Growth Fund. Consequently, the Lifestyle Growth Fund will not
invest in additional shares of the Emerging Growth Fund.
The Advisor has informed the Fund that it expects that on, before or about
June 1, 2000, the Adviser will be reorganized into the Sub-Advisor, with no
resulting change of actual control or management. The Advisor and
Sub-Advisor are wholly-owned subsidiaries of Keystone. The reorganization
would result in the Sub-Advisor assuming all of the obligation and
responsibilities of the Advisor under the Investment Advisory Agreement
with the Fund and under the Sub-Advisory Agreement with the International
Equity Fund Sub-Advisor.
Continued
-60-
<PAGE> 62
GOVERNOR FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
ESTABLISHED GROWTH FUND
--------------------------------------------------------
FOR THE
SIX MONTHS
ENDED FOR THE FOR THE FOR THE
DECEMBER 31, YEAR ENDED YEAR ENDED PERIOD ENDED
1999 JUNE 30, JUNE 30, JUNE 30,
(UNAUDITED) 1999 1998 1997(a)
------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD... $ 15.88 $ 14.06 $ 11.13 $ 10.00
-------- -------- -------- --------
INVESTMENT ACTIVITIES:
Net investment income................ 0.01 0.06 0.10 0.08
Net realized and unrealized gain on
investments....................... 1.34 2.16 2.99 1.13
-------- -------- -------- --------
Total from Investment
Activities...................... 1.35 2.22 3.09 1.21
-------- -------- -------- --------
DISTRIBUTIONS FROM:
Net investment income................ (0.01) (0.06) (0.10) (0.08)
Net realized gains................... (3.41) (0.34) (0.06) --
-------- -------- -------- --------
Total Distributions............... (3.42) (0.40) (0.16) (0.08)
-------- -------- -------- --------
Net change in net asset value per
share............................. (2.07) 1.82 2.93 1.13
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD......... $ 13.81 $ 15.88 $ 14.06 $ 11.13
======== ======== ======== ========
Total Return (excluding sales
charge).............................. 10.43%(b) 16.20% 27.92% 12.20%(b)
RATIOS/ SUPPLEMENTAL DATA:
Net Assets, at end of period (in
thousands)........................ $271,112 $260,437 $258,812 $190,914
Ratio of expenses to average net
assets............................ 0.92%(c) 0.91% 0.71% 0.44%(c)
Ratio of net investment income to
average net assets................ 0.14%(c) 0.42% 0.77% 1.39%(c)
Ratio of expenses to average net
assets*........................... 1.11%(c) 1.19% 1.06% 1.01%(c)
Portfolio Turnover................... 26% 2% 6% 1%
</TABLE>
- ---------------
* During the period certain fees were voluntarily reduced and/or reimbursed. If
such voluntary fee reductions and/or reimbursements had not occurred, the
ratio would have been as indicated.
(a) Commencement of operations of the Fund was December 2, 1996.
(b) Not annualized.
(c) Annualized.
See notes to financial statements.
