GOVERNOR FUNDS, N-30D, 2000-08-30

GOVERNOR FUNDS
N-30D, 2000-08-30

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<PAGE> 1
GOVERNOR FUNDS LOGO

GOVERNOR

ANNUAL REPORT

JUNE 30, 2000

www.governorfunds.com
<PAGE> 2

TABLE OF CONTENTS

GOVERNOR FUNDS
ANNUAL REPORT-JUNE 30, 2000

Message From the Chairman..................................................... 1

Message From the Advisor and Sub-Advisor...................................... 2

Established Growth Fund....................................................... 4

Aggressive Growth Fund....................................................... 12

International Equity Fund.................................................... 20

Intermediate Term Income Fund................................................ 30

Limited Duration Government Securities Fund.................................. 38

Pennsylvania Municipal Bond Fund............................................. 44

Lifestyle Conservative Growth Fund........................................... 52

Lifestyle Moderate Growth Fund............................................... 58

Lifestyle Growth Fund........................................................ 64

U.S. Treasury Obligations Money Market Fund.................................. 70

Prime Money Market Fund...................................................... 75

Notes to Financial Statements................................................ 81

Independent Auditors' Report................................................. 88
<PAGE> 3

MESSAGE FROM THE CHAIRMAN

Governor Funds Logo
DEAR SHAREHOLDER:

We are pleased to present this annual report for the Governor Funds, which
covers the year ended June 30, 2000. We would like to highlight the performance
of the Aggressive Growth Fund during this period. The Fund, which focuses on
shares of small companies(1), gained 16.31% (without sales load),(2)
outperforming the Russell 2000 Index(3) return of 14.48%. The Fund benefited
from the strong performance of small-cap stocks, and from its holdings in such
sectors as semiconductors and life sciences.

An additional highlight of the period is Keystone Financial Inc.'s recent
announcement that it will merge with M&T Bank, New York's largest retail deposit
holder. The merger will be completed during the fourth quarter of 2000. The
combined firm will provide a full-range of financial products and services, and
will offer an even greater depth of investment research capabilities. We believe
the result will be beneficial to the Governor Funds family. We will be in touch
with shareholders as soon as more information becomes available regarding this
merger.

On the following pages, you will find comments from the members of
Martindale Andres & Company, LLC and Brinson Partners, Inc., who provides the
investment management services to your Funds. William Martindale of Martindale
Andres & Company, LLC and Tom McGarrity of Brinson Partners, Inc. explain the
economic and market factors that influenced both firms' investment decisions
during the 12-month period. They also offer their outlooks for the coming year's
financial markets.

This report also includes remarks about each of the individual Funds from
the respective portfolio managers. The discussions should help you to understand
the approach each manager takes to pursue Fund objectives. You will also find a
schedule of Fund holdings, with financial statements and highlights. Please read
the information, which is designed to help you understand the role each Fund can
play in your overall investment portfolio.

Thank you for your investment in the Governor Funds. Please feel free to
contact the Funds at (800) 766-3960 with questions or comments.

Sincerely,

/s/ Mark Pulaski
Mark Pulaski
Chairman, Governor Funds
President, Keystone Wealth Management
Division

------------------
(1) 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.
(2) The total return for the year ended June 30, 2000, with the maximum sales
load of 5.50% was 9.91%. The total return set forth may reflect the waiver
of a portion of the Fund's investment advisory or administration fees. In
such instances, and without waiver of fees, total return would have been
lower.
(3) 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.
Investors cannot invest directly in an index, although they can invest in
its underlying securities.

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
<PAGE> 4

MESSAGE FROM THE ADVISOR AND SUB-ADVISOR

DEAR GOVERNOR FUND SHAREHOLDER:

We are pleased to send you this annual report for the year ended June 30,
2000. While the markets' returns were not as spectacular, stocks and bonds
posted solid results relative to historical average. During this time period,
the Governor Funds adhered to their disciplined approach and provided solid
results in a very volatile year.

While a majority of the major indices posted positive results for the year,
the equity market was extremely volatile. The year was marked by investors'
concern about higher interest rates, earnings and the volatility of the market,
particularly in the technology and internet sectors. This volatility was
highlighted in April 2000 when three of the major indices--the Standard & Poor's
500 Stock Index (the "S&P 500")(1), the Russell 2000 Index(2) and the Nasdaq
Composite Index(3)--experienced significant declines in value. We believe the
correction last spring offered a necessary dose of reality for investors who
believed in "story stocks" of companies without earnings or sustainable business
models. Overall, small-company stocks outperformed large-company shares--the
first 12-month period of meaningful outperformance by small-caps since 1994. The
Russell 2000 Index of small-company stocks gained 14.48% for the period ended
June 30, 2000, versus 7.25% for the S&P 500 of large-company shares.

Going forward, we expect investors to focus on well-run companies with
revenues and earnings. While it was difficult to not directly participate in the
"Internet" craze over the last several years, the market's recent behavior
illustrates the importance and benefits of adhering to our disciplined
growth-at-a-reasonable-price equity approach. As the market returns to more
traditional valuation metrics, we believe that the companies in which the
Governor Funds try to invest--firms with solid business plans that can generate
sustainable revenues, earnings and cash flow--should do well in the coming
months. We expect, however, the market's future gains will likely be more modest
than the outsized gains we have seen during the past five years.

While the Fed aggressively pursued a course of tighter monetary policy to
slow and achieve a sustainable pace of growth, the past year generally was an
adverse period for interest rates and fixed income investments. Only 30-year
bonds rallied as the U.S. Treasury announced a buyback.

During this difficult and volatile climate of steadily rising interest
rates and widening credit spreads, the Governor fixed income funds maintained a
clear focus on quality, income and principal preservation. The Limited Duration
Government Securities Fund provided returns solidly above the Lipper
Short-Intermediate U.S. Government Funds Average(4) over the trailing six month,
one- and two-year periods.

------------------
(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.
(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.
(3) The 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 the National Market System-traded foreign common
stocks and American Depositary Receipts.
(4) The Lipper Short-Intermediate U.S. Government Funds Average is an average of
the total returns of managed funds that 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.

Investors cannot invest directly in an index, although they can invest in its
underlying securities.

Recent economic indicators suggest that the economy may be entering a
sustained slowdown period, which we believe should be positive for interest
rates and fixed income investments.

The recent period--marked by the outperformance of small-caps and the
unexpectedly strong performance of long-term Treasuries--reminds us that it is
impossible to predict how the financial markets will perform over the short
term. In our view, successful investing involves building and maintaining a
diversified portfolio that offers exposure to the major types of asset classes:
large- and small-cap stocks, international shares, long- and short-term bonds,
and cash.

Looking back, the decade of the 1990s was a truly rewarding period for
investors who stayed the course. Looking ahead, there are many reasons for
believing the domestic economic expansion--now the longest in U.S. history--can
continue with relatively low inflation.

We are pleased with the performance of the Governor Funds and invite you to
review the detailed performance and strategy of the Governor Funds on the pages
which follow.

Thank you for your continued support of the Governor Funds.

Sincerely,

/s/ William C. Martindale Jr.
William C. Martindale, Jr.
President and Chief Investment Officer
Martindale Andres & Company, LLC

/s/ Thomas C. McGarity
Thomas C. McGarrity
Managing Director
Brinson Partners, Inc.

------------------
This material is authorized for distribution only when preceded or accompanied
by a prospectus. Martindale Andres & Company LLC serves as the investment
advisor. Brinson Partners, Inc. is the sub-advisor for the International Equity
Fund. 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. Shares of the funds are not bank deposits or
obligations of or guaranteed or endorsed by, Keystone Bank, its parent company
or any of its affiliates. Shares of the funds are not federally insured by the
U.S. Government, the Federal Deposit Insurance Corporation, the Federal Reserve
Board or any other agency. Investment return and principal value will vary as a
result of market conditions and other factors, so that shares of the funds, when
redeemed, may be worth more or less than their original cost. An investment in
the funds involves investment risks, including the possible loss of principal.
There can be no assurance that the money market funds will be able to sustain a
stable net asset value of $1.00 per share. There is no bank guarantee, and
shares of the Funds may lose value.
3
<PAGE> 6

GOVERNOR FUNDS

ESTABLISHED GROWTH FUND

Q. HOW DID THE ESTABLISHED GROWTH FUND PERFORM DURING THE YEAR ENDED JUNE 30,
2000?

A. The Established Growth Fund posted a total return of 9.31% (without sales
load) for the period, outperforming the 7.25% return for the Fund's
benchmark, the S&P 500 Index.

Q. WHAT WERE CONDITIONS LIKE IN THE STOCK MARKET DURING THE PERIOD?

A. Stocks performed poorly early in the period, as signs of strong economic
growth fueled inflation fears and caused the Fed to raise short-term
interest rates. Late in 1999, however, shares of technology companies began
a five-month rally that carried many so-called "new economy" stocks in the
technology sector to record heights. Investors flocked to technology
companies believing that rising interest rates would not affect those firms'
growth rate as much as companies in more traditional industries.

By early March, many technology and telecommunications shares had soared to
unsustainable levels. They consequently suffered a severe decline: Some
Internet companies' stock fell by 60% or more in the spring. As that
occurred, investors shifted money to cash and to "old economy" stocks in
industries such as healthcare and energy. Stock prices stabilized somewhat
near the end of the period, due to signs that the economy was slowing.

Q. HOW DID YOU POSITION THE FUND IN THAT ENVIRONMENT?

A. We invested in firms that we believe are capable of generating strong sales
and earnings growth in a slowing economy. The Fund was overweighted in the
technology, telecommunications and health-care sectors, which benefited the
Fund's performance during the period. We avoided many Internet companies and
shares of other unproven firms with no earnings. Instead, we favored
high-quality companies with long-term track records that are benefiting from
the Internet infrastructure build out.

The Fund benefited from its investments in Morgan Stanley Dean Witter & Co.
(3.74% of the portfolio's net assets); Nortel Networks Corp. (4.42%); Sun
Microsystems, Inc. (3.93%); and Coastal Corp. (3.07%). We also benefited by
taking profits in some of the best-performing technology and telecom stocks
in the portfolio, and reinvesting the profits in stocks with more reasonable
valuations.*

The spring correction allowed us to take new positions in well-run companies
when their share prices dropped. For example, we invested in Cisco Systems,
Inc. (0.68%) when its shares fell in May. Other new positions included
technology companies such as Sanmina Corp. (1.69%) and Solectron Corp.
(0.53%). We eliminated the Fund's holdings in DaimlerChrysler, and reduced
our holdings in the Gap, Inc. (1.46%).*

Q. WHAT IS YOUR OUTLOOK FOR THE STOCK MARKET, AND HOW WILL YOU MANAGE THE FUND
IN THAT ENVIRONMENT?

A. The Fed's interest rate increases appear to be slowing economic growth and
heading off inflation. However, we believe some investors now are concerned
that the economy is headed for a recession. We do not believe that a
recession is likely during the coming months. Such concerns make it rare
that stocks will continue to deliver the outsized gains investors have
experienced in recent years.

We will maintain our strategy of investing in financially strong companies
with solid growth prospects when their shares trade at attractive
valuations. We will also remain fully invested and manage the Fund with an
eye toward minimizing the effect of taxes on shareholders. Finally, we will
continue to increase the Fund's diversification across various sectors of
the market in an attempt to reduce the Fund's overall risk.

------------------
* The Fund's portfolio composition is subject to change.
4
<PAGE> 7

GOVERNOR FUNDS

As of June 30, 2000

ESTABLISHED GROWTH FUND
GROWTH OF $10,000 INVESTMENT COMPARISON

<TABLE>
<CAPTION>
SINCE
1 5 INCEPTION
AVERAGE ANNUAL TOTAL RETURN(+) YEAR YEAR (1/1/95)
---------------------------- ------ ------ ---------
<S> <C> <C> <C>
No-Load 9.31% 21.31% 23.53%
Load++ 3.32% 19.96% 22.27%
</TABLE>

<TABLE>
<CAPTION>
LOAD++ NO LOAD S&P 500 STOCK INDEX
---- ------- -------------------
<S> <C> <C> <C>
1/1/95 9450 10000 10000
6/30/95 11490 12154 12015
6/30/96 14553 15394 15144
6/30/97 18577 19650 20393
6/30/98 23763 25136 26553
6/30/99 27613 29208 32596
6/30/00 30182 31927 34959
</TABLE>

++ Effective November 1, 1999 the Fund's sales load increased from 4.50% to
5.50%, which is reflected in the above performance.

The chart represents historical performance of a hypothetical investment of
$10,000 in the Established Growth Fund from 1/1/95 to 6/30/00, and represents
the reinvestment of dividends and capital gains in the Fund.

The Fund's performance is compared to the Standard & Poor's 500 Stock Index,
which 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 its underlying securities.

(+) The quoted performance of the Established Growth Fund includes performance
of certain collective trust fund ("commingled") accounts advised by
Martindale Andres & Company, LLC, for periods dating back to 1/1/95 and
prior to the Established Growth Fund's commencement of operations on
12/2/96, as adjusted to reflect the expenses associated with the Fund. The
commingled accounts were not registered with the Securities and Exchange
Commission and, therefore, were not subject to the investment restrictions
imposed by law on registered mutual funds. If the commingled accounts had
been registered, the commingled accounts' performance may have been
adversely affected.

The total return set forth may reflect the waiver of a portion of the Fund's
investment advisory or administration fees. In such instances, and without
waiver of fees, total return would have been lower.

GOVERNOR FUNDS SCHEDULE OF PORTFOLIO INVESTMENTS
ESTABLISHED GROWTH FUND JUNE 30, 2000

<TABLE>
<S> <C> <C>
COMMON STOCKS - 98.8%
SECURITY DESCRIPTION SHARES VALUE
-------------------- --------- ------------
AEROSPACE/DEFENSE-EQUIPMENT - 2.2%
Honeywell International, Inc. ........ 50,000 $ 1,684,375
Textron, Inc. ........................ 43,000 2,335,438
United Technologies Corp ............. 35,000 2,060,625
------------
6,080,438
------------
BANKS - 2.0%
First Union Corp...................... 50,000... 1,240,625
Wells Fargo Co. ...................... 110,000 4,262,500
------------
5,503,125
------------
BEVERAGES - 1.9%
Coca-Cola Co. ........................ 90,000 5,169,375
------------
CHEMICALS - 0.4%
Rohm and Haas Co. .................... 35,000 1,207,500
------------
COMPUTER - 18.2%
America Online, Inc.(b)............... 80,000 4,220,000
Automatic Data Processing, Inc ....... 60,000 3,213,750
Cisco Systems, Inc.(b)................ 30,000 1,899,375
Citrix Systems, Inc.(b)............... 80,000 1,515,000
Compaq Computer Corp ................. 100,000 2,556,250
Computer Associates International,
Inc ................................ 70,000 3,583,125
Compuware Corp.(b).................... 150,000 1,556,250
EMC Corp ............................. 140,000 10,771,250
International Business Machines
Corp ............................... 50,000 5,478,125
Intertrust Technologies Corp.(b)...... 10,000 205,625
Lycos, Inc.(b)........................ 20,000 1,080,000
Microsoft Corp.(b).................... 45,000 3,600,000
Sun Microsystems, Inc.(b)............. 120,000 10,912,500
------------
50,591,250
------------
CONSUMER PRODUCTS - 1.2%
ConAgra, Inc ......................... 120,000 2,287,500
Lancaster Colony Corp ................ 58,000 1,112,875
------------
3,400,375
------------
COSMETICS/PERSONAL CARE - 1.4%
Procter & Gamble Co .................. 70,000 4,007,500
------------
DIVERSIFIED/CONGLOMERATE - 3.9%
General Electric Co .................. 205,000 10,865,000
------------
ELECTRICAL EQUIPMENT - 2.5%
Amkor Technology, Inc.(b)............. 10,000 353,125
Emerson Electric Co .................. 30,000 1,811,250
Sanmina Corp.(b)...................... 55,000 4,702,500
------------
6,866,875
------------
ELECTRONIC COMPONENTS - 7.7%
Analog Devices, Inc.(b)............... 44,000 3,344,000
Motorola, Inc. ....................... 150,000 4,359,375
Novellus Systems, Inc.(b)............. 45,000 2,545,313
Solectron Corp.(b).................... 35,000 1,465,625
Texas Instruments, Inc ............... 140,000 9,616,249
------------
21,330,562
------------
FINANCIAL SERVICES - 7.5%
Capital One Financial Corp ........... 120,000 5,355,000
Fannie Mae............................ 100,000 5,218,750
Morgan Stanley Dean Witter & Co ...... 125,000 10,406,249
------------
20,979,999
------------
COMMON STOCKS, CONTINUED
SECURITY DESCRIPTION SHARES VALUE
-------------------- --------- ------------
INSTRUMENTS-SCIENTIFIC - 0.4%
PE Corp-PE Biosystems Group........... 17,000 $ 1,119,875
------------
LEISURE - 0.6%
Carnival Corp., Class A............... 80,000 1,560,000
------------
MACHINERY & EQUIPMENT - 0.5%
SPX Corp.(b).......................... 12,000 1,451,250
------------
MEDICAL - 5.3%
Amgen, Inc.(b)........................ 45,000 3,161,250
Medtronic, Inc ....................... 145,000 7,222,813
UnitedHealth Group, Inc .............. 52,000 4,459,000
------------
14,843,063
------------
MINING - 0.6%
Potash Corp. of Saskatchewan, Inc .... 30,000 1,655,625
------------
MULTIMEDIA - 1.6%
Viacom, Inc., Class B(b).............. 65,000 4,432,188
------------
OIL & GAS - 9.8%
Coastal Corp ......................... 140,000 8,522,499
El Paso Energy Corp .................. 50,000 2,546,875
Exxon Mobil Corp ..................... 90,809 7,128,507
Royal Dutch Petroleum - New York
Shares, ADR......................... 40,000 2,462,500
Williams Cos., Inc ................... 160,000 6,670,000
------------
27,330,381
------------
PHARMACEUTICALS - 11.4%
Forest Labs, Inc.(b).................. 30,000 3,030,000
Johnson & Johnson..................... 60,000 6,112,500
Lilly (Eli) & Co ..................... 55,000 5,493,125
Merck & Co., Inc ..................... 51,000 3,907,875
Pfizer, Inc .......................... 140,250 6,731,999
Pharmacia Corp ....................... 57,000 2,946,188
Schering-Plough Corp ................. 67,000 3,383,500
------------
31,605,187
------------
RESTAURANTS - 0.6%
Wendy's International, Inc ........... 90,000 1,603,125
------------
RETAIL - 2.9%
Circuit City Stores, Inc ............. 35,000 1,161,563
Gap, Inc ............................. 130,000 4,062,500
Walgreens Co ......................... 85,000 2,735,937
------------
7,960,000
------------
TELECOMMUNICATIONS - 14.0%
Allegiance Telecom, Inc.(b)........... 22,500 1,440,000
Broadwing, Inc.(b).................... 65,000 1,685,938
General Motors Corp., Class H(b)...... 10,100 886,275
Loral Space & Communications
Ltd.(b)............................. 110,000 763,125
Lucent Technologies, Inc ............. 25,000 1,481,250
McLeodUSA, Inc., Class A(b)........... 135,000 2,792,812
Nortel Networks Corp ................. 180,000 12,285,000
Sprint Corp. FON Group................ 110,000 5,610,000
Sprint Corp. PCS Group(b)............. 60,000 3,570,000
Vodafone Group PLC, ADR............... 100,000 4,143,750
MCI Worldcom, Inc.(b)................. 90,000 4,128,750
------------
38,786,900
------------
</TABLE>

Continued
6
<PAGE> 9
GOVERNOR FUNDS SCHEDULE OF PORTFOLIO INVESTMENTS
ESTABLISHED GROWTH FUND JUNE 30, 2000

<TABLE>
<S> <C> <C>
COMMON STOCKS, CONTINUED
SECURITY DESCRIPTION SHARES VALUE
-------------------- --------- ------------
TEXTILE - 1.1%
Unifi, Inc.(b)........................ 250,000 $ 3,093,750
------------
TOOLS - 1.0%
Danaher Corp ......................... 55,000 2,719,063
------------
TRANSPORTATION - 0.1%
Burlington Northern Santa Fe Corp .... 15,000 344,063
------------
TOTAL COMMON STOCKS (Cost $154,261,364).......... 274,506,469
------------
INVESTMENT COMPANIES - 1.5%
Federated Government Obligation Fund.. 3,215 3,215
Federated Prime Obligation Fund....... 4,056,565 4,056,565
Prime Money Market Fund*.............. 113,277 113,277
U.S. Treasury Obligations Money Market
Fund*............................... 2 2
------------
TOTAL INVESTMENT COMPANIES (Cost $4,173,059).....
4,173,059
------------
DAILY SWEEP VEHICLES - 0.0%
SECURITY DESCRIPTION SHARES VALUE
-------------------- --------- ------------
Bank of New York Cash Sweep........... 273 $ 273
------------
TOTAL DAILY SWEEP VEHICLES
(Cost $273).................................... 273
------------
TOTAL INVESTMENTS
(Cost $158,434,696)(a) - 100.3%................ 278,679,801
LIABILITIES IN EXCESS OF OTHER ASSETS - (0.3)%...
(745,560)
------------
NET ASSETS - 100.0%.............................. $277,934,241
============
</TABLE>

------------------

(a) Represents cost for financial reporting and federal income tax purposes and
differs from value by net unrealized appreciation of securities as follows:

<TABLE>
<S> <C>
Unrealized appreciation....................... $132,717,291
Unrealized depreciation....................... (12,472,186)
------------
Net unrealized appreciation................... $120,245,105
============
</TABLE>

(b) Represents non-income producing securities.