-61-
<PAGE> 63
GOVERNOR FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH FUND
-----------------------------------------------------
FOR THE
PERIOD ENDED FOR THE FOR THE FOR THE
DECEMBER 31, YEAR ENDED YEAR ENDED PERIOD ENDED
1999 JUNE 30, JUNE 30, JUNE 30,
(UNAUDITED) 1999 1998 1997(A)
------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...... $ 12.02 $ 11.41 $ 10.24 $ 10.00
-------- -------- -------- --------
INVESTMENT ACTIVITIES:
Net investment income (loss)............ (0.01) (0.01) (0.01) 0.01
Net realized and unrealized gain on
investments.......................... 0.57 1.00 1.30 0.24
-------- -------- -------- --------
Total from Investment Activities..... 0.56 0.99 1.29 0.25
-------- -------- -------- --------
DISTRIBUTIONS FROM:
Net investment income................... -- -- -- (0.01)
In excess of net investment income...... -- (0.01) -- --
Net realized gains...................... (1.71) (0.37) (0.12) --
-------- -------- -------- --------
Total Distributions.................. (1.71) (0.38) (0.12) (0.01)
-------- -------- -------- --------
Net change in net asset value per
share................................ (1.15) 0.61 1.17 0.24
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD............ $ 10.87 $ 12.02 $ 11.41 $ 10.24
======== ======== ======== ========
Total Return (excluding sales charge)..... 6.42%(b) 9.24% 12.72% 2.52%(b)
RATIOS/ SUPPLEMENTAL DATA:
Net Assets, at end of period (in
thousands)........................... $138,481 $139,512 $135,612 $105,258
Ratio of expenses to average net
assets............................... 1.05%(c) 1.04% 0.83% 0.66%(c)
Ratio of net investment income (loss) to
average net assets................... (0.16%)(c) (0.05%) (0.09%) 0.28%(c)
Ratio of expenses to average net
assets*.............................. 1.38%(c) 1.47% 1.33% 1.35%(c)
Portfolio Turnover...................... 16% 18% 8% 2%
</TABLE>
- ---------------
* During the period certain fees were voluntarily reduced and/or reimbursed. If
such voluntary fee reductions and/or reimbursements had not occurred, the
ratio would have been as indicated.
(a) Commencement of operations of the Fund was February 3, 1997.
(b) Not annualized.
(c) Annualized.
See notes to financial statements.
-62-
<PAGE> 64
GOVERNOR FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
EMERGING GROWTH FUND
--------------------------
FOR THE
SIX MONTHS
ENDED FOR THE
DECEMBER 31, YEAR ENDED
1999 JUNE 30,
(UNAUDITED) 1999(a)
------------ ----------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 11.98 $ 10.00
------- -------
INVESTMENT ACTIVITIES:
Net investment income..................................... (0.05) --
Net realized and unrealized gain on investments........... 0.00 2.07
------- -------
Total from Investment Activities....................... (0.05) 2.07
------- -------
DISTRIBUTIONS FROM:
Net investment income..................................... -- (0.06)
Net realized gains........................................ (0.54) (0.03)
------- -------
Total Distributions.................................... (0.54) (0.09)
------- -------
Net change in net asset value per share................... (0.59) 1.98
------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 11.39 $ 11.98
======= =======
Total Return (excluding sales charge)....................... (0.13%)(b) 20.74%
RATIOS/ SUPPLEMENTAL DATA:
Net Assets, at end of period (in thousands)............... $ 9,772 $ 9,927
Ratio of expenses to average net assets................... 1.76%(c) 1.41%
Ratio of net investment income (loss) to average net
assets................................................. (0.82%)(c) (0.02%)
Ratio of expenses to average net assets*.................. 2.54%(c) 2.60%
Portfolio Turnover........................................ 31% 53%
</TABLE>
- ---------------
* During the period certain fees were voluntarily reduced and/or reimbursed. If
such voluntary fee reductions and/or reimbursements had not occurred, the
ratio would have been as indicated.
(a) Commencement of operations of the Fund was July 1, 1998.
(b) Not annualized.
(c) Annualized.
See notes to financial statements.
-63-
<PAGE> 65
GOVERNOR FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
----------------------------
FOR THE
SIX MONTHS
ENDED FOR THE
DECEMBER 31, PERIOD ENDED
1999 JUNE 30,
(UNAUDITED) 1999(a)
------------ ------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.59 $ 10.00
------- -------
INVESTMENT ACTIVITIES:
Net investment income (loss).............................. -- 0.11
Net realized and unrealized gain on investments........... 1.89 0.48
------- -------
Total from Investment Activities....................... 1.89 0.59
------- -------
DISTRIBUTIONS FROM:
Net investment income..................................... (0.13) --
In excess of net investment income........................ (0.01) --
Net realized gains........................................ (0.14) --
------- -------
Total Distributions.................................... (0.28) --
------- -------
Net change in net asset value per share................... 1.61 0.59
------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 12.20 $ 10.59
======= =======
Total Return (excluding sales charge)....................... 18.00%(b) 5.90%(b)
RATIOS/ SUPPLEMENTAL DATA:
Net Assets, at end of period (in thousands)............... $45,595 $39,506
Ratio of expenses to average net assets................... 0.97%(c) 0.98%(c)
Ratio of net investment income (loss) to average net
assets................................................. 0.07%(c) 2.80%(c)
Ratio of expenses to average net assets*.................. 1.85%(c) 1.86%(c)
Portfolio Turnover........................................ 29% 17%
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratio would have been as indicated.
(a) Commencement of operations of the Fund was February 9, 1999.
(b) Not annualized.
(c) Annualized.
See notes to financial statements.
-64-
<PAGE> 66
GOVERNOR FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INTERMEDIATE TERM INCOME FUND
-----------------------------------------------------
FOR THE
PERIOD ENDED FOR THE FOR THE FOR THE
DECEMBER 31, YEAR ENDED YEAR ENDED PERIOD ENDED
1999 JUNE 30, JUNE 30, JUNE 30,
(UNAUDITED) 1999 1998 1997(a)
------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...... $ 9.49 $ 10.10 $ 9.77 $ 10.00
-------- -------- -------- --------
INVESTMENT ACTIVITIES:
Net investment income................... 0.29 0.59 0.62 0.36
Net realized and unrealized gain (loss)
on investments....................... (0.27) (0.50) 0.33 (0.23)
-------- -------- -------- --------
Total from Investment Activities..... 0.02 0.09 0.95 0.13
-------- -------- -------- --------
DISTRIBUTIONS FROM:
Net investment income................... (0.29) (0.59) (0.62) (0.36)
Net realized gains...................... -- (0.11) -- --
-------- -------- -------- --------
Total Distributions.................. (0.29) (0.70) (0.62) (0.36)
-------- -------- -------- --------
Net change in net asset value per
share................................ (0.27) (0.61) 0.33 (0.23)
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD............ $ 9.22 $ 9.49 $ 10.10 $ 9.77
======== ======== ======== ========
Total Return (excluding sales charge)..... 0.26%(b) 0.82% 9.95%(a) 1.40%(b)
RATIO/ SUPPLEMENTAL DATA:
Net Assets, at end of year (in
thousands)........................... $277,348 $305,981 $275,565 $207,859
Ratio of expenses to average net
assets............................... 0.54%(c) 0.56% 0.57%(b) 0.37%(c)
Ratio of net investment income to
average net assets................... 6.13%(c) 5.97% 6.27%(b) 6.45%(c)
Ratio of expenses to average net
assets*.............................. 0.88%(c) 0.98% 0.92%(b) 0.84%(c)
Portfolio Turnover...................... 99% 149% 218% 329%
</TABLE>
- ---------------
* During the period certain fees were voluntarily reduced and/or reimbursed. If
such voluntary fee reductions and/or reimbursements had not occurred, the
ratio would have been as indicated.
(a) Commencement of operations of the Fund was December 2, 1996.
(b) Not annualized.
(c) Annualized.
See notes to financial statements.