* Securities are affiliated investment companies in the Governor Funds.

ADR -- American Depositary Receipt
PLC -- Public Limited Company

See notes to financial statements.

7
<PAGE> 10

GOVERNOR FUNDS
ESTABLISHED GROWTH FUND

STATEMENT OF ASSETS AND LIABILITIES

JUNE 30, 2000

<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (cost
$158,321,417)...................... $278,566,522
Investments in affiliates, at value
(cost $113,279).................... 113,279
------------
Total investments................ 278,679,801
Dividends receivable................. 150,575
Dividends receivable from
affiliates......................... 605
Receivable for investments sold...... 459,299
Receivable for capital shares
issued............................. 7,677
Deferred organization costs.......... 9,249
Prepaid expenses..................... 97,979
------------
TOTAL ASSETS..................... 279,405,185
LIABILITIES:
Payable for investments purchased.... $1,398,788
Payable for capital shares
redeemed........................... 3,620
Accrued expenses and other
liabilities:
Investment advisor................. 9,109
Administration..................... 1,746
Administrative services............ 25,685
Other.............................. 31,996
----------
TOTAL LIABILITIES................ 1,470,944
------------
NET ASSETS:.......................... $277,934,241
============
COMPOSITION OF NET ASSETS:
Capital.............................. $136,482,868
Accumulated net investment income.... 1,533
Accumulated net realized gains....... 21,204,735
Unrealized appreciation from
investments........................ 120,245,105
------------
NET ASSETS........................... $277,934,241
============
Shares Outstanding (par value
$0.0001, unlimited number of
authorized shares)................. 20,326,795
============
Net Asset Value and Redemption Price
per share.......................... $13.67
======
Maximum Sales Charge................. 5.50%
------
Maximum Offering Price per share (Net
Asset Value/(100%-Maximum Sales
Charge))........................... $14.47
======
</TABLE>

STATEMENT OF OPERATIONS

FOR THE YEAR ENDED JUNE 30, 2000

<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest.............................. $ 509
Dividend.............................. 2,662,629
Dividends from affiliates............. 15,185
Foreign tax withholding............... (27,192)
-----------
TOTAL INVESTMENT INCOME........... 2,651,131
EXPENSES:
Investment advisor.................... $1,967,407
Administration........................ 393,485
Administrative services............... 288,815
Custodian............................. 37,591
Other................................. 274,852
----------
Total expenses before contractual
fee reductions.................. 2,962,150
Contractual fee reductions........ (485,299)
-----------
NET EXPENSES...................... 2,476,851
-----------
NET INVESTMENT INCOME................. 174,280
-----------
NET REALIZED/UNREALIZED GAINS/(LOSSES)
FROM INVESTMENTS AND FOREIGN
CURRENCIES:
Net realized gains from investment and
foreign currency transactions....... 51,706,557
Change in unrealized appreciation from
investments and foreign
currencies.......................... (28,304,512)
-----------
Net realized/unrealized gains from
investments......................... 23,402,045
-----------
CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS.......................... $23,576,325
===========
</TABLE>

See notes to financial statements.

8
<PAGE> 11

GOVERNOR FUNDS
ESTABLISHED GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JUNE 30,
------------------------------
2000 1999
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income..................................... $ 174,280 $ 1,034,161
Net realized gains from investment and foreign currency
transactions............................................ 51,706,557 24,578,381
Change in unrealized appreciation from investments and
foreign currencies...................................... (28,304,512) 12,590,276
------------ ------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS.............. 23,576,325 38,202,818
------------ ------------
DIVIDENDS:
Net investment income..................................... (176,790) (1,032,871)
In excess of net investment income........................ (5,907) --
Net realized gains from investment and foreign currency
transactions............................................ (54,637,729) (6,183,277)
------------ ------------
CHANGE IN NET ASSETS FROM SHAREHOLDER DIVIDENDS............. (54,820,426) (7,216,148)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued............................... 87,957,373 29,313,640
Dividends reinvested...................................... 53,919,438 1,760,051
Cost of shares redeemed................................... (93,135,539) (60,435,568)
------------ ------------
CHANGE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS........ 48,741,272 (29,361,877)
------------ ------------
CHANGE IN NET ASSETS........................................ 17,497,171 1,624,793
NET ASSETS:
Beginning of period....................................... 260,437,070 258,812,277
------------ ------------
End of period............................................. $277,934,241 $260,437,070
============ ============
SHARE TRANSACTIONS:
Issued.................................................... 6,346,779 2,116,552
Reinvested................................................ 4,243,667 127,638
Redeemed.................................................. (6,668,074) (4,248,252)
------------ ------------
CHANGE IN SHARES............................................ 3,922,372 (2,004,062)
============ ============
</TABLE>

See notes to financial statements.

9
<PAGE> 12

GOVERNOR FUNDS
ESTABLISHED GROWTH FUND
FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED.

<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEARS ENDED JUNE 30, DECEMBER 2, 1996
------------------------------------ TO JUNE 30,
2000 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 gains from investments and
foreign currency transactions........................... 1.20 2.16 2.99 1.13
-------- -------- -------- --------
Total from investment activities.......................... 1.21 2.22 3.09 1.21
-------- -------- -------- --------
DIVIDENDS:
Net investment income..................................... (0.01) (0.06) (0.10) (0.08)
In excess of net investment income........................ (0.00)* -- -- --
Net realized gains from investment and foreign currency
transactions............................................ (3.41) (0.34) (0.06) --
-------- -------- -------- --------
Total dividends........................................... (3.42) (0.40) (0.16) (0.08)
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD.............................. $ 13.67 $ 15.88 $ 14.06 $ 11.13
======== ======== ======== ========
TOTAL RETURN (EXCLUDES SALES CHARGE)........................ 9.31% 16.20% 27.92% 12.20%(b)
RATIOS/SUPPLEMENTARY DATA:
Net assets at end of period (000's)......................... $277,934 $260,437 $258,812 $190,914
Ratio of expenses to average net assets..................... 0.94% 0.91% 0.71% 0.44%(c)
Ratio of net investment income to average net assets........ 0.07% 0.42% 0.77% 1.39%(c)
Ratio of expenses to average net assets(d).................. 1.13% 1.19% 1.06% 1.01%(c)
Portfolio turnover.......................................... 41% 2% 6% 1%
</TABLE>

* Less than $0.005 per share.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) During the period, certain fees were voluntarily or contractually reduced.
If such fee reductions had not occurred, the ratio would have been as
indicated.

See notes to financial statements.

10
<PAGE> 13

[THIS PAGE INTENTIONALLY LEFT BLANK]

11
<PAGE> 14

GOVERNOR FUNDS

AGGRESSIVE GROWTH FUND(+)

Q. HOW DID THE AGGRESSIVE GROWTH FUND PERFORM DURING THE YEAR ENDED JUNE 30,
2000?

A. The Aggressive Growth Fund returned 16.31% (without sales load) for the
period, compared to a 14.48% total return for the Russell 2000 Index.

Q. WHAT WERE THE CONDITIONS IN THE SMALL-COMPANY SECTOR OF THE STOCK MARKET
DURING THE 12-MONTH PERIOD?

A. Small-cap stocks outperformed large-company shares--the first 12-month
period of meaningful outperformance by small caps in several years. In
addition, the small-cap market was extremely volatile during this period.

Q. WHAT WAS YOUR STRATEGY IN THAT ENVIRONMENT?

A. We remained true to our disciplined approach--investing in what we believe
are financially solid companies with strong growth rates and reasonable
valuations. Although our strategy prevented us from investing in some of the
hottest Internet firms with no earnings, the Fund benefited from its
holdings in the semiconductor, infrastructure and life sciences sectors. Our
strategy especially helped performance when some of the highest-flying tech
stocks declined in spring. We also tried to take advantage of the market's
volatility by selling companies when they reached our price objectives. We
also used this volatility to build positions in high quality companies that
sold off during the April correction.

The Fund benefited from investments in Credence Systems Corp. (2.96% of the
portfolio's net assets), a semiconductor manufacturer; Syncor International
Corp. (4.83%), a health-care firm and Alkermes, Inc. (2.22%), a life
sciences company.*

New positions included Parlex Corp. (1.54%), a manufacturer of industrial
circuits and cables; Coherent, Inc. (1.41%), a maker of laser technology;
and Plantronics, Inc. (3.43%), which manufactures headsets. In an effort to
reduce overall shareholder risk, we reduced our positions in some of the
largest positions--such as Credence Systems Corp. and Syncor International
Corp.--as they reached our price objectives. We also maintained our tax-
sensitive management approach.*

Q. WHAT IS YOUR OUTLOOK FOR SMALL-COMPANY STOCKS GOING FORWARD, AND HOW WILL YOU
MANAGE THE FUND IN THAT ENVIRONMENT?

A. We believe that small-cap stocks are at the beginning of an extended period
of strong performance. Small-cap valuations are still very attractive
despite their recent run-up. We will continue to take a disciplined,
company-by-company approach to small-cap investing, looking for attractively
priced shares of firms that offer strong growth potential. We also will
maintain our strategy of managing risk by paring back on holdings when their
prices rise significantly, and by structuring a well-diversified portfolio,
that offers exposure to a broad range of industries.

------------------
(+) 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.
* The Fund's portfolio composition is subject to change.

12
<PAGE> 15

GOVERNOR FUNDS

As of June 30, 2000

AGGRESSIVE GROWTH FUND
GROWTH OF $10,000 INVESTMENT COMPARISON

<TABLE>
<CAPTION>
SINCE
1 5 INCEPTION
AVERAGE ANNUAL TOTAL RETURN(++) YEAR YEAR (7/1/94)
----------------------------- ------ ------ ---------
<S> <C> <C> <C>
No-Load 16.31% 15.81% 16.62%
Load++ 9.91% 14.50% 15.52%
</TABLE>

<TABLE>
<CAPTION>
LOAD++ NO LOAD RUSSELL 2000 INDEX
---- ------- ------------------
<S> <C> <C> <C>
7/1/94 9450 10000 10000
6/30/95 11408 12072 12007
6/30/96 14353 15188 14875
6/30/97 16589 17555 17304
6/30/98 18700 19789 20160
6/30/99 20429 21618 20462
6/30/00 23760 25144 23425
</TABLE>

++ Effective November 1, 1999 the Fund's sales load increased from 4.50% to
5.50%, which is reflected in the above performance.

The chart represents historical performance of a hypothetical investment of
$10,000 in the Aggressive Growth Fund from 7/1/94 to 6/30/00, and represents the
reinvestment of dividends and capital gains in the Fund.

The Fund's performance is compared to the Russell 2000 Index, which 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 its underlying securities.

(++) The quoted performance of the Aggressive Growth Fund includes performance
of certain collective trust fund ("commingled") accounts advised by
Martindale Andres & Company, LLC for periods dating back to 7/1/94 and
prior to the Aggressive Growth Fund's commencement of operations on 2/3/97,
as adjusted to reflect the expenses associated with the Fund. The
commingled accounts were not registered with the Securities and Exchange
Commission and, therefore, were not subject to the investment restrictions
imposed by law on registered mutual funds. If the commingled accounts had
been registered, the commingled accounts' performance may have been
adversely affected.

13
<PAGE> 16

GOVERNOR FUNDS SCHEDULE OF PORTFOLIO INVESTMENTS
AGGRESSIVE GROWTH FUND JUNE 30, 2000

<TABLE>
<S> <C> <C>
COMMON STOCKS - 96.7%
SECURITY DESCRIPTION SHARES VALUE
-------------------- ---------- ------------
AEROSPACE/DEFENSE-EQUIPMENT - 0.7%
Northrop Grumman Corp. .............. 15,000 $ 993,750
------------
BANKS - 1.1%
Amsouth Bancorporation............... 100,000 1,575,000
------------
BIOTECHNOLOGY - 1.3%
Dionex Corp.(b)...................... 73,150 1,956,763
------------
CAPITAL GOODS - 0.5%
Lydall, Inc.(b)...................... 70,000 743,750
------------
CHEMICALS - 3.5%
Airgas, Inc.(b)...................... 118,000 671,125
Lesco, Inc........................... 90,000 1,366,875
RPM, Inc./Ohio....................... 100,000 1,012,500
Valspar Corp......................... 65,000 2,193,750
------------
5,244,250
------------
COMMUNICATION-EQUIPMENT - 0.1%
Transcrypt International, Inc.(b).... 90,000 196,875
------------
COMPUTER NETWORKS - 2.7%
Computer Network Tech Corp.(b)....... 220,000 3,822,500
FVC.com, Inc.(b)..................... 30,000 232,500
------------
4,055,000
------------
COMPUTER SOFTWARE - 12.6%
Affiliated Computer Services,
Inc.(b)............................ 95,000 3,140,937
Ansys, Inc.(b)....................... 65,000 739,375
Applied Graphics Technologies,
Inc.(b)............................ 37,400 158,950
AXENT Technologies, Inc.(b).......... 60,000 1,488,750
Choicepoint, Inc.(b)................. 60,000 2,512,500
Compuware Corp.(b)................... 100,000 1,037,500
Drexler Technology Corp.(b).......... 115,000 1,495,000
RSA Security, Inc.(b)................ 50,000 3,462,499
Symantec Corp.(b).................... 25,000 1,348,438
Systems & Computer Technology
Corp.(b)........................... 100,000 2,000,000
Wind River Systems(b)................ 35,000 1,325,625
------------
18,709,574
------------
COMPUTERS - 5.6%
Computer Horizons Corp.(b)........... 87,500 1,175,780
Datastream Systems, Inc.(b).......... 110,000 1,375,000
Genrad, Inc.(b)...................... 118,400 1,065,600
Hutchinson Technology, Inc.(b)....... 144,000 2,052,000
RadiSys Corp.(b)..................... 14,500 822,875
Sykes Enterprises, Inc.(b)........... 140,000 1,802,500
------------
8,293,755
------------
CONSUMER PRODUCTS - 5.6%
American Woodmark Corp............... 100,000 2,050,000
Bush Industries, Inc................. 73,800 1,180,800
Leggett & Platt, Inc................. 90,000 1,485,000
Tupperware Corp...................... 50,000 1,100,000
Whole Foods Market, Inc.(b).......... 60,000 2,478,750
------------
8,294,550
------------
COMMON STOCKS, CONTINUED
SECURITY DESCRIPTION SHARES VALUE
-------------------- ---------- ------------
EDUCATIONAL SERVICES - 2.5%
DeVry, Inc.(b)....................... 110,000 $ 2,908,125
Modis Professional Services,
Inc.(b)............................ 99,000 878,625
------------
3,786,750
------------
ELECTRICAL EQUIPMENT - 1.5%
C-Cube Microsystems, Inc.(b)......... 65,000 1,275,625
Cirrus Logic, Inc.(b)................ 60,000 960,000
------------
2,235,625
------------
ELECTRONIC COMPONENTS - 7.8%
ATMI, Inc.(b)........................ 70,000 3,254,999
Coherent, Inc.(b).................... 25,000 2,096,875
Gentex Corp.(b)...................... 110,000 2,763,750
Integrated Measurement Systems,
Inc.(b)............................ 25,000 393,750
Parlex Corp.(b)...................... 54,500 2,295,813
SBS Technologies, Inc.(b)............ 22,500 831,094
------------
11,636,281
------------
FINANCIAL SERVICES - 4.4%
Financial Federal Corp.(b)........... 127,500 2,215,313
Legg Mason, Inc...................... 85,000 4,250,000
Willis Lease Finance Corp.(b)........ 25,000 156,250
------------
6,621,563
------------
HOMEBUILDERS-MOBILE HOMES - 0.9%
Monaco Coach Corp.(b)................ 50,000 681,250
Winnebago Industries, Inc............ 50,000 653,125
------------
1,334,375
------------
HUMAN RESOURCES - 0.1%
RCM Technologies, Inc.(b)............ 27,000 199,125
------------
INSURANCE - 2.0%
Arthur J. Gallagher & Company........ 70,000 2,940,000
------------
MACHINERY & EQUIPMENT - 3.7%
Applied Science & Technology(b)...... 106,500 2,755,688
Flow International Corp.(b).......... 130,000 1,300,000
PSC, Inc.(b)......................... 180,000 1,462,500
------------
5,518,188
------------
MANAGEMENT SERVICES - 0.3%
Navigant Consulting Co.(b)........... 115,000 488,750
------------
MANUFACTURING/DIVERSIFIED - 0.6%
Mascotech, Inc....................... 81,400 880,138
------------
MEDICAL-BIOTECHNOLOGY - 5.5%
Aphton Corp.(b)...................... 40,000 1,030,000
Chirex, Inc.(b)...................... 98,100 1,962,000
Haemonetics Corp.(b)................. 90,000 1,890,000
Incyte Pharmaceuticals, Inc.(b)...... 17,000 1,397,188
Integra Lifesciences Corp.(b)........ 190,000 1,888,125
------------
8,167,313
------------
</TABLE>

Continued
14
<PAGE> 17
GOVERNOR FUNDS SCHEDULE OF PORTFOLIO INVESTMENTS
AGGRESSIVE GROWTH FUND JUNE 30, 2000

<TABLE>
<S> <C> <C>
COMMON STOCKS, CONTINUED
SECURITY DESCRIPTION SHARES VALUE
-------------------- ---------- ------------
MEDICAL EQUIPMENT & SUPPLIES - 15.3%
Alkermes, Inc.(b).................... 70,000 $ 3,298,750
Colorado Medtech, Inc.(b)............ 103,500 653,344
ICU Medical, Inc.(b)................. 96,650 2,609,550
Mentor Corp. Minnesota............... 130,000 3,534,375
Orthofix International N.V.(b)....... 112,500 2,010,938
St. Jude Medical, Inc.(b)............ 50,000 2,293,750
Syncor International Corp.(b)........ 100,000 7,199,999
VISX, Inc.(b)........................ 40,000 1,122,500
------------
22,723,206
------------
MEDICAL-SERVICES - 1.8%
Cerner Corp.(b)...................... 50,000 1,362,500
Genesis Health Ventures, Inc.(b)..... 100,000 18,000
Hooper Holmes, Inc................... 159,400 1,275,200
------------
2,655,700
------------
OIL & GAS - 3.6%
Evergreen Resources, Inc.(b)......... 80,000 2,370,000
Forest Oil Corp.(b).................. 60,000 956,250
Patina Oil & Gas Corp................ 90,000 1,867,500
Range Resources Corp................. 65,000 203,125
------------
5,396,875
------------
PHARMACEUTICAL - 0.7%
Akorn, Inc.(b)....................... 122,500 972,344
------------
TECHNOLOGY EQUIPMENT - 3.6%
CFM Technologies, Inc.(b)............ 60,000 930,000
Credence Systems Corp.(b)............ 80,000 4,415,000
------------
5,345,000
------------
TELECOMMUNICATIONS - 6.9%
Digi International, Inc.(b).......... 80,000 520,000
ECI Telecommunications, Ltd.......... 55,000 1,966,250
Harmonic, Inc.(b).................... 35,275 881,875
PictureTel Corp.(b).................. 30,000 78,750
Plantronics, Inc.(b)................. 44,250 5,110,875
Telxon Corp.......................... 100,000 1,787,500
------------
10,345,250
------------
TEXTILE - 1.8%
Unifi, Inc.(b)....................... 220,000 2,722,500
------------
TOTAL COMMON STOCKS
(Cost $100,182,038)............................ 144,032,250
------------
REPURCHASE AGREEMENTS - 2.0%
SHARES OR
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
-------------------- ---------- ------------
Lehman Brothers, 6.50% due 7/3/00,
with a maturity value of $3,001,625
(collateralized by $3,860,000
Tennessee Valley Authority,
0.00%, 11/1/03, market value
$3,060,671)........................ $3,000,000 $ 3,000,000
------------
TOTAL REPURCHASE AGREEMENTS (Cost $3,000,000)....
3,000,000
------------
INVESTMENT COMPANIES - 1.2%
Federated Government Obligation
Fund............................... 7,538 7,538
Federated Prime Obligation Fund...... 1,361,204 1,361,204
Prime Money Market Fund*............. 86,063 86,063
U.S. Treasury Obligations Money
Market Fund*....................... 359,584 359,584
------------
TOTAL INVESTMENT COMPANIES (Cost $1,814,389).....
1,814,389
------------
TOTAL INVESTMENTS (Cost $104,996,427)(a) -
99.9%.......................................... 148,846,639
OTHER ASSETS IN EXCESS OF
LIABILITIES - 0.1%............................. 79,130
------------
NET ASSETS - 100.0%.............................. $148,925,769
============
</TABLE>

------------------

(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting purposes in excess of federal income tax reporting of
approximately $147,714. Cost for federal income tax purposes differs from
value by net unrealized appreciation of securities as follows:

<TABLE>
<S> <C>
Unrealized appreciation...................... $ 56,139,570
Unrealized depreciation...................... (12,437,072)
------------
Net unrealized appreciation.................. $ 43,702,498
============
</TABLE>

(b) Represents non-income producing securities.