-65-
<PAGE> 67
GOVERNOR FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
LIMITED DURATION GOVERNMENT SECURITIES FUND
------------------------------------------------
FOR THE
PERIOD ENDED FOR THE FOR THE
DECEMBER 31, YEAR ENDED PERIOD ENDED
1999 JUNE 30, JUNE 30,
(UNAUDITED) 1999 1998(a)
------------ ------------ ------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........... $ 9.83 $ 9.96 $ 10.00
------- ------- -------
INVESTMENT ACTIVITIES:
Net investment income........................ 0.27 0.54 0.56
Net realized and unrealized gain (loss) on
investments............................... (0.13) (0.13) (0.04)
------- ------- -------
Total from Investment Activities.......... 0.14 0.41 0.52
------- ------- -------
DISTRIBUTIONS FROM:
Net investment income........................ (0.27) (0.54) (0.56)
Net realized gains........................... -- -- --
------- ------- -------
Total Distributions....................... (0.27) (0.54) (0.56)
------- ------- -------
Net change in net asset value per share...... (0.13) (0.13) (0.04)
------- ------- -------
NET ASSET VALUE, END OF PERIOD................. $ 9.70 $ 9.83 $ 9.96
======= ======= =======
Total Return (excluding sales charge).......... 1.48%(b) 4.25% 5.39%
RATIO/ SUPPLEMENTAL DATA:
Net Assets, at end of year (in thousands).... $52,081 $52,041 $29,360
Ratio of expenses to average net assets...... 0.60%(c) 0.59% 0.65%
Ratio of net investment income to average net
assets.................................... 5.58%(c) 5.51% 5.58%
Ratio of expenses to average net assets*..... 0.94%(c) 1.03% 1.18%
Portfolio Turnover........................... 122% 519% 482%
</TABLE>
- ---------------
* During the period certain fees were voluntarily reduced and/or reimbursed. If
such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
(a) Commencement of operations of the Fund was July 1, 1997.
(b) Not annualized.
(c) Annualized.
See notes to financial statements.
-66-
<PAGE> 68
GOVERNOR FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PENNSYLVANIA MUNICIPAL BOND FUND
-------------------------------------------------------------
FOR THE
SIX MONTHS
ENDED FOR THE FOR THE
DECEMBER 31, YEAR ENDED YEAR ENDED FOR THE
1999 JUNE 30, JUNE 30, PERIOD ENDED
(UNAUDITED) 1999 1998 JUNE 30, 1997(a)
------------ ---------- ---------- -----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................ $ 10.05 $ 10.39 $ 10.29 $ 10.21
------- ------- -------- --------
INVESTMENT ACTIVITIES:
Net investment income............. 0.23 0.47 0.49 0.34
Net realized and unrealized gain
(loss) on investments.......... (0.34) (0.26) 0.11 0.06
------- ------- -------- --------
Total from Investment
Activities................... (0.11) 0.21 0.60 0.40
------- ------- -------- --------
DISTRIBUTIONS FROM:
Net investment income............. (0.23) (0.48) (0.50) (0.32)
Net realized gains................ (0.01) (0.07) -- --
------- ------- -------- --------
Total Distributions............ (0.24) (0.55) (0.50) (0.32)
------- ------- -------- --------
Net change in net asset value per
share.......................... (0.35) (0.34) 0.10 0.08
------- ------- -------- --------
NET ASSET VALUE, END OF PERIOD...... $ 9.70 $ 10.05 $ 10.39 $ 10.29
======= ======= ======== ========
Total Return (excluding sales
charge)........................... (1.08%)(b) 1.94% 5.89% 3.98%(b)
RATIO/ SUPPLEMENTAL DATA:
Net assets, at end of year (in
thousands)..................... $74,151 $11,893 $118,685 $123,194
Ratio of expenses to average net
assets......................... 0.57% (c) 0.59% 0.58% 0.37%(c)
Ratio of net investment income to
average net assets............. 4.39% (c) 4.45% 4.65% 4.46%(c)
Ratio of expenses to average net
assets*........................ 0.91% (c) 1.00% 0.92% 0.86%(c)
Portfolio Turnover................ 40% 90% 62% 98%
</TABLE>
- ---------------
* During the period certain fees were voluntarily reduced and/or reimbursed. If
such voluntary fee reductions and/or reimbursements had not occurred, the
ratio would have been as indicated.
(a) Commencement of operations of the Fund was October 1, 1996.
(b) Not annualized.
(c) Annualized.
See notes to financial statements.
-67-
<PAGE> 69
GOVERNOR FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
LIFESTYLE CONSERVATIVE
GROWTH FUND
----------------------------
FOR THE
SIX MONTHS
ENDED FOR THE
DECEMBER 31, PERIOD ENDED
1999 JUNE 30,
(UNAUDITED) 1999(a)
------------ ------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.15 $ 10.00
------- -------
INVESTMENT ACTIVITIES:
Net investment income..................................... 0.17 0.07
Net realized and unrealized gain on investments........... 0.25 0.15
------- -------
Total from Investment Activities....................... 0.42 0.22
------- -------
DISTRIBUTIONS FROM:
Net investment income..................................... (0.17) (0.07)
Net realized gains........................................ -- --
------- -------
Total Distributions.................................... (0.17) (0.07)
------- -------
Net change in net asset value per share................... 0.25 0.15
------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 10.40 $ 10.15
======= =======
Total Return (excluding sales charge)....................... 4.21%(b) 2.21%(b)
RATIOS/ SUPPLEMENTAL DATA:
Net Assets, at end of period (in thousands)............... $ 240 $ 150
Ratio of expenses to average net assets................... 1.30%(c) 1.79%(c)
Ratio of net investment income to average net assets...... 3.79%(c) 2.57%(c)
Ratio of expenses to average net assets*.................. 1.40%(c) 92.41%(c)
Portfolio Turnover........................................ 5% 2%
</TABLE>
- ---------------
* During the period certain fees were voluntarily reduced and/or reimbursed. If
such voluntary fee reductions and/or reimbursements had not occurred, the
ratio would have been as indicated.
(a) Commencement of operations of the Fund was February 3, 1999.
(b) Not annualized.
(c) Annualized.
See notes to financial statements.
-68-
<PAGE> 70
GOVERNOR FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
LIFESTYLE MODERATE
GROWTH FUND
----------------------------
FOR THE
SIX MONTHS
ENDED FOR THE
DECEMBER 31, PERIOD ENDED
1999 JUNE 30,
(UNAUDITED) 1999(a)
------------ ------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.56 $ 10.00
------- -------
INVESTMENT ACTIVITIES:
Net investment income..................................... 0.15 0.04
Net realized and unrealized gain on investments........... 0.52 0.56
------- -------
Total from Investment Activities....................... 0.67 0.60
------- -------
DISTRIBUTIONS FROM:
Net investment income..................................... (0.15) (0.04)
Net realized gains........................................ (0.01) --
------- -------
Total Distributions.................................... (0.16) (0.04)
------- -------
Net change in net asset value per share................... 0.51 0.56
------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 11.07 $ 10.56
======= =======
Total Return (excluding sales charge)....................... 6.31%(b) 6.02%(b)
RATIOS/ SUPPLEMENTAL DATA:
Net Assets, at end of period (in thousands)............... $ 869 $ 285
Ratio of expenses to average net assets................... 1.30%(c) 1.76%(c)
Ratio of net investment income to average net assets...... 3.49%(c) 1.17%(c)
Ratio of expenses to average net assets*.................. 1.41%(c) 36.79%(c)
Portfolio Turnover........................................ 8% 6%
</TABLE>
- ---------------
* During the period certain fees were voluntarily reduced and/or reimbursed. If
such voluntary fee reductions and/or reimbursements had not occurred, the
ratio would have been as indicated.
(a) Commencement of operations of the Fund was February 4, 1999.
(b) Not annualized.
(c) Annualized.
See notes to financial statements.