* Securities are affiliated investment companies in the Governor Funds.

<TABLE>
<S> <C>
NV --Naamloze Vennootschaap (Dutch Corp.)
</TABLE>

See notes to financial statements.

15
<PAGE> 18

GOVERNOR FUNDS
AGGRESSIVE GROWTH FUND

STATEMENT OF ASSETS AND LIABILITIES

JUNE 30, 2000

<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (cost
$104,550,780)........................ $148,400,992
Investments in affiliates, at value
(cost $445,647)...................... 445,647
------------
Total investments.................. 148,846,639
Interest receivable.................... 542
Dividends receivable................... 105,139
Dividends receivable from affiliates... 2,154
Receivable for investments sold........ 290,043
Deferred organization costs............ 1,408
Prepaid expenses....................... 47,766
------------
TOTAL ASSETS....................... 149,293,691
LIABILITIES:
Payable for investments purchased...... $331,500
Payable for capital shares redeemed.... 616
Accrued expenses and other liabilities:
Investment advisor................... 5,699
Administration....................... 936
Administrative services.............. 13,768
Other................................ 15,403
--------
TOTAL LIABILITIES.................. 367,922
------------
NET ASSETS:............................ $148,925,769
============
COMPOSITION OF NET ASSETS:
Capital................................ $ 90,052,489
Dividends in excess of accumulated net
investment income.................... (1,311)
Accumulated net realized gains from
investment transactions.............. 15,024,379
Unrealized appreciation from
investments.......................... 43,850,212
------------
NET ASSETS............................. $148,925,769
============
Shares Outstanding (par value $0.0001,
unlimited number of authorized
shares).............................. 12,540,872
============
Net Asset Value and Redemption Price
per share............................ $11.88
======
Maximum Sales Charge................... 5.50%
------
Maximum Offering Price per share (Net
Asset Value/(100%-Maximum Sales
Charge))............................. $12.57
======
</TABLE>

STATEMENT OF OPERATIONS

FOR THE YEAR ENDED JUNE 30, 2000

<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest.............................. $ 180,855
Dividend.............................. 872,972
Dividends from affiliates............. 53,735
-----------
TOTAL INVESTMENT INCOME........... 1,107,562
EXPENSES:
Investment advisor.................... $1,368,992
Administration........................ 205,350
Administrative services............... 156,613
Custodian............................. 26,538
Other................................. 152,167
----------
Total expenses before contractual
fee reductions.................. 1,909,660
Contractual fee reductions........ (458,612)
-----------
NET EXPENSES...................... 1,451,048
-----------
NET INVESTMENT LOSS................... (343,486)
-----------
NET REALIZED/UNREALIZED GAINS/(LOSSES)
FROM INVESTMENTS:
Net realized gains from investment
transactions........................ 25,757,987
Change in unrealized appreciation from
investments......................... (3,264,106)
-----------
Net realized/unrealized gains from
investments......................... 22,493,881
-----------
CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS.......................... $22,150,395
===========
</TABLE>

See notes to financial statements.
16
<PAGE> 19

GOVERNOR FUNDS
AGGRESSIVE GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JUNE 30,
------------------------------
2000 1999
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment loss....................................... $ (343,486) $ (58,101)
Net realized gains from investment transactions........... 25,757,987 10,181,975
Change in unrealized appreciation/depreciation from
investments............................................. (3,264,106) 1,881,793
------------ ------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS.............. 22,150,395 12,005,667
------------ ------------
DIVIDENDS:
In excess of net investment income........................ -- (105,843)
Net realized gains from investment transactions........... (18,983,848) (4,572,481)
------------ ------------
CHANGE IN NET ASSETS FROM SHAREHOLDER DIVIDENDS............. (18,983,848) (4,678,324)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued............................... 86,895,351 26,556,930
Dividends reinvested...................................... 18,728,504 1,516,422
Cost of shares redeemed................................... (99,376,242) (31,500,681)
------------ ------------
CHANGE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS........ 6,247,613 (3,427,329)
------------ ------------
CHANGE IN NET ASSETS........................................ 9,414,160 3,900,014
NET ASSETS:
Beginning of period....................................... 139,511,609 135,611,595
------------ ------------
End of period............................................. $148,925,769 $139,511,609
============ ============
SHARE TRANSACTIONS:
Issued.................................................... 7,805,388 2,621,388
Reinvested................................................ 1,936,764 147,909
Redeemed.................................................. (8,810,987) (3,042,992)
------------ ------------
CHANGE IN SHARES............................................ 931,165 (273,695)
============ ============
</TABLE>

See notes to financial statements.
17
<PAGE> 20

GOVERNOR FUNDS
AGGRESSIVE GROWTH FUND
FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED.

<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEARS ENDED JUNE 30, FEBRUARY 3, 1997
------------------------------------ TO JUNE 30,
2000 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).............................. (0.03) (0.01) (0.01) 0.01
Net realized and unrealized gains from investment
transactions............................................ 1.60 1.00 1.30 0.24
-------- -------- -------- --------
Total from investment activities.......................... 1.57 0.99 1.29 0.25
-------- -------- -------- --------
DIVIDENDS:
Net investment income..................................... -- -- -- (0.01)
In excess of net investment income........................ -- (0.01) -- --
Net realized gains from investment transactions........... (1.71) (0.37) (0.12) --
-------- -------- -------- --------
Total dividends........................................... (1.71) (0.38) (0.12) (0.01)
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD.............................. $ 11.88 $ 12.02 $ 11.41 $ 10.24
======== ======== ======== ========
TOTAL RETURN (EXCLUDES SALES CHARGE)........................ 16.31% 9.24% 12.72% 2.52%(b)
RATIOS/SUPPLEMENTARY DATA:
Net assets at end of period (000's)......................... $148,926 $139,512 $135,612 $105,258
Ratio of expenses to average net assets..................... 1.06% 1.04% 0.83% 0.66%(c)
Ratio of net investment income/(loss) to average net
assets.................................................... (0.25%) (0.05%) (0.09%) 0.28%(c)
Ratio of expenses to average net assets (d)................. 1.40% 1.47% 1.33% 1.35%(c)
Portfolio turnover.......................................... 43% 18% 8% 2%
</TABLE>

(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) During the period, certain fees were voluntarily or contractually reduced.
If such fee reductions had not occurred, the ratio would have been as
indicated.

See notes to financial statements.
18
<PAGE> 21

[THIS PAGE INTENTIONALLY LEFT BLANK]

19
<PAGE> 22

GOVERNOR FUNDS

INTERNATIONAL EQUITY FUND(+)

Q. HOW DID THE INTERNATIONAL EQUITY FUND PERFORM RELATIVE TO ITS BENCHMARK INDEX
DURING THE YEAR ENDED JUNE 30, 2000?

A. The Fund returned 12.87% (without sales load) during the period, compared to
a 17.16% return for the Morgan Stanley Capital International, MSCI EAFE(R)
(Europe, Australasia and Far East) Index.

Q. WHAT WERE CONDITIONS LIKE IN INTERNATIONAL STOCK MARKETS DURING THE PERIOD?

A. Growth stocks dramatically outperformed value stocks during the period. The
growth portion of the MSCI EAFE(R) returned 24%, while value stocks in the
index returned 13.5% on average. What fueled that disparity were exceptional
returns from growth sectors such as technology, telecommunications and
media. The situation reversed itself in the last quarter of the period,
however, when value stocks outperformed growth stocks by 10%.

Markets in continental Europe outperformed markets in the United Kingdom and
Asia, as investors showed confidence in Europe's economic growth during the
period. Japan's relative underperformance resulted from concerns that the
country would not be able to climb out of its recession.

Q. HOW DID YOU MANAGE THE FUND IN THAT ENVIRONMENT?

A. In deciding where to invest the Fund's assets, we looked at the prospects
and valuations for different countries' markets. We also examined the
prospects for global industries, as well as stocks within individual
markets. Our analysis led us to overweight stocks in the United Kingdom,
Australia and Japan, and to underweight continental European markets, since
European stocks had seen significant gains. As of June 30, 2000, the Fund
held 42.2% of net assets in continental Europe, 27.1% in Japan, 23.0% in the
U.K., 3.7% in Australia and 1.2% in Asia ex-Japan.*

We invested in several sectors that lagged red-hot technology,
telecommunications and media stocks. Those sectors included food and
beverages (4.39% of portfolio's net assets), utilities (4.96%),
transportation (1.25%) and diversified financials (2.25%).*

We also looked for value in the currency markets. That approach led us to
overweight the Euro, which we feel, is significantly undervalued. We
underweighted the yen; we believe that Japan will need to inflate its
currency to spur economic growth, which should cause the yen to fall. We
also underweighted the pound, believing the U.K. central bank's easing
monetary policy will likely hurt that currency. The Fund ended the period
with 62% of its currency allocation in the Euro, 16% in the yen, 10% in the
pound, 10% in the Australian dollar and 1% in currencies of Asia ex-Japan.*

Q. WHAT IS YOUR OUTLOOK FOR THE WORLD ECONOMY AND GLOBAL STOCK MARKETS?

A. We expect Europe's growth rate to fall during the second half of 2000.
However, we think an increase in Japanese consumer consumption should spur
slight growth, which would be an improvement from the recession Japan has
seen in recent years. We believe countries with commodity-based economies,
such as Australia, should continue to grow, as demand for commodities
remains strong.

We are optimistic about the prospects during the coming months for sectors
that have been left behind by huge gains in growth stocks. We expect the
U.K. market to perform well, due to falling interest rates and its low
valuation compared to continental Europe. Moreover, we think an economic
recovery in Japan could spur stock market gains in that country.

------------------
(+) International investing involves increased risk and volatility.
* The Fund's portfolio composition is subject to change.
20
<PAGE> 23

GOVERNOR FUNDS

As of June 30, 2000

INTERNATIONAL EQUITY FUND
GROWTH OF $10,000 INVESTMENT COMPARISON

<TABLE>
<CAPTION>
SINCE
1 INCEPTION
AVERAGE ANNUAL TOTAL RETURN YEAR (2/9/99)
--------------------------- ------ ---------
<S> <C> <C>
No-Load 12.87% 13.74%
Load++ 6.63% 9.20%
</TABLE>

<TABLE>
<CAPTION>
LOAD++ NO LOAD THE MSCI EAFE INDEX
---- ------- -------------------
<S> <C> <C> <C>
2/9/99 9450 10000 10000
6/30/99 10009 10590 10439
6/30/00 11298 11953 12230
</TABLE>

++ Effective November 1, 1999 the Fund's sales load increased from 4.50% to
5.50%, which is reflected in the above performance.

The chart represents historical performance of a hypothetical investment of
$10,000 in the International Equity Fund from 2/9/99 to 6/30/00, and represents
the reinvestment of dividends and capital gains in the Fund.

The Fund's performance is compared to the Morgan Stanley Capital International,
MSCI EAFE(R) (Europe, Australasia and Far East) Index, which is an unmanaged
index comprised of 20 European and Pacific Basin countries and weighted by
market capitalization. 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 its underlying securities.

GOVERNOR FUNDS SCHEDULE OF PORTFOLIO INVESTMENTS
INTERNATIONAL EQUITY FUND JUNE 30, 2000

<TABLE>
<S> <C> <C>
COMMON STOCKS - 98.2%
SECURITY DESCRIPTION SHARES VALUE
-------------------- --------- ------------
AUSTRALIA - 3.7%
Amcor Ltd. ........................... 7,000 $ 24,549
AMP Ltd. ............................. 7,800 79,616
Boral Ltd.(b) ........................ 13,100 16,518
Brambles Industries Ltd. ............. 2,400 73,976
Broken Hill Proprietary Co., Ltd. .... 10,000 118,583
CSR Ltd. ............................. 7,500 20,895
Howard Smith Ltd. .................... 6,300 30,866
Lend Lease Corp., Ltd. ............... 6,500 83,159
National Australia Bank Ltd. ......... 15,100 252,934
News Corp., Ltd. ..................... 17,800 245,812
Origin Energy Ltd. ................... 13,100 12,663
Qantas Airways Ltd. .................. 9,600 19,482
QBE Insurance Group Ltd. ............. 14,909 73,153
Rio Tinto Ltd. ....................... 4,200 69,649
Santos Ltd. .......................... 12,700 38,813
Telstra Corp., Ltd. .................. 48,100 195,808
Westpac Banking Corp., Ltd. .......... 26,300 190,282
WMC Ltd. ............................. 7,000 31,409
Woolworths Ltd. ...................... 17,700 65,518
------------
1,643,685
------------
AUSTRIA - 0.1%
Austria Tabakwerke AG ................ 1,100 40,913
------------
BELGIUM - 1.3%
Electrabel SA ........................ 910 225,843
Fortis AG ............................ 11,460 334,836
------------
560,679
------------
DENMARK - 0.6%
Tele Danmark A/S ..................... 4,100 277,121
------------
FINLAND - 2.6%
Metso Oyj ............................ 8,600 103,873
Nokia Oyj ............................ 9,800 502,118
Sampo Insurance Co., Ltd. ............ 8,100 329,995
UPM-Kymmene Oyj ...................... 8,900 221,818
------------
1,157,804
------------
FRANCE - 10.4%
Alcatel .............................. 4,930 324,666
Aventis SA ........................... 4,790 351,031
AXA .................................. 1,256 198,658
Banque Nationale de Paris ............ 7,500 724,694
Compagnie de Saint Gobain ............ 2,730 370,560
Elf Aquitaine SA ..................... 7 1,439
Groupe Air France(b) ................. 7,770 134,813
Groupe Danone ........................ 1,840 245,169
L'Air Liquide ........................ 2,409 315,443
L'Oreal .............................. 200 173,888
Schneider Electric SA ................ 2,490 174,243
Societe Generale ..................... 6,270 378,653
Suez Lynonnaise des Eaux SA .......... 710 124,890
Thomson CSF .......................... 4,360 172,444
Total Fina SA ........................ 5,129 789,607
Vivendi .............................. 2,136 189,296
------------
4,669,494
------------
GERMANY - 5.7%
Allianz AG ........................... 1,752 638,190
Bayer AG ............................. 12,100 473,237
COMMON STOCKS, CONTINUED
SECURITY DESCRIPTION SHARES VALUE
-------------------- --------- ------------
GERMANY, CONTINUED
Bayerische Motoren Werke AG .......... 7,050 $ 213,555
Continental AG ....................... 7,350 123,299
E.On AG .............................. 9,950 490,251
Linde AG ............................. 3,600 143,904
SAP AG ............................... 1,050 157,520
Siemens AG ........................... 1,950 294,407
------------
2,534,363
------------
HONG KONG - 0.4%
Henderson Land Development Co.,
Ltd. ............................... 38,000 167,209
------------
IRELAND - 0.8%
Bank of Ireland ...................... 19,600 123,158
Eircom PLC ........................... 83,400 223,850
------------
347,008
------------
ITALY - 4.3%
Assicurazioni Generali ............... 6,000 206,480
ENI SpA .............................. 107,000 620,544
La Rinascente SpA .................... 16,000 91,104
San Paolo-IMI SpA .................... 17,000 302,943
Telecom Italia SpA ................... 22,000 303,681
TIM SpA .............................. 38,000 389,763
------------
1,914,515
------------
JAPAN - 27.1%
Acom Co., Ltd. ....................... 2,200 185,479
Asahi Bank Ltd. ...................... 20,000 84,309
Bank of Tokyo-Mitsubishi Ltd. ........ 24,000 290,582
Benesse Corp. ........................ 1,100 76,417
Bridgestone Corp. .................... 6,000 127,314
Canon, Inc. .......................... 10,000 499,047
Dai Nippon Printing Co., Ltd. ........ 7,000 123,656
Dai-Ichi Kangyo Bank Ltd. ............ 12,000 91,303
Daikin ............................... 5,000 116,492
Denso Corp. .......................... 5,000 121,926
East Japan Railway Co. ............... 34 197,956
Fanuc Co., Ltd. ...................... 1,900 193,769
Fuji Bank Ltd. ....................... 18,000 137,125
Fuji Photo Film Co., Ltd. ............ 4,000 164,081
Fujitsu Ltd. ......................... 17,000 589,688
Hitachi Ltd. ......................... 16,000 231,377
Honda Motor Co., Ltd. ................ 10,000 341,205
Hoya Corp. ........................... 2,000 179,582
Ito-Yokado Co., Ltd. ................. 2,000 120,603
Kamigumi Co., Ltd. ................... 18,000 95,103
KAO Corp. ............................ 7,000 214,364
Kirin Brewery Co., Ltd. .............. 9,000 112,711
Kuraray Co., Ltd. .................... 14,000 160,905
Kyocera Corp. ........................ 300 51,011
Matsushita Electric Industrial Co.,
Ltd. ............................... 14,000 363,889
Mitsubishi Corp. ..................... 12,000 108,770
Mitsubishi Estate Co., Ltd. .......... 22,000 259,505
Mitsubishi Trust & Banking Co. ....... 8,000 62,230
Murata Manufacturing Co., Ltd. ....... 1,000 143,854
NEC Corp. ............................ 18,000 566,532
NGK Insulators Ltd. .................. 12,000 149,034
Nintendo Co., Ltd. ................... 1,900 332,585
Nippon Steel Corp. ................... 80,000 168,618
</TABLE>

Continued
22
<PAGE> 25
GOVERNOR FUNDS SCHEDULE OF PORTFOLIO INVESTMENTS
INTERNATIONAL EQUITY FUND JUNE 30, 2000

<TABLE>
<S> <C> <C>
COMMON STOCKS, CONTINUED
SECURITY DESCRIPTION SHARES VALUE
-------------------- --------- ------------
JAPAN, CONTINUED
Nippon Telegraph & Telephone Corp. ... 64 $ 852,917
Nissin Food Products Co., Ltd. ....... 4,000 102,078
Nomura Securities Co., Ltd. .......... 17,000 416,960
Omron Corp. .......................... 3,000 81,662
Orix Corp. ........................... 1,800 266,253
Rohm Co., Ltd. ....................... 300 87,900
Sankyo Co., Ltd. ..................... 9,000 203,731
Santen Pharmaceutical Co., Ltd. ...... 5,000 120,981
Secom Co., Ltd. ...................... 3,000 219,751
Shin-Etsu Chemical Co., Ltd. ......... 3,000 152,550
Softbank Corp. ....................... 800 108,883
Sony Corp. ........................... 5,500 514,642
Sumitomo Bank Ltd. ................... 17,000 208,882
Sumitomo Chemical Co., Ltd. .......... 30,000 180,905
Sumitomo Electric Industries ......... 5,000 85,916
Takeda Chemical Industries ........... 5,000 328,918
Takefuji Corp. ....................... 900 108,968
TDK Corp. ............................ 2,000 288,087
Tokio Marine & Fire Insurance Co. .... 10,000 115,688
Tokyo Electric Power ................. 5,100 124,606
Tokyo Gas Co., Ltd. .................. 50,000 140,830
Toyoda Automatic Loom Works Ltd. ..... 2,000 43,383
Toyota Motor Corp. ................... 10,000 456,515
Yamanouchi Pharmaceutical Co.,
Ltd. ............................... 2,000 109,450
Yamato Transport Co., Ltd. ........... 5,000 124,526
------------
12,106,004
------------
NETHERLANDS - 6.3%
ABN Amro Holding NV .................. 9,056 222,754
Aegon NV ............................. 8,662 309,464
Elsevier NV .......................... 33,100 402,645
Heineken NV .......................... 11,500 702,767
ING Groep NV ......................... 5,037 341,852
Koninklijke (Royal) Philips
Electronics NV ..................... 3,800 179,946
TNT Post Group NV .................... 6,446 174,559
Wolters Kluwer NV .................... 18,030 482,206
------------
2,816,193
------------
NEW ZEALAND - 0.2%
Auckland International Airport
Ltd. ............................... 11,500 13,642
Carter Holt Harvey Ltd. .............. 17,900 15,589
Lion Nathan Ltd. ..................... 13,400 29,964
Telecom Corp. of New Zealand Ltd. .... 10,900 38,228
------------
97,423
------------
PORTUGAL - 1.5%
Brisa Auto-Estradas de Portugal,
SA ................................. 19,100 165,148
Electricidade de Portugal SA ......... 8,400 153,152
Portugal Telecom SA .................. 33,100 373,137
------------
691,437
------------
SINGAPORE - 0.8%
DBS Group Holdings Ltd. .............. 6,000 77,040
SIA Engineering Co., Ltd.(b) ......... 30,000 33,662
Singapore Airport Terminal Services,
Ltd.(b) ............................ 29,000 35,223
Singapore Press Holdings ............. 3,000 46,848
COMMON STOCKS, CONTINUED
SECURITY DESCRIPTION SHARES VALUE
-------------------- --------- ------------
SINGAPORE, CONTINUED
United Overseas Bank ................. 24,784 $ 161,979
------------
354,752
------------
SPAIN - 2.0%
Altadis SA ........................... 22,560 347,959
Banco Popular Espanol SA ............. 4,699 145,943
Banco Santander Central Hispano SA ... 24,002 254,239
Endesa SA ............................ 7,748 150,697
------------
898,838
------------
SWEDEN - 3.6%
Electrolux AB ........................ 15,650 243,563
Investor AB .......................... 14,850 204,023
Nordbanken Holding AB ................ 49,800 377,586
Swedish Match AB ..................... 57,570 178,538
Telefonaktikebolaget LM Ericsson
AB ................................. 30,760 611,992
------------
1,615,702
------------
SWITZERLAND - 3.8%
ABB Ltd. ............................. 1,670 200,526
Givaudan, Registered (b) ............. 30 9,160
Nestle SA, Registered ................ 204 409,615
Novartis AG, Registered .............. 349 554,600
Roche Holding AG ..................... 30 292,977
Swisscom AG, Registered .............. 620 215,428
------------
1,682,306
------------
UNITED KINGDOM - 23.0%
Allied Zurich PLC .................... 15,000 177,467
Astrazeneca PLC ...................... 5,115 238,890
BP Amoco Co. PLC ..................... 82,000 787,047
British Airways PLC .................. 30,000 172,585
British Telecom PLC .................. 43,000 555,935
Charter PLC .......................... 32,000 184,575
Diageo PLC ........................... 34,000 305,233
FKI PLC .............................. 37,000 131,634
Glaxo Wellcome PLC ................... 35,000 1,021,052
Greenalls Group PLC .................. 8,500 39,634
House of Fraser PLC .................. 44,000 32,107
HSBC Holdings PLC .................... 15,000 171,563
Kelda Group PLC ...................... 43,000 210,266
Lloyds TSB Group PLC ................. 50,000 472,337
Marconi PLC .......................... 45,000 585,880
Marks & Spencer PLC .................. 38,000 133,609
National Power PLC ................... 43,000 274,062
Nycomed Amersham PLC ................. 26,000 258,211
Peninsular & Orient Steam Navigation
Co. ................................ 13,000 111,393
PowerGen PLC ......................... 21,000 179,624
Prudential Corp. PLC ................. 21,000 307,746
Reckitt & Colman PLC ................. 12,000 134,434
Reed International PLC ............... 34,000 295,968
RJB Mining PLC ....................... 29,000 24,586
Royal & Sun Alliance Insurance Group
PLC ................................ 54,000 350,710
Royal Bank of Scotland Group PLC ..... 25,000 418,594
Scottish & Newcastle PLC ............. 23,000 187,852
Scottish & Southern Energy PLC ....... 34,000 311,924
Shell Transportation & Trading Co.,
PLC ................................ 32,000 267,173
</TABLE>