-69-
<PAGE> 71
GOVERNOR FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
LIFESTYLE GROWTH FUND
----------------------------
FOR THE
SIX MONTHS
ENDED FOR THE
DECEMBER 31, PERIOD ENDED
1999 JUNE 30,
(UNAUDITED) 1999(a)
------------ ------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.77 $ 10.00
------- -------
INVESTMENT ACTIVITIES:
Net investment income..................................... 0.14 0.02
Net realized and unrealized gain on investments........... 0.62 0.77
------- -------
Total from Investment Activities....................... 0.76 0.79
------- -------
DISTRIBUTIONS FROM:
Net investment income..................................... (0.14) (0.02)
Net realized gains........................................ -- --
------- -------
Total Distributions.................................... (0.14) (0.02)
------- -------
Net change in net asset value per share................... 0.62 0.77
------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 11.39 $ 10.77
======= =======
Total Return (excluding sales charge)....................... 7.06%(b) 7.87%(b)
RATIOS/ SUPPLEMENTAL DATA:
Net Assets, at end of period (in thousands)............... $ 656 $ 218
Ratio of expenses to average net assets................... 1.31%(c) 1.81%(c)
Ratio of net investment income to average net assets...... 3.93%(c) 0.07%(c)
Ratio of expenses to average net assets*.................. 1.41%(c) 51.10%(c)
Portfolio Turnover........................................ 4% 0%
</TABLE>
- ---------------
* During the period certain fees were voluntarily reduced and/or reimbursed. If
such voluntary fee reductions and/or reimbursements had not occurred, the
ratio would have been as indicated.
(a) Commencement of operations of the Fund was February 18, 1999.
(b) Not annualized.
(c) Annualized.
See notes to financial statements.
-70-
<PAGE> 72
GOVERNOR FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
U.S. TREASURY OBLIGATIONS
MONEY MARKET FUND
----------------------------------------
FOR THE
SIX MONTHS
ENDED FOR THE FOR THE
DECEMBER 31, YEAR ENDED YEAR ENDED
1999 JUNE 30, JUNE 30,
(UNAUDITED) 1999 1998(a)
------------ ---------- ----------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................... $ 1.000 $ 1.000 $ 1.000
------- ------- -------
INVESTMENT ACTIVITIES:
Net investment income................................ 0.022 0.042 0.047
Net realized and unrealized gain on investments...... -- -- --
------- ------- -------
Total from Investment Activities.................. 0.022 0.042 0.047
------- ------- -------
DISTRIBUTIONS FROM:
Net investment income................................ (0.022) (0.042) (0.047)
Net realized gains................................... -- -- --
------- ------- -------
Total Distributions............................... (0.022) (0.042) (0.047)
------- ------- -------
Net change in net asset value per share.............. -- -- --
------- ------- -------
NET ASSET VALUE, END OF PERIOD......................... $ 1.000 $ 1.000 $ 1.000
======= ======= =======
Total Return (excluding sales charge).................. 2.19%(b) 4.28% 4.78%
RATIOS/ SUPPLEMENTAL DATA:
Net Assets, at end of period (in thousands).......... $20,497 $19,575 $23,520
Ratio of expenses to average net assets.............. 0.71%(c) 0.72% 0.71%
Ratio of net investment income to average net
assets............................................ 4.30%(c) 4.20% 4.64%
Ratio of expenses to average net assets*............. 0.94%(c) 1.05% 1.07%
</TABLE>
- ---------------
* During the period certain fees were voluntarily reduced and/or reimbursed. If
such voluntary fee reductions and/or reimbursements had not occurred, the
ratio would have been as indicated.
(a) Commencement of operations of the Fund was July 1, 1997.
(b) Not annualized.
(c) Annualized.
See notes to financial statements.
-71-
<PAGE> 73
GOVERNOR FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PRIME MONEY MARKET FUND
-------------------------------------------------------------
INVESTOR SHARES S SHARES
--------------- ------------
FOR THE FOR THE INVESTOR SHARES S SHARES
SIX MONTHS SIX MONTHS --------------- ----------
ENDED ENDED FOR THE FOR THE
DECEMBER 31, DECEMBER 31, YEAR ENDED YEAR ENDED
1999 1999 JUNE 30, JUNE 30,
(UNAUDITED) (UNAUDITED) 1999(a) 1999(a)
--------------- ------------ --------------- ----------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------
INVESTMENT ACTIVITIES:
Net investment income................. 0.025 0.024 0.047 0.008
Net realized and unrealized gain on
investments........................ -- -- -- --
-------- -------- -------- -------
Total from Investment Activities... 0.025 0.024 0.047 0.008
-------- -------- -------- -------
DISTRIBUTIONS FROM:
Net investment income................. (0.025) (0.024) (0.047) 0.008
Net realized gains.................... -- -- -- --
-------- -------- -------- -------
Total Distributions................ (0.025) (0.024) (0.047) 0.008
-------- -------- -------- -------
Net change in net asset value per
share.............................. -- -- -- --
-------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD.......... $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== =======
Total Return (excluding sales charge)... 2.56%(b) 2.45%(b) 4.80% 0.85%(b)
RATIOS/ SUPPLEMENTAL DATA:
Net Assets, at end of period (in
thousands)......................... $318,275 $ 3,904 $261,561 $ 685
Ratio of expenses to average net
assets............................. 0.45%(c) 0.64%(c) 0.49% 0.68%(c)
Ratio of net investment income to
average net assets................. 5.03%(c) 4.95%(c) 4.68% 4.23%(c)
Ratio of expenses to average net
assets*............................ 0.69%(c) 0.88%(c) 0.80% 0.91%(c)
</TABLE>
- ---------------
* During the period certain fees were voluntarily reduced and/or reimbursed. If
such voluntary fee reductions and/or reimbursements had not occurred, the
ratio would have been as indicated.
(a) Effective April 19, 1999, the Fund designated the existing shares as
Investor Shares and commenced the offering of S Shares.
(b) Not annualized.
(c) Annualized.
Continued
See notes to financial statements.
-72-
<PAGE> 74
GOVERNOR FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PRIME MONEY MARKET FUND
----------------------------
FOR THE FOR THE
YEAR ENDED PERIOD ENDED
JUNE 30, JUNE 30,
1998 1997(A)
---------- ------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 1.000 $ 1.000
-------- -------
INVESTMENT ACTIVITIES:
Net investment income..................................... 0.051 0.037
Net realized and unrealized gain on investments........... -- --
-------- -------
Total from Investment Activities....................... 0.051 0.037
-------- -------
DISTRIBUTIONS FROM:
Net investment income..................................... (0.051) (0.037)
Net realized gains........................................ -- --
-------- -------
Total Distributions.................................... (0.051) (0.037)
-------- -------
Net change in net asset value per share................... -- --
-------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 1.000 $ 1.000
======== =======
Total Return (excluding sales charge)....................... 5.19% 3.73%(b)
RATIOS/ SUPPLEMENTAL DATA:
Net Assets, at end of period (in thousands)............... $217,861 $95,850
Ratio of expenses to average net assets................... 0.48% 0.36%(c)
Ratio of net investment income to average net assets...... 5.14% 5.02%(c)
Ratio of expenses to average net assets*.................. 0.76% 0.70%(c)
</TABLE>
- ---------------
* During the period certain fees were voluntarily reduced and/or reimbursed. If
such voluntary fee reductions and/or reimbursements had not occurred, the
ratio would have been as indicated.
(a) Commencement of operations of the Fund was October 7, 1996.
(b) Not annualized.
(c) Annualized.
See notes to financial statements.
-73-
<PAGE> 75
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 76
INVESTMENT ADVISER
Governors Group Advisors, Inc.
23 Front Street
Harrisburg, PA 17101
SUB-ADVISORS
Martindale Andreas & Company, Inc.
Four Falls Corporate Center, Suite 200
west Conshohocken, PA 19428
Brinson Partners, Inc.
209 South LaSalle Street
Chicago, IL 60604
DISTRIBUTOR
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
FOR ADDITIONAL INFORMATION CALL:
1-800-766-3960
2/00