Continued
23
<PAGE> 26
GOVERNOR FUNDS SCHEDULE OF PORTFOLIO INVESTMENTS
INTERNATIONAL EQUITY FUND JUNE 30, 2000

<TABLE>
<S> <C> <C>
COMMON STOCKS, CONTINUED
SECURITY DESCRIPTION SHARES VALUE
-------------------- --------- ------------
UNITED KINGDOM, CONTINUED
SmithKline Beecham PLC ............... 13,000 $ 170,238
Tesco PLC ............................ 87,000 270,663
Thames Water PLC ..................... 11,000 142,382
Trinity Mirror PLC ................... 19,500 175,060
Unilever PLC ......................... 47,000 284,613
United News & Media PLC .............. 23,000 330,787
Vodafone Airtouch PLC ................ 140,980 569,858
------------
10,285,692
------------
TOTAL COMMON STOCKS (Cost $40,181,962)........... 43,861,138
------------
PREFERRED STOCKS - 0.2%
AUSTRALIA - 0.2%
News Corp., Ltd. ..................... 7,500 90,806
------------
TOTAL PREFERRED STOCKS (Cost $50,694) ........... 90,806
------------
</TABLE>

<TABLE>
<S> <C> <C> <C>
DAILY SWEEP VEHICLES - 1.3%
SECURITY DESCRIPTION SHARES VALUE
-------------------- -------- -----------
Bank of New York Cash Sweep 600,283 $ 600,283
-----------
TOTAL DAILY SWEEP VEHICLES (Cost $600,283)......... 600,283
-----------
TOTAL INVESTMENTS (Cost $40,832,939)(a) - 99.7%....
44,552,227
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.3%.......
144,801
-----------
NET ASSETS - 100.0%................................ $44,697,028
===========
</TABLE>

------------------

(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of mark to market adjustments
for passive foreign investment companies, reversal of Section 1256 mark to
market adjustments and losses recognized for financial reporting purposes in
excess of federal income tax reporting of approximately $125,530. Cost for
federal income tax purposes differs from value by net unrealized
appreciation of securities as follows:

<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 6,208,018
Unrealized depreciation..................................... (2,614,260)
------------
Net unrealized appreciation................................. $ 3,593,758
============
</TABLE>

(b) Represents non-income producing security.

<TABLE>
<S> <C>
AB --Aktiebolag (Swedish Stock Co.)
AG --Aktiengesellschaft (West German Stock Co.)
NV --Naamloze Vennootschaap (Dutch Corp.)
PLC --Public Limited Company
SA --Societa Anonyme (French Corp.)
SpA --Societa per Azioni (Italian Corp.)
</TABLE>

Continued

24
<PAGE> 27
GOVERNOR FUNDS SCHEDULE OF PORTFOLIO INVESTMENTS
INTERNATIONAL EQUITY FUND JUNE 30, 2000

At June 30, 2000, the fund's open forward currency contracts were as follows:

<TABLE>
<CAPTION>
CONTRACT CONTRACT UNREALIZED
DELIVERY AMOUNT VALUE MARKET APPRECIATION/
CURRENCY DATE (LOCAL CURRENCY) (U.S. DOLLAR) VALUE (DEPRECIATION)
-------- -------- ---------------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
LONG CONTRACTS:
Australian Dollar................................ 8/8/00 2,900,000 $ 1,843,965 $ 1,736,361 $(107,604)
Australian Dollar................................ 8/8/00 1,900,000 1,096,538 1,137,616 41,078
British Sterling Pound........................... 8/8/00 300,000 477,300 455,369 (21,931)
British Sterling Pound........................... 8/8/00 600,000 906,960 910,737 3,777
Euro............................................. 8/8/00 4,500,000 4,432,050 4,301,859 (130,191)
Euro............................................. 8/8/00 1,850,000 1,834,183 1,768,542 (65,641)
Euro............................................. 8/8/00 450,000 440,505 430,186 (10,319)
Euro............................................. 8/8/00 500,000 490,975 477,984 (12,991)
Euro............................................. 8/8/00 500,000 482,100 477,984 (4,116)
Euro............................................. 8/8/00 330,000 317,691 315,470 (2,221)
Euro............................................. 8/8/00 400,000 363,600 382,387 18,787
Japanese Yen..................................... 8/8/00 60,000,000 588,466 570,356 (18,110)
Japanese Yen..................................... 8/8/00 61,000,000 567,073 579,862 12,789
Swedish Krona.................................... 8/8/00 11,400,000 1,316,397 1,297,644 (18,753)
Swiss Franc...................................... 8/8/00 1,400,000 862,600 860,037 (2,563)
Swiss Franc...................................... 8/8/00 400,000 245,292 245,724 432
----------- ----------- ---------
TOTAL LONG CONTRACTS............................. $16,265,695 $15,948,118 $(317,577)
=========== =========== =========
SHORT CONTRACTS:
British Sterling Pound........................... 8/8/00 1,900,000 $ 3,052,920 $ 2,884,001 $ 168,919
British Sterling Pound........................... 8/8/00 200,000 318,250 303,579 14,671
British Sterling Pound........................... 8/8/00 250,000 395,938 379,474 16,464
British Sterling Pound........................... 8/8/00 400,000 627,056 607,158 19,898
British Sterling Pound........................... 8/8/00 150,000 237,143 227,684 9,459
British Sterling Pound........................... 8/8/00 200,000 319,120 303,579 15,541
British Sterling Pound........................... 8/8/00 500,000 749,700 758,948 (9,248)
British Sterling Pound........................... 8/8/00 500,000 748,990 758,948 (9,958)
Euro............................................. 8/8/00 400,000 395,908 382,387 13,521
Euro............................................. 8/8/00 280,000 263,158 267,671 (4,513)
Euro............................................. 8/8/00 650,000 620,490 621,380 (890)
Euro............................................. 8/8/00 450,000 425,786 430,186 (4,400)
Japanese Yen..................................... 8/8/00 590,000,000 5,600,911 5,608,503 (7,592)
Japanese Yen..................................... 8/8/00 53,000,000 501,751 503,815 (2,064)
Swedish Krona.................................... 8/8/00 11,400,000 1,321,433 1,297,644 23,789
Swiss Franc...................................... 8/8/00 350,000 217,566 215,009 2,557
----------- ----------- ---------
TOTAL SHORT CONTRACTS............................ $15,796,120 $15,549,966 $ 246,154
=========== =========== =========
</TABLE>

See notes to financial statements.

25
<PAGE> 28

GOVERNOR FUNDS
INTERNATIONAL EQUITY FUND

STATEMENT OF ASSETS AND LIABILITIES

JUNE 30, 2000

<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (cost
$40,832,939)......................... $ 44,552,227
Foreign cash........................... 159,892
Interest receivable.................... 4,090
Dividends receivable................... 37,383
Receivable for investments sold........ 34,272
Tax reclaims receivable................ 66,317
Prepaid expenses....................... 2,424
------------
TOTAL ASSETS....................... 44,856,605
LIABILITIES:
Payable for investments purchased...... $ 41,444
Unrealized depreciation on forward
foreign exchange contracts........... 71,423
Accrued expenses and other liabilities:
Investment advisor................... 970
Administration....................... 279
Other................................ 45,461
--------
TOTAL LIABILITIES.................. 159,577
------------
NET ASSETS:............................ $ 44,697,028
============
COMPOSITION OF NET ASSETS:
Capital................................ $ 38,538,941
Dividends in excess of accumulated net
investment income.................... (312,494)
Accumulated net realized gains from
investment and foreign currency
transactions......................... 2,822,693
Unrealized appreciation from
investments and foreign currency
transactions......................... 3,647,888
------------
NET ASSETS............................. $ 44,697,028
============
Shares Outstanding (par value $0.0001,
unlimited number of authorized
shares).............................. 3,828,941
============
Net Asset Value and Redemption Price
per share............................ $11.67
======
Maximum Sales Charge................... 5.50%
------
Maximum Offering Price per share (Net
Asset Value/(100%-Maximum Sales
Charge))............................. $12.35
======
</TABLE>

STATEMENT OF OPERATIONS

FOR THE YEAR ENDED JUNE 30, 2000

<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest.............................. $ 31,445
Dividend.............................. 766,610
Foreign tax withholding............... (87,661)
-----------
TOTAL INVESTMENT INCOME........... 710,394
EXPENSES:
Investment advisor.................... $ 527,053
Administration........................ 63,247
Accounting............................ 66,332
Custodian............................. 77,800
Other................................. 46,512
----------
Total expenses before contractual
fee reductions.................. 780,944
Contractual fee reductions........ (373,153)
-----------
NET EXPENSES...................... 407,791
-----------
NET INVESTMENT INCOME................. 302,603
-----------
NET REALIZED/UNREALIZED GAINS FROM
INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gains from investment and
foreign currency transactions....... 2,780,031
Change in unrealized appreciation from
investments and foreign
currencies.......................... 2,013,467
-----------
Net realized/unrealized gains from
investments and foreign currency
transactions........................ 4,793,498
-----------
CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS.......................... $ 5,096,101
===========
</TABLE>

See notes to financial statements.

26
<PAGE> 29

GOVERNOR FUNDS
INTERNATIONAL EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD
YEAR ENDED FEBRUARY 9, 1999
JUNE 30, TO JUNE 30,
2000 1999(a)
----------- ----------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income..................................... $ 302,603 $ 405,453
Net realized gains from investment and foreign currency
transactions............................................ 2,780,031 68,534
Change in unrealized appreciation from investments and
foreign currencies...................................... 2,013,467 1,634,421
----------- -----------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS.............. 5,096,101 2,108,408
----------- -----------
DIVIDENDS:
Net investment income..................................... (535,161) --
Net realized gains from investment and foreign currency
transactions............................................ (511,261) --
----------- -----------
CHANGE IN NET ASSETS FROM SHAREHOLDER DIVIDENDS............. (1,046,422) --
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued............................... 12,187,174 40,525,924
Dividends reinvested...................................... 408,746 --
Cost of shares redeemed................................... (11,454,151) (3,128,752)
----------- -----------
CHANGE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS........ 1,141,769 37,397,172
----------- -----------
CHANGE IN NET ASSETS........................................ 5,191,448 39,505,580

NET ASSETS:
Beginning of period....................................... 39,505,580 --
----------- -----------
End of period............................................. $44,697,028 $39,505,580
=========== ===========
SHARE TRANSACTIONS:
Issued.................................................... 1,078,265 4,030,322
Reinvested................................................ 34,885 --
Redeemed.................................................. (1,013,473) (301,058)
----------- -----------
CHANGE IN SHARES............................................ 99,677 3,729,264
=========== ===========
</TABLE>

(a) Period from commencement of operations.

See notes to financial statements.

27
<PAGE> 30

GOVERNOR FUNDS
INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED.

<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD
YEAR ENDED FEBRUARY 9, 1999
JUNE 30, TO JUNE 30,
2000 1999(a)
---------- ----------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.59 $ 10.00
------- -------
INVESTMENT ACTIVITIES:
Net investment income..................................... 0.08 0.11
Net realized and unrealized gains from investment and
foreign currency transactions........................... 1.28 0.48
------- -------
Total from investment activities.......................... 1.36 0.59
------- -------
DIVIDENDS:
Net investment income..................................... (0.14) --
Net realized gains from investment and foreign currency
transactions............................................ (0.14) --
------- -------
Total dividends........................................... (0.28) --
------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 11.67 $ 10.59
======= =======
TOTAL RETURN (EXCLUDES SALES CHARGE)........................ 12.87% 5.90%(b)
RATIOS/SUPPLEMENTARY DATA:
Net assets at end of period (000's)......................... $44,697 $39,506
Ratio of expenses to average net assets..................... 0.97% 0.98%(c)
Ratio of net investment income to average net assets........ 0.72% 2.80%(c)
Ratio of expenses to average net assets(d).................. 1.85% 1.86%(c)
Portfolio turnover.......................................... 56% 17%
</TABLE>

See notes to financial statements.

28
<PAGE> 31

[THIS PAGE INTENTIONALLY LEFT BLANK]

29
<PAGE> 32

GOVERNOR FUNDS

INTERMEDIATE TERM INCOME FUND

Q. HOW DID THE INTERMEDIATE TERM INCOME FUND PERFORM DURING THE YEAR ENDED JUNE
30, 2000?

A. The Fund posted a total return of 3.18% (without sales load) during the
period, versus a return of 3.42% for the Lipper Intermediate Investment
Grade Debt Funds Average(1) and a 4.57% total return for the Lehman Brothers
Aggregate Bond Index.

Q. WHAT WERE CONDITIONS LIKE IN THE TAXABLE BOND MARKET DURING THE PERIOD?

A. The Fed gradually pushed short-term interest rates higher over the course of
the year, in an effort to slow the robust growth rate of the economy.

The U.S. Treasury announced in February that it would buy back long-term
Treasuries which would reduce the supply of those issues. The expected lack
of supply caused investors to buy long-term Treasuries, which pushed prices
up and yields down, causing an inversion in the yield curve.

Q. HOW DID YOU POSITION THE FUND IN THAT ENVIRONMENT?

A. The Fund's duration for most of the period was slightly shorter than that of
the benchmark reflecting a somewhat defensive position for rising interest
rate environment. However, we pushed duration out late in the period, as
signs emerged that the Fed's six rate hikes were beginning to slow economic
growth. The Fund's duration began the period at 4.7 years and finished at
5.0 years.*

Q. HOW DID YOU ALLOCATE THE FUND'S ASSETS AMONG VARIOUS SECTORS OF THE BOND
MARKET?

A. The Fund's sector weightings were relatively close to those of the
benchmark. However, we overweighted asset-backed securities, which
outperformed short-term Treasuries and boosted the Fund's total return. A
defensive corporate credit position added value when corporate spreads
widened and investors reacted to increased corporate leverage.*

Q. WHAT IS YOUR OUTLOOK FOR THE BOND MARKET GOING FORWARD?

A. Initial data shows that U.S. economic growth has slowed from the remarkably
high levels we saw last year; however, it is not yet clear if the current
slowdown will continue. We expect the Fed will closely monitor economic data
during the quarter, and will more than likely maintain a stable monetary
policy for the next few months.

Q. HOW WILL YOU POSITION THE FUND IN THAT ENVIRONMENT?

A. We will maintain the Fund's duration near that of the index until there are
clearer signs about the rate of economic growth and inflation. Given the
Treasury markets recent run, we will underweight the sector while
maintaining exposure to long treasuries, and overweight short corporate and
asset-backed securities.

------------------
(1) The Lipper Intermediate Investment Grade Debt Funds Average is an average of
managed funds that seek to invest at least 65% of their assets in
investment-grade debt issues (rated in the top four grades) with
dollar-weighted average maturities of five to ten years.

* The Fund's portfolio composition is subject to change.

30
<PAGE> 33

GOVERNOR FUNDS

As of June 30, 2000

INTERMEDIATE TERM INCOME FUND
GROWTH OF $10,000 INVESTMENT COMPARISON

<TABLE>
<CAPTION>
SINCE
1 INCEPTION
AVERAGE ANNUAL TOTAL RETURN YEAR (12/2/96)
--------------------------- ------ ---------
<S> <C> <C>
No-Load 3.18% 4.23%
Load++ -1.50% 2.90%
</TABLE>

<TABLE>
<CAPTION>
THE LIPPER
THE LEHMAN INTERMEDIATE
BROTHERS AGGREGATE INVESTMENT GRADE
LOAD++ NO LOAD BOND INDEX DEBT FUND AVG.
---- ------- ------------------ ----------------
<S> <C> <C> <C> <C>
12/2/96 9550 10000 10000 10000
6/30/97 9684 10140 10215 10188
6/30/98 10648 11149 11292 11148
6/30/99 10735 11240 11648 11371
6/30/00 11076 11597 12180 11760
</TABLE>

++ Reflects a 4.50% sales load.

The chart represents historical performance of a hypothetical investment of
$10,000 in the Intermediate Term Income Fund from 12/2/96 to 6/30/00, and
represents the reinvestment of dividends and capital gains in the Fund.

The Fund's performance is compared to the Lehman Brothers Aggregate Bond Index,
which 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 its
underlying securities.

31
<PAGE> 34

GOVERNOR FUNDS SCHEDULE OF INVESTMENTS
INTERMEDIATE TERM INCOME FUND JUNE 30, 2000

<TABLE>
<S> <C> <C>
ASSET BACKED SECURITIES - 6.4%
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
-------------------- ----------- ------------
BANKS - 1.2%
Mellon Bank Auto Grantor Trust,
5.46%, 10/17/05................... $ 2,976,333 $ 2,917,848
------------
FINANCIAL SERVICES - 5.2%
Copelco Capital Funding Corp.,
7.12%, 8/18/03.................... 3,000,000 3,005,760
Honda Auto Lease Trust, 6.65%,
7/15/05........................... 5,000,000 4,964,800
Residential Asset Securities Corp.,
6.11%, 5/25/25.................... 5,000,000 4,847,200
------------
12,817,760
------------
TOTAL ASSET BACKED SECURITIES (Cost
$15,807,517)................................... 15,735,608
------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 6.1%
FINANCIAL SERVICES - 2.0%
Mellon Bank, 6.92%, 3/25/30......... 5,000,000 4,875,105
------------
U.S. GOVERNMENT AGENCY - 4.1%
Freddie Mac, 7.50%, 8/15/25, Pool
# 2228............................ 10,000,000 10,049,500
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost
$14,684,382)................................... 14,924,605
------------
CORPORATE OBLIGATIONS - 23.3%
AUTOMOTIVE PARTS - 1.2%
TRW, Inc., 8.75%, 5/15/06........... 3,000,000 3,056,250
------------
BANKS - 3.1%
Bank of America Corp., 7.80%,
2/15/10........................... 2,500,000 2,487,500
Interamerican Development Bank,
7.00%, 6/16/03.................... 5,000,000 5,000,000
------------
7,487,500
------------
BROADCASTING/CABLE - 1.1%
Time Warner, Inc., 7.25%,
10/15/17.......................... 3,000,000 2,771,250
------------
DATA PROCESSING & REPRODUCTION -
1.0%
Electronic Data Systems, 7.13%,
10/15/09.......................... 2,500,000 2,431,250
------------
FINANCIAL SERVICES - 9.7%
Associates Corporation of North
America, 6.95%, 11/1/18........... 2,000,000 1,760,000
Chrysler Financial LLC, 6.77%,
7/19/00(b)........................ 5,000,000 4,994,900
Ford Motor Credit Corp., 7.38%,
10/28/09.......................... 4,000,000 3,870,000
General Electric Capital Corp.,
6.81%, 11/3/03.................... 2,000,000 1,977,500
Mellon Bank, 7.50%, 6/15/05......... 3,000,000 2,992,500
Morgan Stanley Dean Witter & Co.,
7.75%, 6/15/05.................... 3,000,000 3,015,000
PP&L Capital Funding, 7.75%,
4/15/05........................... 5,000,000 4,968,750
------------
23,578,650
------------
CORPORATE OBLIGATIONS, CONTINUED
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
-------------------- ----------- ------------
FOOD PRODUCTS & SERVICES - 1.8%
Pepsi Bottling Group, Inc., 7.00%,
3/1/29............................ $ 5,000,000 $ 4,487,500
------------
MACHINERY-ELECTRICAL - 2.1%
Emerson Electric Co. 7.88%,
6/1/05............................ 5,000,000 5,137,500
------------
TELECOMMUNICATIONS - 3.3%
Bellsouth Capital Funding, 7.75%,
2/15/10........................... 6,000,000 5,997,084
Lucent Technologies, 6.45%,
3/15/29........................... 2,500,000 2,209,375
------------
8,206,459
------------
TOTAL CORPORATE OBLIGATIONS (Cost $57,505,743)...
57,156,359
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 35.9%
FEDERAL HOME LOAN BANK - 1.6%
6.53%, 6/17/09...................... 4,000,000 3,829,960
------------
FEDERAL HOME LOAN MORTGAGE
CORPORATION - 14.4%
7.38%, 5/15/03...................... 5,000,000 5,050,000
6.88%, 1/15/05...................... 5,000,000 4,969,200
7.63%, 9/9/09....................... 5,000,000 4,906,450
5.50%, 4/1/14....................... 39,723 36,980
7.50%, 9/1/19....................... 9,712,666 9,635,256
7.50%, 7/1/29....................... 10,966,928 10,822,932
------------
35,420,818
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION - 14.8%
7.00%, 12/1/11, Pool #313224........ 5,905,292 5,833,543
8.00%, 10/1/29, Pool #323994........ 7,066,020 7,094,354
7.00%, 3/1/30, Pool #253112......... 6,964,315 6,721,957
7.50%, 3/1/30, Pool #533166......... 7,981,980 7,864,885
8.00%, 7/1/30, Pool #253356......... 8,600,000 8,637,969
------------
36,152,708
------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - 5.1%
7.00%, 7/20/28, Pool #2616.......... 5,557,860 5,399,961
6.25%, 10/15/28, Pool #484545....... 14,164 13,243
7.00%, 12/15/28, Pool #426720....... 7,302,349 7,120,374
------------
12,533,578
------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost
$88,639,822)................................... 87,937,064
------------
U.S. TREASURY OBLIGATIONS - 27.7%
U.S. TREASURY BONDS - 15.4%
11.63%, 11/15/02.................... 9,500,000 10,562,765
10.63%, 8/15/15..................... 4,000,000 5,687,480
7.50%, 11/15/16..................... 3,000,000 3,378,750
8.13%, 8/15/19...................... 5,000,000 6,031,250
8.13%, 5/15/21...................... 10,000,000 12,175,000
------------
37,835,245
------------
</TABLE>

Continued
32
<PAGE> 35
GOVERNOR FUNDS SCHEDULE OF INVESTMENTS
INTERMEDIATE TERM INCOME FUND JUNE 30, 2000
<TABLE>
<S> <C> <C>
U.S. TREASURY OBLIGATIONS, CONTINUED
SHARES
OR
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
-------------------- ----------- ------------
U.S. TREASURY NOTES - 12.3%
7.88%, 8/15/01...................... $ 5,000,000 $ 5,073,400
6.63%, 4/30/02...................... 3,000,000 3,007,500
7.25%, 5/15/04...................... 5,500,000 5,670,115
7.00%, 7/15/06...................... 6,000,000 6,215,580
6.63%, 5/15/07...................... 4,000,000 4,082,480
6.13%, 8/15/07...................... 3,000,000 2,982,180
6.50%, 2/15/10...................... 3,000,000 3,097,410
------------
30,128,665
------------
TOTAL U.S. TREASURY OBLIGATIONS (Cost
$69,163,962)................................... 67,963,910
------------
</TABLE>

<TABLE>
<S> <C> <C>
INVESTMENT COMPANIES - 0.5%
Federated Government Obligation
Fund.............................. 8,313 8,313
Federated Prime Obligation Fund..... 1,175,439 1,175,439
Federated Treasury Fund............. 300 300
Prime Money Market Fund*............ 182 182
U.S. Treasury Obligations Money
Market Fund*...................... 936 936
------------
TOTAL INVESTMENT COMPANIES
(Cost $1,185,170).............................. 1,185,170
------------
DAILY SWEEP VEHICLES - 0.0%
SECURITY DESCRIPTION SHARES VALUE
-------------------- ----------- ------------
Bank of New York Cash Sweep......... 199 199
------------
TOTAL DAILY SWEEP VEHICLES (Cost $199)........... 199
------------
TOTAL INVESTMENTS (Cost $246,986,795)(a) -
99.9%.......................................... 244,902,915
OTHER ASSETS IN EXCESS OF
LIABILITIES - 0.1%............................. 258,033
------------
NET ASSETS - 100.0%.............................. $245,160,948
============
</TABLE>

---------------

(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting purposes in excess of federal income tax reporting of
approximately $55,782. Cost for federal income tax purposes differs from
value by net unrealized depreciation of securities as follows:

<TABLE>
<S> <C>
Unrealized appreciation...................... $ 994,394
Unrealized depreciation...................... (3,134,056)
-----------
Net unrealized depreciation.................. $(2,139,662)
===========
</TABLE>

(b) Represents a variable rate note. Interest rate disclosed represents current
rate at June 30, 2000. Maturity date represents next rate change date.

* Securities are affiliated investment companies in the Governor Funds.

LLC-Limited Liability Company

See notes to financial statements.

33
<PAGE> 36

GOVERNOR FUNDS
INTERMEDIATE TERM INCOME FUND

STATEMENT OF ASSETS AND LIABILITIES

JUNE 30, 2000

<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (cost
$246,985,677)..................... $244,901,797
Investments in affiliates, at value
(cost $1,118)..................... 1,118
------------
Total Investments............... 244,902,915
Interest receivable................. 3,045,035
Dividends receivable................ 12,422
Receivable for investments sold..... 16,368,722
Deferred organization costs......... 13,349
Prepaid expenses.................... 14,936
------------
TOTAL ASSETS.................... 264,357,379
LIABILITIES:
Dividends payable................... $ 1,344,410
Payable for investments purchased... 17,829,873
Payable for capital shares
redeemed.......................... 1,002
Accrued expenses and other
liabilities:
Investment advisor................ 4,036
Administration.................... 1,547
Administrative services........... 6,466
Other............................. 9,097
-----------
TOTAL LIABILITIES............... 19,196,431
------------
NET ASSETS:......................... $245,160,948
------------
COMPOSITION OF NET ASSETS:
Capital............................. $269,159,672
Accumulated net investment income... 53,494
Accumulated net realized losses from
investment transactions........... (21,968,338)
Unrealized depreciation from
investments....................... (2,083,880)
------------
NET ASSETS.......................... $245,160,948
============
Shares Outstanding (par value
$0.0001, unlimited number of
authorized shares)................ 26,715,093
============
Net Asset Value and Redemption Price
per share......................... $9.18
=====
Maximum Sales Charge................ 4.50%
-----
Maximum Offering Price per share
(Net Asset Value/(100%-Maximum
Sales Charge)).................... $9.61
=====
</TABLE>

STATEMENT OF OPERATIONS

FOR THE YEAR ENDED JUNE 30, 2000

<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest.............................. $19,322,685
Dividend.............................. 448,903
Dividends from affiliates............. 56
-----------
TOTAL INVESTMENT INCOME........... 19,771,644
EXPENSES:
Investment advisor.................... $1,710,672
Administration........................ 427,672
Administrative services............... 90,953
Custodian............................. 41,374
Other................................. 277,198
----------
Total expenses before contractual
fee reductions.................. 2,547,869
Contractual fee reductions........ (955,127)
-----------
NET EXPENSES...................... 1,592,742
-----------
NET INVESTMENT INCOME................. 18,178,902
-----------
NET REALIZED/UNREALIZED GAINS/(LOSSES)
FROM INVESTMENTS:
Net realized losses from investment
transactions........................ (15,658,140)
Change in unrealized depreciation from
investments......................... 5,792,518
-----------
Net realized/unrealized losses from
investments......................... (9,865,622)
-----------
CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS.......................... $ 8,313,280
===========
</TABLE>

See notes to financial statements.
34
<PAGE> 37

GOVERNOR FUNDS
INTERMEDIATE TERM INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
--------------------------------
2000 1999
------------- -------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income..................................... $ 18,178,902 $ 17,720,374
Net realized losses from investment transactions.......... (15,658,140) (3,585,583)
Change in unrealized appreciation/depreciation from
investments............................................. 5,792,518 (12,283,842)
------------- -------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS.............. 8,313,280 1,850,949
------------- -------------
DIVIDENDS:
Net investment income..................................... (18,133,008) (17,714,534)
Net realized gains from investment transactions........... -- (3,274,801)
------------- -------------
CHANGE IN NET ASSETS FROM SHAREHOLDER DIVIDENDS............. (18,133,008) (20,989,335)
------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued............................... 72,228,909 88,095,203
Dividends reinvested...................................... 5,999,134 2,942,950
Cost of shares redeemed................................... (129,227,892) (41,483,981)
------------- -------------
CHANGE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS........ (50,999,849) 49,554,172
------------- -------------
CHANGE IN NET ASSETS........................................ (60,819,577) 30,415,786

NET ASSETS:
Beginning of period....................................... 305,980,525 275,564,739
------------- -------------
End of period............................................. $ 245,160,948 $ 305,980,525
============= =============
SHARE TRANSACTIONS:
Issued.................................................... 7,800,195 8,809,597
Reinvested................................................ 647,909 296,108
Redeemed.................................................. (13,960,961) (4,165,244)
------------- -------------
CHANGE IN SHARES............................................ (5,512,857) 4,940,461
============= =============
</TABLE>

See notes to financial statements.
35
<PAGE> 38

GOVERNOR FUNDS
INTERMEDIATE TERM INCOME FUND
FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED.

<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEARS ENDED JUNE 30, DECEMBER 2, 1996
------------------------------------ TO JUNE 30,
2000 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..................................... 0.60 0.59 0.62 0.36
Net realized and unrealized gains/(losses) from investment
transactions............................................ (0.31) (0.50) 0.33 (0.23)
-------- -------- -------- --------
Total from investment activities.......................... 0.29 0.09 0.95 0.13
-------- -------- -------- --------
DIVIDENDS:
Net investment income..................................... (0.60) (0.59) (0.62) (0.36)
Net realized gains from investment transactions........... -- (0.11) -- --
-------- -------- -------- --------
Total dividends........................................... (0.60) (0.70) (0.62) (0.36)
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD.............................. $ 9.18 $ 9.49 $ 10.10 $ 9.77
======== ======== ======== ========
TOTAL RETURN (EXCLUDES SALES CHARGE)........................ 3.18% 0.82% 9.95% 1.40%(b)
RATIOS/SUPPLEMENTARY DATA:
Net assets at end of period (000's)......................... $245,161 $305,981 $275,565 $207,859
Ratio of expenses to average net assets..................... 0.56% 0.56% 0.57% 0.37%(c)
Ratio of net investment income to average net assets........ 6.38% 5.97% 6.27% 6.45%(c)
Ratio of expenses to average net assets(d).................. 0.89% 0.98% 0.92% 0.84%(c)
Portfolio turnover.......................................... 192% 149% 218% 329%
</TABLE>

See notes to financial statements.
36
<PAGE> 39

[THIS PAGE INTENTIONALLY LEFT BLANK]

37
<PAGE> 40

GOVERNOR FUNDS

LIMITED DURATION GOVERNMENT SECURITIES FUND

Q. HOW DID THE LIMITED DURATION GOVERNMENT SECURITIES FUND PERFORM DURING THE
YEAR ENDED JUNE 30, 2000?

A. The Fund's total return for the period was 4.31% (without sales load),
compared to a 4.85% return for the Fund's benchmark the Lehman Brothers
1-3-Year Government Bond Index.

Q. WHAT WERE THE CONDITIONS IN THE FIXED-INCOME MARKETS DURING THE PERIOD?

A. Yields rose substantially during the period. The yield on the one-year
Treasury note rose from 5.05% at the beginning of the period to 6.10% at the
end; meanwhile, the yield on the two-year Treasury increased from 5.50% to
6.35%.

Most of those increases came during the first half of the period, as
investors sold bonds due to the Fed's restrictive monetary policy. The Fed
raised the federal funds rate six times during the period in an attempt to
slow the economy and forestall inflation. Yields peaked in January. The
Fed's interest rate hikes appeared to be slowing the economy in the latter
half of the period, and yields subsequently fell as investors anticipated a
less-restrictive monetary policy going forward.

Q. HOW DID YOU MANAGE THE FUND IN THAT ENVIRONMENT?

A. We kept the duration of the Fund's portfolio somewhat shorter than that of
its benchmark. The Fund's duration began the period at 1.5 years and ended
the period at 1.0 years. This strategy provided the Fund with good
liquidity, which allowed us to take advantage of opportunities as they
developed. For example, we found some very attractive opportunities among
five-year bonds, and the Fund's strong liquidity allowed us to capitalize on
that opportunity before many other funds.

Q. WHAT SECTORS OF THE GOVERNMENT FIXED-INCOME MARKETS DID YOU FOCUS ON DURING
THE PERIOD?

A. We maintained an overweighted position in Treasury securities to increase
the liquidity of the Fund's assets. The Fund held 36.6% of its net assets in
Treasuries and 23.7% in agency securities. Our strategy gave us the
flexibility to invest as soon as we saw opportunities. We felt that such
flexibility was important, given the uncertainty about Fed action and the
direction of interest rates during the period.*

Our focus on Treasuries also helped the Fund avoid the political risk which
was associated with government agency-backed securities during the period.
This risk stemmed from discussions in Congress regarding the removal of some
privileges enjoyed by Fannie Mae and Freddie Mac, which issue agency
securities.*

Q. WHAT IS YOUR OUTLOOK FOR THE ECONOMY AND THE BOND MARKETS?

A. We expect to see economic growth slow due to the Fed's rate hikes.
Therefore, we believe investors will likely temper their expectations for
inflation, and the Fed will closely monitor economic data before raising
rates again. This said, the recent data about the future of the economy and
inflation is unclear, so we could see another rate hike. The short-term bond
markets are likely to react to any data which could influence Fed action.

Q. HOW WILL YOU MANAGE THE FUND IN THAT ENVIRONMENT?

A. We will maintain the Fund's relatively short duration to provide strong
liquidity, which will allow us to seize investment opportunities as they
develop. We may change our tactics quickly, however, if we see data that
indicates shifts in the economy or the financial marketplace.

------------------
* The Fund's portfolio composition is subject to change.
38
<PAGE> 41

GOVERNOR FUNDS

As of June 30, 2000

LIMITED DURATION GOVERNMENT SECURITIES FUND
GROWTH OF $10,000 INVESTMENT COMPARISON

<TABLE>
<CAPTION>
SINCE
1 INCEPTION
AVERAGE ANNUAL TOTAL RETURN(+) YEAR (10/31/95)
---------------------------- ------ ----------
<S> <C> <C>
No-Load 4.31% 4.75%
Load++ 1.22% 4.06%
</TABLE>

<TABLE>
<CAPTION>
THE LEHMAN BROTHERS 1-3
LOAD++ NO LOAD YEAR GOV. BOND INDEX
---- ------- -----------------------
<S> <C> <C> <C>
10/31/95 9700 10000 10000
6/30/96 9989 10303 10307
6/30/97 10504 10834 10987
6/30/98 11070 11418 11730
6/30/99 11540 11903 12333
6/30/00 12038 12416 12931
</TABLE>

++ Reflects a 3.00% sales load.

The chart represents historical performance of a hypothetical investment of
$10,000 in the Limited Duration Government Securities Fund from 10/31/95 to
6/30/00, and represents the reinvestment of dividends and capital gains in the
Fund.

The Fund's performance is compared to the Lehman Brothers 1-3-Year Government
Bond Index, which 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 its
underlying securities.

(+) The quoted performance of the Limited Duration Government Securities Fund
includes performance of certain collective trust fund ("commingled")
accounts advised by Martindale Andres & Company, LLC, for periods dating
back to 10/31/95 and prior to the Limited Duration Government Securities
Fund's commencement of operations on 7/1/97, as adjusted to reflect the
expenses associated with the Fund. The commingled accounts were not
registered with the Securities and Exchange Commission and, therefore, were
not subject to the investment restrictions imposed by law on registered
mutual funds. If the commingled accounts had been registered, the commingled
accounts' performance may have been adversely affected.

39
<PAGE> 42

GOVERNOR FUNDS SCHEDULE OF PORTFOLIO INVESTMENTS
LIMITED DURATION GOVERNMENT SECURITIES FUND JUNE 30, 2000

<TABLE>
<S> <C> <C>
CORPORATE OBLIGATIONS - 15.0%
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
-------------------- ----------- -----------
FINANCIAL SERVICES - 1.4%
Private Export Funding Co., 8.40%,
7/31/01............................ $ 1,000,000 $ 1,015,000
-----------
U.S. GOVERNMENT AGENCY - 13.6%
Fannie Mae, 6.18%, 3/15/01........... 10,000,000 9,955,730
-----------
TOTAL CORPORATE OBLIGATIONS (Cost $11,030,342)....
10,970,730
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 23.7%
FEDERAL HOME LOAN BANK - 20.2%
6.43%, 7/14/00*...................... 10,000,000 9,980,000
5.13%, 9/15/03....................... 5,000,000 4,739,300
-----------
14,719,300
-----------
FEDERAL HOME LOAN MORTGAGE
CORPORATION - 2.3%
9.00%, 4/1/16, Pool #B70012.......... 1,640,195 1,703,228
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
- 0.0%
10.00%, 10/1/00, Pool #19294......... 2 2
-----------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - 1.2%
8.50%, 2/15/17, Pool #203632......... 90,318 93,169
8.50%, 4/15/17, Pool #189291......... 27,947 28,838
8.50%, 7/15/21, Pool #306066......... 173,314 179,108
8.50%, 7/15/21, Pool #307983......... 273,645 282,793
8.50%, 1/15/23, Pool #341948......... 287,882 297,506
-----------
881,414
-----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost
$17,372,154).................................... 17,303,944
-----------
U.S. TREASURY OBLIGATIONS - 36.6%
U.S. TREASURY BILLS - 13.3%
5.99%, 12/28/00*..................... 10,000,000 9,701,601
-----------
U.S. TREASURY NOTES - 23.3%
7.50%, 11/15/01...................... 10,000,000 10,128,100
5.88%, 11/15/04...................... 5,000,000 4,921,950
6.75%, 5/15/05....................... 2,000,000 2,046,860
-----------
17,096,910
-----------
TOTAL U.S. TREASURY OBLIGATIONS (Cost
$27,220,642).................................... 26,798,511
-----------
REPURCHASE AGREEMENTS - 24.0%
SHARES
OR
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
-------------------- ----------- -----------
Lehman Brothers, 6.58% due 7/3/00,
with a maturity value of
$12,570,889 (collateralized by
$319,050,000 GNMA 1.76%-1.96%,
9/16/25 - 1/16/28, total market
value $12,808,686)................. $12,564,000 $12,564,000
Merrill Lynch Securities, Inc., 6.45%
due 7/3/00, with a maturity value
of $5,003,688 (collateralized by
$200,000 International Bank
Reconnaissance & Development 8.13%,
3/1/01, and $4,920,000 Tennessee
Valley Authority 6.00%, 9/24/02,
total market value of
$5,103,957)........................ 5,001,000 5,001,000
-----------
TOTAL REPURCHASE AGREEMENTS (Cost $17,565,000)....
17,565,000
-----------
INVESTMENT COMPANIES - 0.6%
Federated Government Obligation
Fund............................... 426,368 426,368
-----------
TOTAL INVESTMENT COMPANIES (Cost $426,368)........ 426,368
-----------
TOTAL INVESTMENTS (Cost $73,614,506)(a) - 99.9%...
73,064,553
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.1%......
75,752
-----------
NET ASSETS - 100.0%............................... $73,140,305
===========
</TABLE>

------------------

(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting purposes in excess of federal income tax reporting of
approximately $5,781. Cost for federal income tax purposes differs from
value by net unrealized depreciation of securities as follows:

<TABLE>
<S> <C>
Unrealized appreciation...................... $ 39,628
Unrealized depreciation...................... (595,362)
------------
Net unrealized depreciation.................. $ (555,734)
============
</TABLE>

* Rate disclosed represents effective yield at June 30, 2000.

<TABLE>
<S> <C>
GNMA --Government National Mortgage Association
</TABLE>

See notes to financial statements.

40
<PAGE> 43

GOVERNOR FUNDS
LIMITED DURATION GOVERNMENT SECURITIES FUND

STATEMENT OF ASSETS AND LIABILITIES

JUNE 30, 2000

<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (cost
$56,049,506).......................... $55,499,553
Repurchase agreements................... 17,565,000
-----------
Total Investments................... 73,064,553
Cash.................................... 105
Interest receivable..................... 464,735
Dividends receivable.................... 2,016
Deferred organization costs............. 3,429
Prepaid expenses........................ 3,177
-----------
TOTAL ASSETS........................ 73,538,015
LIABILITIES:
Dividends payable....................... $364,038
Accrued expenses and other liabilities:
Investment advisor.................... 1,201
Administration........................ 461
Other................................. 32,010
--------
TOTAL LIABILITIES................... 397,710
-----------
NET ASSETS:............................. $73,140,305
===========
COMPOSITION OF NET ASSETS:
Capital................................. $74,711,120
Accumulated net investment income....... 12,406
Accumulated net realized losses from
investment transactions............... (1,033,268)
Unrealized depreciation from
investments........................... (549,953)
-----------
NET ASSETS.............................. $73,140,305
===========
Shares Outstanding (par value $0.0001,
unlimited number of authorized
shares)............................... 7,544,196
===========
Net Asset Value and Redemption Price per
share................................. $9.69
=====
Maximum Sales Charge.................... 3.00%
-----
Maximum Offering Price per share (Net
Asset Value/(100%-Maximum Sales
Charge)).............................. $9.99
=====
</TABLE>

STATEMENT OF OPERATIONS

FOR THE YEAR ENDED JUNE 30, 2000

<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest................................. $3,659,731
Dividend................................. 19,276
----------
TOTAL INVESTMENT INCOME.............. 3,679,007
EXPENSES:
Investment advisor....................... $345,946
Administration........................... 86,487
Accounting............................... 32,883
Custodian................................ 23,072
Other.................................... 56,347
--------
Total expenses before contractual fee
reductions......................... 544,735
Contractual fee reductions........... (193,153)
----------
NET EXPENSES......................... 351,582
----------
NET INVESTMENT INCOME.................... 3,327,425
----------
NET REALIZED/UNREALIZED LOSSES FROM
INVESTMENTS:
Net realized losses from investment
transactions........................... (409,559)
Change in unrealized depreciation from
investments............................ (321,773)
----------
Net realized/unrealized losses from
investments............................ (731,332)
----------
CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS............................. $2,596,093
==========
</TABLE>

See notes to financial statements.
41
<PAGE> 44

GOVERNOR FUNDS
LIMITED DURATION GOVERNMENT SECURITIES FUND
STATEMENTS OF CHANGES IN NET ASSETS

NET ASSETS:
Beginning of period....................................... 52,040,847 29,359,989
------------ ------------
End of period............................................. $ 73,140,305 $ 52,040,847
============ ============
SHARE TRANSACTIONS:
Issued.................................................... 4,176,016 3,734,444
Reinvested................................................ 45,576 15,031
Redeemed.................................................. (1,972,643) (1,400,696)
------------ ------------
CHANGE IN SHARES............................................ 2,248,949 2,348,779
============ ============
</TABLE>

See notes to financial statements.
42
<PAGE> 45

GOVERNOR FUNDS
LIMITED DURATION GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED.

<TABLE>
<CAPTION>
FOR THE YEARS
ENDED FOR THE PERIOD
JUNE 30, JULY 1, 1997
-------------------- TO JUNE 30,
2000 1999 1998(a)
------- ------- --------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 9.83 $ 9.96 $ 10.00
------- ------- -------
INVESTMENT ACTIVITIES:
Net investment income..................................... 0.55 0.54 0.56
Net realized and unrealized losses from investment
transactions............................................ (0.14) (0.13) (0.04)
------- ------- -------
Total from investment activities.......................... 0.41 0.41 0.52
------- ------- -------
DIVIDENDS:
Net investment income..................................... (0.55) (0.54) (0.56)
Net realized gains from investment transactions........... -- (0.00)* (0.00)*
------- ------- -------
Total dividends........................................... (0.55) (0.54) (0.56)
------- ------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 9.69 $ 9.83 $ 9.96
======= ======= =======
TOTAL RETURN (EXCLUDES SALES CHARGE)........................ 4.31% 4.25% 5.39%(b)
RATIOS/SUPPLEMENTARY DATA:
Net assets at end of period (000's)......................... $73,140 $52,041 $29,360
Ratio of expenses to average net assets..................... 0.61% 0.59% 0.65%(c)
Ratio of net investment income to average net assets........ 5.77% 5.51% 5.58%(c)
Ratio of expenses to average net assets(d).................. 0.94% 1.03% 1.18%(c)
Portfolio turnover.......................................... 237% 519% 482%
</TABLE>

See notes to financial statements.
43
<PAGE> 46

GOVERNOR FUNDS

PENNSYLVANIA MUNICIPAL BOND FUND(+)

Q. HOW DID THE PENNSYLVANIA MUNICIPAL BOND FUND PERFORM DURING THE YEAR ENDED
JUNE 30, 2000?

A. The Fund's total return for the period was 1.96% (without sales load) versus
a return of 1.86% for the Lipper Pennsylvania Intermediate Municipal Debt
Funds Average(1) and a return of 3.86% for the Lehman Brothers Pennsylvania
1-12-Year Municipal Bond Index.

Q. WHAT WERE THE CONDITIONS IN THE PENNSYLVANIA MUNICIPAL BOND MARKET DURING THE
PERIOD?

A. Interest rates on Pennsylvania municipal bonds rose during the first half of
the period, especially near the end of 1999 as investors sold municipal
issues to offset capital gains realized in the stock market. As the new year
began limited new issuance created a lack of supply and supported bond
prices.

Q. HOW DID YOU MANAGE THE FUND IN THAT ENVIRONMENT?

A. We maintained an intermediate term duration near 5.5 years during most of
the period. We continue to emphasize distribution yield in this Fund.*

The Fund's tax-exempt income distribution yield at the end of the period was
4.95%, 0.65% higher than a year ago. We believe we were successful in
implementing several swaps to improve the structure and distribution yield
of the Fund, while maintaining a solid credit profile.*

Q. WHAT IS YOUR OUTLOOK FOR THE PENNSYLVANIA MUNICIPAL BOND MARKET GOING
FORWARD, AND HOW WILL YOU MANAGE THE FUND IN THAT ENVIRONMENT?

A. We believe municipal bonds will perform well going forward. Supply will
likely remain tight with retail demand still strong.

In this environment, we will continue to manage the Fund with an
intermediate term duration, focusing on opportunities to enhance yield
without diminishing the high quality of the portfolio. As always, we will
maintain a well-diversified portfolio in an attempt to help minimize credit
risk to our shareholders.*

------------------
(+) Regional funds may be subject to additional risk, since the issuers they
invest in are located in one geographical location. 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) Lipper Pennsylvania Intermediate Municipal Debt Fund Average 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 its underlying
securities.
* The Fund's portfolio composition is subject to change.
44
<PAGE> 47

GOVERNOR FUNDS

As of June 30, 2000

PENNSYLVANIA MUNICIPAL BOND FUND
GROWTH OF $10,000 INVESTMENT COMPARISON

<TABLE>
<CAPTION>
SINCE
1 INCEPTION
AVERAGE ANNUAL TOTAL RETURN YEAR (10/1/96)
--------------------------- ------ ---------
<S> <C> <C>
No-Load 1.96% 3.67%
Load++ -2.59% 2.40%
</TABLE>

<TABLE>
<CAPTION>
THE LEHMAN
BROTHERS PENN. 1-12- THE LIPPER PENN.
YEAR MUN. BOND INTER. MUN. DEBT
LOAD++ NO LOAD INDEX FUNDS AVERAGE
---- ------- -------------------- ----------------
<S> <C> <C> <C> <C>
10/1/96 9550 10000 10000 10000
6/30/97 9931 10398 10559 10527
6/30/98 10516 11011 11382 11390
6/30/99 10720 11224 11735 11535
6/30/00 10930 11444 12188 11750
</TABLE>

++ Reflects a 4.50% sales load.

The chart represents historical performance of a hypothetical investment of
$10,000 in the Pennsylvania Municipal Bond Fund from 10/1/96 to 6/30/00, and
represents the reinvestment of dividends and capital gains in the Fund.

The Fund's performance is compared to the Lehman Brothers Pennsylvania 1-12-Year
Municipal Bond Index, which is an unmanaged index that consists of bonds issued
within the Commonwealth of Pennsylvania with a dated maturity of 1/1/91 or
later. Included are nominal maturities of 1-12 years with an issue size of $50
million and greater, and maturity sizes of $3 million or more. 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 its underlying securities.

The total return set forth may reflect the waiver of a portion of the Fund's
investment advisory, fund accounting or administration fees. In such instances,
and without waiver of fees, total return would have been lower.

GOVERNOR FUNDS SCHEDULE OF PORTFOLIO INVESTMENTS
PENNSYLVANIA MUNICIPAL BOND FUND JUNE 30, 2000

<TABLE>
<S> <C> <C>
MUNICIPAL BONDS - 94.5%
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
-------------------- ----------- -----------
PENNSYLVANIA - 94.5%
Allegheny County, Pennsylvania Airport Revenue, AMT, 5.75%,
1/1/06.................................................... $ 1,450,000 $ 1,497,125
Allegheny County, Pennsylvania Airport Revenue, AMT, 5.75%,
1/1/10.................................................... 2,000,000 2,067,500
Allegheny County, Pennsylvania Port Authority Special
Revenue (MBIA Insured), 6.00%, 3/1/24, Callable 3/1/09 @
101....................................................... 2,500,000 2,540,625
Beaver County, Pennsylvania Industrial Development Authority
Pollution Control Revenue (FGIC Insured), 7.00%, 6/1/21,
Callable 6/1/01 @ 102..................................... 2,675,000 2,779,887
Belle Vernon Pennsylvania Area School District (FGIC
Insured), 6.00%, 4/1/21, Callable 4/1/09 @ 100............ 1,210,000 1,223,613
Berks County, Pennsylvania Municipal Authority Revenue (FGIC
Insured), 7.10%, 5/15/22, Prerefunded 5/15/04 @ 100....... 1,330,000 1,438,063
Bethlehem, Pennsylvania Area School District, Series A
(AMBAC Insured), 6.50%, 9/1/00............................ 1,000,000 1,003,110
Bethlehem, Pennsylvania Water Authority, Series A (MBIA
Insured), 6.30%, 11/15/15, Prerefunded 11/15/02 @ 100..... 2,065,000 2,139,856
Blair County, Pennsylvania Convention & Sports Facilities
Authority Revenue (FSA Insured), 4.90%, 5/1/03............ 2,000,000 2,005,000
Central Dauphin, Pennsylvania School District, 6.00%,
6/1/01.................................................... 1,900,000 1,927,360
Charleroi, Pennsylvania Area School Authority, Series C
(FGIC Insured), 5.75%, 10/1/14, Callable 10/1/09 @ 100.... 1,070,000 1,091,400
Charleroi, Pennsylvania Area School Authority, Series C
(FGIC Insured), 6.00%, 10/1/17, Callable 10/1/09 @ 100.... 1,330,000 1,364,913
College Township, Pennsylvania Water Authority Water Revenue
(Asset Guaranty Insured), 6.20%, 1/1/24,
Callable 1/1/07 @ 100..................................... 1,880,000 1,896,450
College Township, Pennsylvania Water Authority Water Revenue
(Asset Guaranty Insured), 6.13%, 1/1/29,
Callable 1/1/07 @ 100..................................... 1,000,000 1,001,250
Dauphin County, Pennsylvania General Authority Health Center
(AMBAC Insured), 5.22%, 6/1/26............................ 2,000,000 2,000,000
Hempfield, Pennsylvania School District, Lancaster County
(FGIC Insured), 6.40%, 8/15/05,
Prerefunded 8/15/02 @ 100................................. 1,000,000 1,032,500
Indiana County, Pennsylvania Industrial Development
Authority Revenue Student Cooperation Association, Series
A (AMBAC Insured), 5.88%, 11/1/29, Callable 11/1/06 @
100....................................................... 1,800,000 1,779,750
Lancaster County, Pennsylvania GO, Series A (FGIC Insured),
5.60%, 5/1/12, Callable 5/1/10 @ 100...................... 2,000,000 2,047,500
Montgomery County, Pennsylvania Higher Education & Health
Authority Revenue (Connie Lee Insured), 6.50%, 12/15/22,
Callable 12/15/02 @ 102................................... 3,000,000 3,119,999
Northampton County, Pennsylvania Higher Education Authority
Revenue, Lehigh University, 6.00%, 9/1/01................. 1,000,000 1,016,250
Pennsylvania Housing Financial Agency, AMT, 5.85%, 4/1/17,
Callable 4/1/07 @ 101.50.................................. 1,410,000 1,392,375
Pennsylvania Housing Financial Agency, AMT (FHA/VA Insured),
6.15%, 10/1/20, Callable 4/1/10 @ 100..................... 1,115,000 1,123,363
Pennsylvania Housing Financial Agency, AMT, 6.10%, 4/1/21,
Callable 10/1/09 @ 100.................................... 2,000,000 1,997,500
Pennsylvania Housing Financial Agency, AMT, 5.50%, 4/1/29,
Callable 10/1/07 @ 101.................................... 2,000,000 1,830,000
Pennsylvania Intergovernmental Cooperation Authority Special
Tax Revenue (FGIC Insured), 5.50%, 6/15/11, Callable
6/15/06 @ 100............................................. 3,300,000 3,349,499
Pennsylvania State Certificate Participation, Series A
(AMBAC Insured), 5.10%, 7/1/04, Callable 7/1/03 @ 102..... 1,500,000 1,511,250
Pennsylvania State Certificate Participation, Series A
(AMBAC Insured), 5.00%, 7/1/15, Callable 7/1/03 @ 102..... 2,000,000 1,880,000
Pennsylvania State First Series, 5.75%, 1/15/09............. 2,750,000 2,887,500
Pennsylvania State First Series, 6.00%, 1/15/18, Callable
1/15/10 @ 101............................................. 3,000,000 3,086,250
Pennsylvania State Higher Education Assistance Agency,
Student Loan Revenue,
Series A (FGIC Insured), 6.80%, 12/1/00................... 1,375,000 1,387,898
Pennsylvania State Higher Education Facilities Authority
College & Universities Revenue, Duquesne University,
Series A (MBIA Insured), 7.00%, 4/1/10, Callable 4/1/01 @
100....................................................... 2,000,000 2,035,620
Pennsylvania State Higher Education Facilities Authority
Revenue, Thomas Jefferson University,
Series A, 5.90%, 8/15/00.................................. 1,425,000 1,427,152
Pennsylvania State Turnpike Commission Turnpike Revenue,
Series L (AMBAC Insured), 6.35%, 6/1/02, Callable 6/1/01 @
102....................................................... 1,500,000 1,545,000
Pennsylvania State Turnpike Commission Turnpike Revenue,
Series J (FGIC Insured), 6.40%, 12/1/00................... 1,000,000 1,008,010
Philadelphia, Pennsylvania Airport Revenue, Series A, 6.10%,
6/15/25, Callable 6/15/05 @ 102........................... 1,250,000 1,265,625
</TABLE>

Continued
46
<PAGE> 49
GOVERNOR FUNDS SCHEDULE OF PORTFOLIO INVESTMENTS
PENNSYLVANIA MUNICIPAL BOND FUND JUNE 30, 2000

<TABLE>
<S> <C> <C>
MUNICIPAL BONDS, CONTINUED
SHARES OR
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
-------------------- ----------- -----------
PENNSYLVANIA, CONTINUED
Philadelphia, Pennsylvania Gas Works Revenue, 14th Series
(FSA Insured), 5.50%, 7/1/04.............................. $ 1,000,000 $ 1,023,750
Philadelphia, Pennsylvania Hospitals & Higher Education
Facilities Authority Revenue, Series A, 5.00%, 5/15/11,
Callable 5/15/08 @ 101.................................... 1,000,000 927,500
Philadelphia, Pennsylvania Hospitals & Higher Education
Facilities Authority, Children's Hospital, Series A,
6.50%, 2/15/21, Prerefunded 2/15/02 @ 102................. 1,000,000 1,047,500
Philadelphia, Pennsylvania School District Series A, 5.00%,
4/1/07.................................................... 1,000,000 1,001,250
Philadelphia, Pennsylvania School District, Series B (AMBAC
Insured), 5.50%, 9/1/15, Prerefunded 9/1/05 @ 102......... 1,520,000 1,592,200
Philadelphia, Pennsylvania Water & Wastewater Revenue,
Series A (AMBAC Insured), 5.00%, 8/1/13, Callable 8/1/07 @
102....................................................... 3,500,000 3,373,124
Philadelphia, Pennsylvania Water & Wastewater Revenue (FSA
Insured), 5.50%, 6/15/15, Callable 6/15/03 @ 102.......... 1,575,000 1,575,000
Philadelphia, Pennsylvania Water & Wastewater Revenue (MBIA
Insured), 5.63%, 6/15/09.................................. 1,900,000 1,976,000
Philadelphia, Pennsylvania Water & Wastewater Revenue (MBIA
Insured), 6.25%, 8/1/02................................... 1,000,000 1,030,000
Radnor Township, Pennsylvania School District (State Aid
Withholding Insured), 5.75%, 3/15/19, Callable 3/15/07 @
100....................................................... 2,500,000 2,496,875
Radnor Township Pennsylvania School District (State Aid
Withholding Insured), 5.75%, 3/15/26, Callable 3/15/07 @
100....................................................... 1,200,000 1,177,500
Sayre, Pennsylvania Health Care Facilities Authority
Revenue, Series A (AMBAC Insured), 6.60%, 3/1/01.......... 1,700,000 1,722,576
State Public School Building Authority Pennsylvania College
Revenue, Butler County Community College (AMBAC Insured),
5.95%, 7/15/20, Callable 7/15/10 @ 100.................... 2,335,000 2,370,025
State Public School Building Authority Pennsylvania School
Revenue, School District of York, Series A (FGIC Insured),
4.85%, 2/15/16, Callable 2/15/08 @ 100.................... 1,820,000 1,653,925
York County, Pennsylvania Industrial Development Authority
Industrial Development Revenue, 6.25%, 7/1/02............. 1,850,000 1,887,000
-----------
TOTAL MUNICIPAL BONDS (Cost $86,869,307)................................. 87,553,418
-----------

INVESTMENT COMPANIES - 4.4%
Federated Pennsylvania Municipal Cash Fund.................. 4,094,075 4,094,075
Federated Pennsylvania Municipal Cash Trust Service
Shares.................................................... 2 2
-----------
TOTAL INVESTMENT COMPANIES (Cost $4,094,077)............................. 4,094,077
-----------
DAILY SWEEP VEHICLES - 0.0%
Bank of New York Cash Sweep................................. 25 25
-----------
TOTAL DAILY SWEEP VEHICLES (Cost $25).................................... 25
-----------
TOTAL INVESTMENTS (Cost $90,963,409)(a) - 98.9%.......................... 91,647,520
OTHER ASSETS IN EXCESS OF LIABILITIES - 1.1%............................. 1,016,833
-----------
NET ASSETS - 100.0%...................................................... $92,664,353
===========
</TABLE>

------------------

(a) Represents cost for financial reporting and federal income tax purposes and
differs from value by net unrealized appreciation of securities as follows:

<TABLE>
<S> <C>
Unrealized appreciation.................................. $ 958,898
Unrealized depreciation.................................. (274,787)
---------
Net unrealized appreciation.............................. $ 684,111
=========
</TABLE>

<TABLE>
<S> <C>
AMBAC --AMBAC Indemnity Corp.
AMT --Alternative Minimum Tax Paper
FGIC --Financial Guaranty Insurance Corp.
FHA/VA --Federal Housing Administration/Veterans Administration
FSA --Financial Security Assurance Corp.
GO --General Obligation
MBIA --Municipal Bond Insurance Assoc.
</TABLE>

See notes to financial statements.

47
<PAGE> 50

GOVERNOR FUNDS
PENNSYLVANIA MUNICIPAL BOND FUND

STATEMENT OF ASSETS AND LIABILITIES

JUNE 30, 2000

<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (cost
$90,963,409)....................... $ 91,647,520
Interest receivable.................. 1,367,578
Dividends receivable................. 11,283
Deferred organization costs.......... 6,132
Prepaid expenses..................... 5,160
------------
TOTAL ASSETS..................... 93,037,673
LIABILITIES:
Dividends payable.................... $ 355,794
Payable for capital shares
redeemed........................... 175
Accrued expenses and other
liabilities:
Investment advisor................. 1,531
Administration..................... 586
Administrative services............ 2,458
Other.............................. 12,776
----------
TOTAL LIABILITIES................ 373,320
------------
NET ASSETS:.......................... $ 92,664,353
============
COMPOSITION OF NET ASSETS:
Capital.............................. $ 96,835,671
Accumulated net investment income.... 12,321
Accumulated net realized losses from
investment transactions............ (4,867,750)
Unrealized appreciation from
investments........................ 684,111
------------
NET ASSETS........................... $ 92,664,353
============
Shares Outstanding (par value
$0.0001, unlimited number of
authorized shares)................. 9,488,852
============
Net Asset Value and Redemption Price
per share.......................... $9.77
======
Maximum Sales Charge................. 4.50%
------
Maximum Offering Price per share (Net
Asset Value/(100%-Maximum Sales
Charge))........................... $10.23
======
</TABLE>

STATEMENT OF OPERATIONS

FOR THE YEAR ENDED JUNE 30, 2000

<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest.............................. $ 5,024,034
Dividend.............................. 153,288
-----------
TOTAL INVESTMENT INCOME........... 5,177,322
EXPENSES:
Investment advisor.................... $ 600,219
Administration........................ 150,056
Administrative services............... 32,410
Custodian............................. 17,689
Other................................. 130,610
----------
Total expenses before voluntary
and contractual fee
reductions...................... 930,984
Voluntary and contractual fee
reductions...................... (340,111)
-----------
NET EXPENSES...................... 590,873
-----------
NET INVESTMENT INCOME................. 4,586,449
-----------
NET REALIZED/UNREALIZED GAINS/(LOSSES)
FROM INVESTMENTS:
Net realized losses from investment
transactions........................ (4,867,666)
Change in unrealized depreciation from
investments......................... 2,135,942
-----------
Net realized/unrealized losses from
investments......................... (2,731,724)
-----------
CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS.......................... $ 1,854,725
===========
</TABLE>

See notes to financial statements.

48
<PAGE> 51

GOVERNOR FUNDS
PENNSYLVANIA MUNICIPAL BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS

NET ASSETS:
Beginning of period....................................... 111,892,841 118,685,150
------------ ------------
End of period............................................. $ 92,664,353 $111,892,841
============ ============
SHARE TRANSACTIONS:
Issued.................................................... 4,329,280 3,054,131
Reinvested................................................ 18,000 11,314
Redeemed.................................................. (5,992,222) (3,354,136)
------------ ------------
CHANGE IN SHARES............................................ (1,644,942) (288,691)
============ ============
</TABLE>

See notes to financial statements.

49
<PAGE> 52

GOVERNOR FUNDS
PENNSYLVANIA MUNICIPAL BOND FUND
FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED.

<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEARS ENDED JUNE 30, OCTOBER 1, 1996
----------------------------------- TO JUNE 30,
2000 1999 1998 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..................................... 0.46 0.47 0.49 0.34
Net realized and unrealized gains/(losses) from investment
transactions............................................ (0.27) (0.26) 0.11 0.06
------- -------- -------- --------
Total from investment activities.......................... 0.19 0.21 0.60 0.40
------- -------- -------- --------
DIVIDENDS:
Net investment income..................................... (0.46) (0.48) (0.50) (0.32)
Net realized gains from investment transactions........... (0.01) (0.07) -- (0.00)*
------- -------- -------- --------
Total dividends........................................... (0.47) (0.55) (0.50) (0.32)
------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD.............................. $ 9.77 $ 10.05 $ 10.39 $ 10.29
======= ======== ======== ========
TOTAL RETURN (EXCLUDES SALES CHARGE)........................ 1.96% 1.94% 5.89% 3.98%(b)
RATIOS/SUPPLEMENTARY DATA:
Net assets at end of period (000's)......................... $92,664 $111,893 $118,685 $123,194
Ratio of expenses to average net assets..................... 0.59% 0.59% 0.58% 0.37%(c)
Ratio of net investment income to average net assets........ 4.59% 4.45% 4.65% 4.46%(c)
Ratio of expenses to average net assets(d).................. 0.93% 1.00% 0.92% 0.86%(c)
Portfolio turnover.......................................... 96% 90% 62% 98%
</TABLE>

See notes to financial statements.

50
<PAGE> 53

[THIS PAGE INTENTIONALLY LEFT BLANK]

51
<PAGE> 54

GOVERNOR FUNDS

LIFESTYLE CONSERVATIVE GROWTH FUND

Q. HOW DID THE LIFESTYLE CONSERVATIVE GROWTH FUND PERFORM DURING THE YEAR ENDED
JUNE 30, 2000?

A. The Lifestyle Conservative Fund posted a total return of 4.94% (without
sales load) during the period. The Fund invests a large percentage of its
assets in bonds, which dampened the Fund's performance as bonds performed
relatively poorly during the period.

Q. HOW DID YOU ALLOCATE THE FUND'S ASSETS DURING THE PERIOD?

A. The breakdown of the Fund's net assets as of June 30, 2000, was 21% in the
Established Growth Fund; 9% in the Aggressive Growth Fund; 8% in the
International Equity Fund; 16% in the Intermediate Term Income Fund; 41% in
the Limited Duration Government Securities Fund; 5% in the U.S. Treasury
Obligations Money Market Fund.*

Q. HOW DID THE STOCK MARKET ENVIRONMENT AFFECT THE FUND'S PERFORMANCE?

A. Stocks were volatile during the period. For example, stocks declined early
in the period then posted extremely strong gains from late 1999 through
early March 2000. Shares of many technology and telecommunications companies
suffered significant losses, while small-company shares made significant
gains. We believe the Governor equity funds performed relatively well during
this challenging time.

Q. WHAT WERE THE CONDITIONS IN THE BOND MARKET DURING THIS PERIOD?

A. Interest rates rose during much of the period, due to investors' concerns
that economic growth would rekindle inflation. The Fed raised short-term
rates six times, and bond prices fell. However, in February the Fed
instituted a Treasury buy-back program, which helped the performance of
long-term Treasuries during the final months of the period.

Q. WHAT WAS YOUR STRATEGY IN THAT ENVIRONMENT?

A. This volatile environment reminded us that it is best to maintain an
allocation strategy based on long-term opportunities in the financial
markets, not on short-term fluctuations. We do not believe market timing is
a sensible strategy.

The Fund's allocation during the period was based on our opinion that
inflation will remain low and corporate profits will stay strong. We believe
those conditions should generate solid performance from stocks and bonds
over the long term.

Q. WHAT OTHER MOVES DID YOU MAKE TO HELP BOOST THE FUND'S RETURNS OR HELP TO
REDUCE RISK?

A. In early March, we shifted a percentage of the fixed-income portion of the
portfolio to equities, increasing the Fund's holdings in the Established
Growth Fund and the Aggressive Growth Fund. We instituted the change to
capture more long-term growth potential for shareholders. We also
re-adjusted the Fund's fixed-income portfolio by shifting a sizeable
percentage of assets from the Intermediate Term Income Fund to the Limited
Duration Government Securities Fund. This shift within the fixed income
component aims to reduce the Fund's volatility.*

Q. WHAT IS YOUR OUTLOOK FOR THE FINANCIAL MARKETS GOING FORWARD? HOW WILL YOU
MANAGE THE FUND WITH THAT IN MIND?

A. We believe that economic growth will probably slow over the next year, the
Fed will end its restrictive monetary policy and interest rates will move
lower. We believe this should more than compensate for any reduction in
corporate profits which occurs as the economy slows, and should boost stock
prices across the board. Therefore, we will maintain the Fund's relatively
heavy exposure to the Governor equity funds in order to take advantage of
the long-term growth of stocks.

------------------
* The Fund's portfolio composition is subject to change.

52
<PAGE> 55

GOVERNOR FUNDS

As of June 30, 2000

LIFESTYLE CONSERVATIVE GROWTH FUND
GROWTH OF $10,000 INVESTMENT COMPARISON

<TABLE>
<CAPTION>
SINCE
1 INCEPTION
AVERAGE ANNUAL TOTAL RETURN YEAR (2/3/99)
--------------------------- ------ ---------
<S> <C> <C>
No-Load 4.94% 5.12%
Load++ 0.20% 1.73%
</TABLE>
<TABLE>
<CAPTION>
THE
LEHMAN THE
BROTHERS LEHMAN
PENN. 1-3- BROTHERS
YEAR GOV. AGGREGATE THE MSCI THE S&P
BOND BOND EAFE(R) 500 STOCK THE RUSSELL
LOAD++ NO LOAD INDEX INDEX INDEX INDEX 2000 INDEX
---- ------- ---------- --------- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
2/3/99 9550 10000 10000 10000 10000 10000 10000
6/30/99 9762 10221 10076 9792 10439 10787 10785
6/30/00 10244 10726 10564 10239 12230 11569 12347

THE U.S.
30 DAY
TREASURY
BILL
--------
<S> <C>
2/3/99 10000
6/30/99 10190
6/30/00 10231
</TABLE>

++ Reflects a 4.50% sales load.

The chart represents historical performance of a hypothetical investment of
$10,000 in the Lifestyle Conservative Growth Fund from 2/3/99 to 6/30/00, and
represents the reinvestment of dividends and capital gains in the Fund.

The Fund's performance is compared to the Lehman Brothers 1-3-Year Government
Bond Index, which is generally representative of government bonds with
maturities between one and three years; The Lehman Brothers Aggregate Bond
Index, which 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 Morgan Stanley
Capital International, MSCI EAFE(R) (Europe, Australasia and Far East) Index,
which is composed of 20 European and Pacific Basin countries and weighted by
market capitalization; the Standard & Poor's 500 Stock Index, which is generally
representative of the performance of the large-capitalization equity market; and
the Russell 2000 Index, which is generally representative of 2,000
small-capitalization stocks in the U.S. stock market. These indices do 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 its underlying securities.

U.S. 30-Day Treasury Bills ("T-Bills") are represented by the U.S. Treasury Bill
Total Return Index. T-Bills are government guaranteed and offer a fixed rate of
return. Return and principal of stocks and bonds will vary with market
conditions.

The total return set forth may reflect the waiver of a portion of the Fund's
fees and expense reimbursements. In such instances, and without expense
reimbursements and waiver of fees, total return would have been lower.

53
<PAGE> 56

GOVERNOR FUNDS SCHEDULE OF PORTFOLIO INVESTMENTS
LIFESTYLE CONSERVATIVE GROWTH FUND JUNE 30, 2000

<TABLE>
<S> <C> <C>
INVESTMENT COMPANIES - 99.7%
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------- ---------
EQUITY FUNDS - 38.1%
Aggressive Growth Fund.................... 2,482 $ 29,491
Established Growth Fund................... 4,653 63,608
International Equity Fund................. 2,178 25,411
---------
118,510
---------
FIXED INCOME FUNDS - 56.6%
Intermediate Term Income Fund............. 5,490 50,401
Limited Duration Government Securities
Fund.................................... 12,976 125,736
---------
176,137
---------
INVESTMENT COMPANIES, CONTINUED
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------- ---------
MONEY MARKET FUNDS - 5.0%
U.S. Treasury Obligations Money Market
Fund.................................... 15,669 $ 15,669
---------
TOTAL INVESTMENT COMPANIES (Cost $312,716)......... 310,316
---------
TOTAL INVESTMENTS (Cost $312,716)(a) - 99.7%....... 310,316
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.3%....... 936
---------
NET ASSETS - 100.0%................................ $ 311,252
=========
</TABLE>

------------------

(a) Represents cost for financial reporting and federal income tax purposes and
differs from value by net unrealized depreciation of securities as follows:

<TABLE>
<S> <C>
Unrealized appreciation............................ $ 3,279
Unrealized depreciation............................ (5,679)
-------
Net unrealized depreciation........................ $(2,400)
=======
</TABLE>

All securities are affiliated investment companies in the Governor Funds.

See notes to financial statements.

54
<PAGE> 57

GOVERNOR FUNDS
LIFESTYLE CONSERVATIVE GROWTH FUND

STATEMENT OF ASSETS AND LIABILITIES

JUNE 30, 2000

<TABLE>
<S> <C> <C>
ASSETS:
Investments in affiliates, at value (cost
$312,716)................................. $310,316
Cash........................................ 16,086
Dividends receivable from affiliates........ 966
Receivable from investment advisor.......... 68
--------
TOTAL ASSETS............................ 327,436
LIABILITIES:
Dividends payable........................... $ 1,503
Accrued expenses............................ 14,681
-------
TOTAL LIABILITIES....................... 16,184
--------
NET ASSETS:................................. $311,252
========
COMPOSITION OF NET ASSETS:
Capital..................................... $302,771
Accumulated net realized gains.............. 10,881
Unrealized depreciation from investments in
affiliates................................ (2,400)
--------
NET ASSETS.................................. $311,252
========
Shares Outstanding (par value $0.0001,
unlimited number of authorized shares).... 29,954
========
Net Asset Value and Redemption Price per
share..................................... $10.39
=====
Maximum Sales Charge........................ 4.50%
-----
Maximum Offering Price per share (Net Asset
Value/(100%-Maximum Sales Charge))........ $10.88
=====
</TABLE>

STATEMENT OF OPERATIONS

FOR THE YEAR ENDED JUNE 30, 2000

<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends from affiliates.................. $ 8,732
---------
TOTAL INVESTMENT INCOME................ 8,732
EXPENSES:
Investment advisor......................... $ 567
Distribution............................... 1,135
Custodian.................................. 672
Accounting................................. 30,000
Audit...................................... 5,047
Transfer agent............................. 20,000
Other...................................... 669
-------
Total expenses before voluntary and
contractual fee reductions and
contractual reimbursements........... 58,090
Voluntary and contractual fee
reductions and contractual
reimbursements....................... (54,344)
---------
NET EXPENSES........................... 3,746
---------
NET INVESTMENT INCOME...................... 4,986
---------
NET REALIZED/UNREALIZED GAINS/(LOSSES):
Net realized losses from investment
transactions in affiliates............... (1,238)
Net realized gain dividends from underlying
funds.................................... 13,295
Change in unrealized appreciation from
investments.............................. (3,649)
---------
Net realized/unrealized gains.............. 8,408
---------
CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS............................... $ 13,394
=========
</TABLE>

See notes to financial statements.
55
<PAGE> 58

GOVERNOR FUNDS
LIFESTYLE CONSERVATIVE GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD
YEAR ENDED FEBRUARY 3, 1999
JUNE 30, TO JUNE 30,
2000 1999(a)
---------- ----------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income..................................... $ 4,986 $ 619
Net realized gains/(losses) from investment transactions
with affiliates......................................... (1,238) 6
Net realized gain dividends from underlying funds......... 13,295 --
Change in unrealized appreciation/depreciation from
investments............................................. (3,649) 1,249
-------- --------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS.............. 13,394 1,874
-------- --------
DIVIDENDS:
Net investment income..................................... (4,995) (610)
Net realized gains from investment transactions........... (1,182) --
-------- --------
CHANGE IN NET ASSETS FROM SHAREHOLDER DIVIDENDS............. (6,177) (610)
-------- --------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued............................... 183,374 148,755
Dividends reinvested...................................... 4,841 100
Cost of shares redeemed................................... (34,299) --
-------- --------
CHANGE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS........ 153,916 148,855
-------- --------
CHANGE IN NET ASSETS........................................ 161,133 150,119

NET ASSETS:
Beginning of period....................................... 150,119 --
-------- --------
End of period............................................. $311,252 $150,119
======== ========
SHARE TRANSACTIONS:
Issued.................................................... 18,022 14,773
Reinvested................................................ 472 10
Redeemed.................................................. (3,323) --
-------- --------
CHANGE IN SHARES............................................ 15,171 14,783
======== ========
</TABLE>

(a) Period from commencement of operations.

See notes to financial statements.
56
<PAGE> 59

GOVERNOR FUNDS
LIFESTYLE CONSERVATIVE GROWTH FUND
FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED.

<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD
YEAR ENDED FEBRUARY 3, 1999
JUNE 30, TO JUNE 30,
2000 1999(a)
---------- ----------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $10.15 $10.00
------ ------
INVESTMENT ACTIVITIES:
Net investment income..................................... 0.25 0.07
Net realized and unrealized gains from investment
transactions............................................ 0.24 0.15
------ ------
Total from investment activities.......................... 0.49 0.22
------ ------
DIVIDENDS:
Net investment income..................................... (0.25) (0.07)
Net realized gains from investment transactions........... (0.00)* --
------ ------
Total dividends........................................... (0.25) (0.07)
------ ------
NET ASSET VALUE, END OF PERIOD.............................. $10.39 $10.15
====== ======
TOTAL RETURN (EXCLUDES SALES CHARGE)........................ 4.94% 2.21%(b)
RATIOS/SUPPLEMENTARY DATA:
Net assets at end of period (000's)......................... $ 311 $ 150
Ratio of expenses to average net assets..................... 1.65% 1.79%(c)
Ratio of net investment income to average net assets........ 2.19% 2.57%(c)
Ratio of expenses to average net assets(d).................. 25.56% 92.41%(c)
Portfolio turnover.......................................... 28% 2%
</TABLE>

The expense ratios noted above do not include the expenses of the underlying
funds.
* Less than $0.005 per share.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) During the period, certain fees were voluntarily or contractually reduced
and contractually reimbursed. If such fee reductions and reimbursements had
not occurred, the ratio would have been as indicated.

See notes to financial statements.
57
<PAGE> 60

GOVERNOR FUNDS

LIFESTYLE MODERATE GROWTH FUND

Q. HOW DID THE LIFESTYLE MODERATE GROWTH FUND PERFORM DURING THE YEAR ENDED JUNE
30, 2000?

A. The Lifestyle Moderate Growth Fund delivered a total return of 6.81%
(without sales load).

The Fund benefited from strong performance by large- and small-company
stocks during the period. In particular, shares of technology and
telecommunications companies posted strong gains, despite volatility in
those sectors.

Q. HOW WERE THE FUND'S ASSETS ALLOCATED AMONG DIFFERENT FUNDS DURING THE PERIOD?

A. The breakdown of the Fund's net assets as of June 30, 2000, was 35% in the
Established Growth Fund; 13% in the Aggressive Growth Fund; 12% in the
International Equity Fund; 10% in the Intermediate Term Income Fund; 29% in
the Limited Duration Government Securities Fund; and 2% in the U.S. Treasury
Obligations Money Market Fund.*

Q. HOW DID THE STOCK MARKET ENVIRONMENT AFFECT THE FUND'S PERFORMANCE?

A. The Fund benefited from its exposure to the technology and
telecommunications sectors, which posted strong performance despite a
correction in the spring. The Governor equity funds held up well during that
correction.

Q. WHAT WERE THE CONDITIONS IN THE BOND MARKET DURING THIS PERIOD?

A. Interest rates rose during much of the period. Investors worried extremely
strong economic growth would force the Fed to raise interest rates in an
effort to cool the economy and prevent rising inflation. The Fed did indeed
raise rates six times, and bond prices fell in that environment. However, a
Fed-initiated program to buy back long-term Treasuries boosted the
performance of long-term Treasuries during the final months of the period.

Q. WHAT WAS YOUR STRATEGY IN THAT ENVIRONMENT?

A. Our strategy remained unchanged: We determine the Fund's allocations based
on long-term trends in the stock and bond markets. We do not allow
short-term developments to dictate how we manage the Fund. The Fund's
allocation during the period was based on our view that inflation will
remain low and corporate profits will stay strong. We believe those
conditions should generate solid performance from stocks and bonds over the
long term.

Q. WHAT OTHER MOVES DID YOU MAKE TO HELP BOOST THE FUND'S RETURNS OR HELP TO
REDUCE RISK?

A. In early March, we slightly increased the Fund's equity holdings in the
Established Growth Fund and the Aggressive Growth Fund. We also sought to
reduce the Fund's overall risk by shifting some assets from the Intermediate
Term Income Fund to the Limited Duration Government Securities Fund.*

Q. WHAT IS YOUR OUTLOOK FOR THE FINANCIAL MARKETS GOING FORWARD? HOW WILL YOU
MANAGE THE FUND WITH THAT IN MIND?

A. We believe economic growth will probably slow over the next year and the Fed
will stop raising interest rates. Corporate profits should stay strong,
boosting the overall stock market. Therefore, we intend to maintain the
Fund's relatively heavy exposure to the Governor equity funds in order to
take advantage of what we believe will be a positive environment for stocks.

------------------
* The Fund's portfolio composition is subject to change.
58
<PAGE> 61

GOVERNOR FUNDS

As of June 30, 2000

LIFESTYLE MODERATE GROWTH FUND
GROWTH OF $10,000 INVESTMENT COMPARISON

<TABLE>
<CAPTION>
SINCE
1 INCEPTION
AVERAGE ANNUAL TOTAL RETURN YEAR (2/4/99)
--------------------------- ------ ---------
<S> <C> <C>
No-Load 6.81% 9.29%
Load++ 1.98% 5.76%
</TABLE>
<TABLE>
<CAPTION>
THE
LEHMAN THE
BROTHERS LEHMAN
PENN. 1-3- BROTHERS
YEAR GOV. AGGREGATE THE MSCI THE S&P
BOND BOND EAFE(R) 500 STOCK THE RUSSELL
LOAD++ NO LOAD INDEX INDEX INDEX INDEX 2000 INDEX
---- ------- ---------- --------- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
2/4/99 9550 10000 10000 10000 10000 10000 10000
6/30/99 10126 10602 10076 9792 10439 10787 10785
6/30/00 10816 11324 10564 10239 12230 11569 12347

THE U.S.
30 DAY
TREASURY
BILL
--------
<S> <C>
2/4/99 10000
6/30/99 10190
6/30/00 10231
</TABLE>

++ Reflects a 4.50% sales load.

The chart represents historical performance of a hypothetical investment of
$10,000 in the Lifestyle Moderate Growth Fund from 2/4/99 to 6/30/00, and
represents the reinvestment of dividends and capital gains in the Fund.

The Fund's performance is compared to the Lehman Brothers 1-3-Year Government
Bond Index, which is generally representative of government bonds with
maturities between one and three years; the Lehman Brothers Aggregate Bond
Index, which 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 Morgan Stanley
Capital International, MSCI EAFE(R) (Europe, Australasia and Far East) Index,
which is composed of 20 European and Pacific Basin Countries and weighted by
market capitalization; the Standard & Poor's 500 Index, which is generally
representative of the performance of the large-capitalization equity market; and
the Russell 2000 Index, which is generally representative of 2,000
small-capitalization stocks in the U.S. stock market. The indices do 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 its underlying securities.

U.S. 30-Day Treasury-Bills ("T-Bills") are represented by the U.S. Treasury Bill
Total Return Index. T-Bills are government guaranteed and offer a fixed rate of
return. Return and principal of stocks and bonds will vary with market
conditions.

GOVERNOR FUNDS SCHEDULE OF PORTFOLIO INVESTMENTS
LIFESTYLE MODERATE GROWTH FUND JUNE 30, 2000

<TABLE>
<S> <C> <C>
INVESTMENT COMPANIES - 100.5%
SECURITY DESCRIPTION SHARES VALUE
-------------------- --------- -----------
EQUITY FUNDS - 59.5%
Aggressive Growth Fund................ 12,770 $ 151,711
Established Growth Fund............... 30,734 420,140
International Equity Fund............. 12,905 150,601
-----------
722,452
-----------
FIXED INCOME FUNDS - 38.9%
Intermediate Term Income Fund......... 13,562 124,498
Limited Duration Government Securities
Fund................................ 35,909 347,955
-----------
472,453
-----------
INVESTMENT COMPANIES, CONTINUED
SECURITY DESCRIPTION SHARES VALUE
-------------------- --------- -----------
MONEY MARKET FUNDS - 2.1%
U.S. Treasury Obligations Money Market
Fund................................ 24,771 $ 24,771
-----------
TOTAL INVESTMENT COMPANIES (Cost $1,222,913).....
1,219,676
-----------
TOTAL INVESTMENTS (Cost $1,222,913)(a) -
100.5%......................................... 1,219,676
LIABILITIES IN EXCESS OF OTHER ASSETS - (0.5)%...
(5,767)
-----------
NET ASSETS - 100.0%.............................. $ 1,213,909
===========
</TABLE>

------------------

(a) Represents cost for financial reporting and federal income tax purposes and
differs from value by net unrealized depreciation of securities as follows:

<TABLE>
<S> <C>
Unrealized appreciation......................... $ 16,969
Unrealized depreciation......................... (20,206)
---------
Net unrealized depreciation..................... $ (3,237)
=========
</TABLE>

All securities are affiliated investment companies in the Governor Funds.

See notes to financial statements.

60
<PAGE> 63

GOVERNOR FUNDS
LIFESTYLE MODERATE GROWTH FUND

STATEMENT OF ASSETS AND LIABILITIES

JUNE 30, 2000

<TABLE>
<S> <C> <C>
ASSETS:
Investments in affiliates, at value (cost
$1,222,913)............................. $1,219,676
Cash...................................... 9,655
Dividends receivable from affiliates...... 2,521
----------
TOTAL ASSETS.......................... 1,231,852
LIABILITIES:
Dividends payable......................... $ 2,786
Accrued expenses.......................... 15,157
-------
TOTAL LIABILITIES..................... 17,943
----------
NET ASSETS:............................... $1,213,909
==========
COMPOSITION OF NET ASSETS:
Capital................................... $1,158,050
Accumulated net realized gains............ 59,096
Unrealized depreciation from investments
in affiliates........................... (3,237)
----------
NET ASSETS................................ $1,213,909
==========
Shares Outstanding (par value $0.0001,
unlimited number of authorized
shares)................................. 109,473
==========
Net Asset Value and Redemption Price per
share................................... $11.09
======
Maximum Sales Charge...................... 4.50%
------
Maximum Offering Price per share
(Net Asset Value/(100%-Maximum Sales
Charge)).............................. $11.61
======
</TABLE>

STATEMENT OF OPERATIONS

FOR THE YEAR ENDED JUNE 30, 2000

<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends from affiliates................... $ 22,457
--------
TOTAL INVESTMENT INCOME................. 22,457
EXPENSES:
Investment advisor.......................... $ 2,049
Distribution................................ 4,098
Custodian................................... 728
Accounting.................................. 30,000
Audit....................................... 5,054
Transfer agent.............................. 20,000
Other....................................... 2,573
-------
Total expenses before voluntary and
contractual fee reductions and
contractual reimbursements............ 64,502
Voluntary and contractual fee reductions
and contractual reimbursements........ (50,995)
--------
NET EXPENSES............................ 13,507
--------
NET INVESTMENT INCOME....................... 8,950
--------
NET REALIZED/UNREALIZED GAINS/(LOSSES):
Net realized losses from investment
transactions in affiliates................ (1,520)
Net realized gain dividends from underlying
funds..................................... 66,033
Change in unrealized appreciation from
investments............................... (11,699)
--------
Net realized/unrealized gains............... 52,814
--------
CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS................................ $ 61,764
========
</TABLE>

See notes to financial statements.

61
<PAGE> 64

GOVERNOR FUNDS
LIFESTYLE MODERATE GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD
YEAR ENDED FEBRUARY 4, 1999
JUNE 30, TO JUNE 30,
2000 1999 (a)
---------- ----------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income..................................... $ 8,950 $ 739
Net realized gains/(losses) from investment transactions
with affiliates......................................... (1,520) 192
Net realized gain dividends from underlying funds......... 66,033 --
Change in unrealized appreciation/depreciation from
investments............................................. (11,699) 8,462
---------- --------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS.............. 61,764 9,393
---------- --------
DIVIDENDS:
Net investment income..................................... (9,000) (689)
Net realized gains from investment transactions........... (5,609) --
---------- --------
CHANGE IN NET ASSETS FROM SHAREHOLDER DIVIDENDS............. (14,609) (689)
---------- --------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued............................... 1,013,278 285,686
Dividends reinvested...................................... 11,924 258
Cost of shares redeemed................................... (143,490) (9,606)
---------- --------
CHANGE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS........ 881,712 276,338
---------- --------
CHANGE IN NET ASSETS........................................ 928,867 285,042

NET ASSETS:
Beginning of period....................................... 285,042 --
---------- --------
End of period............................................. $1,213,909 $285,042
========== ========
SHARE TRANSACTIONS:
Issued.................................................... 94,448 27,887
Reinvested................................................ 1,097 26
Redeemed.................................................. (13,057) (928)
---------- --------
CHANGE IN SHARES............................................ 82,488 26,985
========== ========
</TABLE>

(a) Period from commencement of operations.

See notes to financial statements.

62
<PAGE> 65

GOVERNOR FUNDS
LIFESTYLE MODERATE GROWTH FUND
FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED.

<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD
YEAR ENDED FEBRUARY 4, 1999
JUNE 30, TO JUNE 30,
2000 1999 (a)
---------- ----------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.56 $ 10.00
---------- --------
INVESTMENT ACTIVITIES:
Net investment income..................................... 0.18 0.04
Net realized and unrealized gains from investment
transactions............................................ 0.54 0.56
---------- --------
Total from investment activities.......................... 0.72 0.60
---------- --------
DIVIDENDS:
Net investment income..................................... (0.18) (0.04)
Net realized gains from investment transactions........... (0.01) --
---------- --------
Total dividends........................................... (0.19) (0.04)
---------- --------
NET ASSET VALUE, END OF PERIOD.............................. $ 11.09 $ 10.56
========== ========
TOTAL RETURN (EXCLUDES SALES CHARGE)........................ 6.81% 6.02%(b)
RATIOS/SUPPLEMENTARY DATA:
Net assets at end of period (000's)......................... $ 1,214 $ 285
Ratio of expenses to average net assets..................... 1.64% 1.76%(c)
Ratio of net investment income to average net assets........ 1.09% 1.17%(c)
Ratio of expenses to average net assets(d).................. 7.85% 36.79%(c)
Portfolio turnover.......................................... 32% 6%
</TABLE>

The expense ratios noted above do not include the expenses of the underlying
funds.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) During the period, certain fees were voluntarily or contractually reduced
and contractually reimbursed. If such fee reductions and reimbursements had
not occurred, the ratio would have been as indicated.

See notes to financial statements.

63
<PAGE> 66

GOVERNOR FUNDS

LIFESTYLE GROWTH FUND

Q. HOW DID THE LIFESTYLE GROWTH FUND PERFORM DURING THE YEAR ENDED JUNE 30,
2000?

A. The Lifestyle Growth Fund ended the period with a total return of 8.00%
(without sales load).

Large- and small-company stocks posted gains during the period, despite
significant volatility in the market. In particular, shares of technology
and telecom companies performed well during much of the period.

Q. HOW WERE THE FUND'S ASSETS ALLOCATED AMONG DIFFERENT FUNDS DURING THE PERIOD?

A. The breakdown of the Fund's net assets as of June 30, 2000, was 41% in the
Established Growth Fund; 19% in the Aggressive Growth Fund; 18% in the
International Equity Fund; 6% in the Intermediate Term Income Fund; 15% in
the Limited Duration Government Securities Fund; 1% in the U.S. Treasury
Obligations Money Market Fund.*

Q. HOW DID THE STOCK MARKET ENVIRONMENT AFFECT THE FUND'S PERFORMANCE?

A. The Fund benefited from its heavy weighting in the Governor equity funds,
which performed well during much of the period. In particular, the
Aggressive Growth Fund posted a strong return as small-cap stocks
outperformed large-company shares. The Fund's exposure to the technology and
telecommunications sectors also boosted performance, despite a correction in
those sectors last spring. The Governor Funds approach of buying
attractively valued shares of financially solid companies helped performance
during periods of volatility.

Q. WHAT WAS YOUR STRATEGY IN THAT ENVIRONMENT?

A. Our consistent disciplined investment approach calls for Fund allocations
based on long-term trends in the financial markets--not on short-term
developments. We believe such a long-term approach will generate the most
significant benefits to investors--for example, by reducing capital gains
taxes and transaction costs.

The Fund's allocation during the period was based on our beliefs that
inflation will remain low and corporate profits will stay strong. In our
opinion, those conditions should generate solid performance from stocks and
bonds over the long term.

Q. WHAT OTHER MOVES DID YOU MAKE TO HELP BOOST THE FUND'S RETURNS?

A. In March, we increased the Fund's allocation in the Established Growth Fund
from 35% to 41%, and in the Aggressive Growth Fund from 16% to 19%. We made
this shift to position the Fund to take advantage of the long-term growth
potential of stocks.*

We also sought to reduce the Fund's overall risk by shifting some assets
from the Intermediate Term Income Fund to the less-volatile Limited Duration
Government Securities Fund.*

Q. WHAT IS YOUR OUTLOOK FOR THE FINANCIAL MARKETS GOING FORWARD? HOW WILL YOU
MANAGE THE FUND WITH THAT IN MIND?

A. We anticipate the Fed's six rate hikes will slow economic growth to a more
reasonable level, which would end the Fed's restrictive monetary policy and
cause interest rates to fall. The slowing of economic growth should more
than compensate for any slowdown in corporate profits that we may see. We
believe stocks should benefit in this environment, so we intend to maintain
the Fund's relatively heavy exposure to the Governor equity funds.

------------------
* The Fund's portfolio composition is subject to change.

64
<PAGE> 67

GOVERNOR FUNDS

As of June 30, 2000

LIFESTYLE GROWTH FUND
GROWTH OF $10,000 INVESTMENT COMPARISON

<TABLE>
<CAPTION>
SINCE
1 INCEPTION
AVERAGE ANNUAL TOTAL RETURN YEAR (2/18/99)
--------------------------- ------ ---------
<S> <C> <C>
No-Load 8.00% 11.87%
Load++ 3.12% 8.16%
</TABLE>
<TABLE>
<CAPTION>
THE THE
LEHMAN LEHMAN
BROTHERS BROTHERS
GOV. 1-3YR AGGREGATE THE MSCI THE S&P THE
GOV. BOND BOND EAFE 500 STOCK RUSSELL
LOAD++ NO LOAD INDEX INDEX INDEX INDEX 2000 INDEX
---- ------- ---------- --------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
2/4/99 9550 10000 10000 10000 10000 10000 10000
6/30/99 10303 10787 10076 9792 10439 10787 10785
6/30/00 11128 11651 10564 10239 12230 11569 12347

THE U.S.
30 DAY
TREASURY
BILL
--------
<S> <C>
2/4/99 10000
6/30/99 10190
6/30/00 10231
</TABLE>

++ Reflects a 4.50% sales load.

The chart represents historical performance of a hypothetical investment of
$10,000 for the Lifestyle Growth Fund from 2/18/99 to 6/30/00, and represents
the reinvestment of dividends and capital gains in the Fund.

The Fund's performance is compared to the Lehman Brothers 1-3-Year Government
Bond Index, which is generally representative of government bonds with
maturities between one and three years; the Lehman Brothers Aggregate Bond
Index, which 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 Morgan Stanley
Capital International, MSCI EAFE(R) (Europe, Australasia and Far East) Index,
which is composed of 20 European and Pacific Basin Countries and weighted by
market capitalization; the Standard & Poor's 500 Stock Index, which is generally
representative of the performance of the large-capitalization equity market; and
the Russell 2000 Index, which is generally representative of 2,000
small-capitalization stocks in the U.S. stock market. The indices do 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 its underlying securities.

65
<PAGE> 68

GOVERNOR FUNDS SCHEDULE OF INVESTMENTS
LIFESTYLE GROWTH FUND JUNE 30, 2000

<TABLE>
<S> <C> <C>
INVESTMENT COMPANIES - 100.1%
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------- ----------
EQUITY FUNDS - 77.8%
Aggressive Growth Fund.................... 21,249 $ 252,443
Established Growth Fund................... 40,141 548,725
International Equity Fund................. 21,495 250,841
----------
1,052,009
----------
FIXED INCOME FUNDS - 21.3%
Intermediate Term Income Fund............. 8,995 82,576
Limited Duration Government Securities
Fund.................................... 21,252 205,933
----------
288,509
----------
INVESTMENT COMPANIES, CONTINUED
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------- ----------
MONEY MARKET FUNDS - 1.0%
U.S. Treasury Obligations Money Market
Fund.................................... 13,721 $ 13,721
----------
TOTAL INVESTMENT COMPANIES (Cost $1,335,125)....... 1,354,239
----------
TOTAL INVESTMENTS (Cost $1,335,125)(a) - 100.1%.... 1,354,239
LIABILITIES IN EXCESS OF OTHER ASSETS - (0.1)%.....
(1,997)
----------
NET ASSETS - 100.0%................................ $1,352,242
==========
</TABLE>

------------------

(a) Represents cost for financial reporting and federal income tax purposes and
differs from value by net unrealized appreciation of securities as follows:

<TABLE>
<S> <C>
Unrealized appreciation........................... $ 29,803
Unrealized depreciation........................... (10,689)
--------
Net unrealized appreciation....................... $ 19,114
========
</TABLE>

All securities are affiliated investment companies in the Governor Funds.

See notes to financial statements.

66
<PAGE> 69

GOVERNOR FUNDS
LIFESTYLE GROWTH FUND

STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000

<TABLE>
<S> <C> <C>
ASSETS:
Investments in affiliates, at value (cost
$1,335,125)...................................... $1,354,239
Cash............................................... 10,972
Dividends receivable from affiliates............... 1,536
----------
TOTAL ASSETS................................... 1,366,747
LIABILITIES:
Accrued expenses................................... 14,505
----------
TOTAL LIABILITIES.............................. 14,505
----------
NET ASSETS:........................................ $1,352,242
==========
COMPOSITION OF NET ASSETS:
Capital............................................ $1,287,107
Accumulated net realized gains..................... 46,021
Unrealized appreciation from investments in
affiliates....................................... 19,114
----------
NET ASSETS......................................... $1,352,242
==========
Shares Outstanding (par value $0.0001, unlimited
number of authorized shares)..................... 117,739
==========
Net Asset Value and Redemption Price per share..... $11.49
======
Maximum Sales Charge............................... 4.50%
------
Maximum Offering Price per share
(Net Asset Value/(100%-Maximum Sales Charge)).... $12.03
======
</TABLE>

STATEMENT OF OPERATIONS

FOR THE YEAR ENDED JUNE 30, 2000

<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends from affiliates.................... $12,466
-------
TOTAL INVESTMENT INCOME.................. 12,466
EXPENSES:
Investment advisor........................... $ 1,637
Distribution................................. 3,275
Custodian.................................... 728
Accounting................................... 30,000
Audit........................................ 5,054
Transfer agent............................... 20,000
Other........................................ 1,983
-------
Total expenses before voluntary and
contractual fee reductions and
contractual reimbursements............. 62,677
Voluntary and contractual fee reductions
and contractual reimbursements......... (51,913)
-------
NET EXPENSES............................. 10,764
-------
NET INVESTMENT INCOME........................ 1,702
-------
NET REALIZED/UNREALIZED GAINS:
Net realized gains from investment
transactions in affiliates................. 6,457
Net realized gain dividends from underlying
funds...................................... 45,256
Change in unrealized appreciation from
investments................................ 8,435
-------
Net realized/unrealized gains................ 60,148
-------
CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS................................. $61,850
=======
</TABLE>

See notes to financial statements.
67
<PAGE> 70

GOVERNOR FUNDS
LIFESTYLE GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD
YEAR ENDED FEBRUARY 18, 1999
JUNE 30, TO JUNE 30,
2000 1999(a)
---------- -----------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income..................................... $ 1,702 $ 32
Net realized gains from investment transactions with
affiliates.............................................. 6,457 12
Net realized gain dividends from underlying funds......... 45,256 --
Change in unrealized appreciation/depreciation from
investments............................................. 8,435 10,679
---------- --------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS.............. 61,850 10,723
---------- --------
DIVIDENDS:
Net investment income..................................... (1,702) (95)
In excess of net investment income........................ (1,478) --
Net realized gains from investment transactions........... (4,214) --
---------- --------
CHANGE IN NET ASSETS FROM SHAREHOLDER DIVIDENDS............. (7,394) (95)
---------- --------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued............................... 1,151,088 207,387
Dividends reinvested...................................... 7,249 95
Cost of shares redeemed................................... (78,363) (298)
---------- --------
CHANGE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS........ 1,079,974 207,184
---------- --------
CHANGE IN NET ASSETS........................................ 1,134,430 217,812

NET ASSETS:
Beginning of period....................................... 217,812 --
---------- --------
End of period............................................. $1,352,242 $217,812
========== ========
SHARE TRANSACTIONS:
Issued.................................................... 103,808 20,235
Reinvested................................................ 641 9
Redeemed.................................................. (6,925) (29)
---------- --------
CHANGE IN SHARES............................................ 97,524 20,215
========== ========
</TABLE>

(a) Period from commencement of operations.

See notes to financial statements.
68
<PAGE> 71

GOVERNOR FUNDS
LIFESTYLE GROWTH FUND
FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED.

<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD
YEAR ENDED FEBRUARY 18, 1999
JUNE 30, TO JUNE 30,
2000 1999(a)
---------- -----------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $10.77 $10.00
------ ------
INVESTMENT ACTIVITIES:
Net investment income..................................... 0.11 0.02
Net realized and unrealized gains from investment
transactions............................................ 0.75 0.77
------ ------
Total from investment activities.......................... 0.86 0.79
------ ------
DIVIDENDS:
Net investment income..................................... (0.11) (0.02)
In excess of net investment income........................ (0.03) --
Net realized gains from investment transactions........... (0.00)* --
------ ------
Total dividends........................................... (0.14) (0.02)
------ ------
NET ASSET VALUE, END OF PERIOD.............................. $11.49 $10.77
====== ======
TOTAL RETURN (EXCLUDES SALES CHARGE)........................ 8.00% 7.87%(b)
RATIOS/SUPPLEMENTARY DATA:
Net assets at end of period (000's)......................... $1,352 $ 218
Ratio of expenses to average net assets..................... 1.64% 1.81%(c)
Ratio of net investment income to average net assets........ 0.26% 0.07%(c)
Ratio of expenses to average net assets(d).................. 9.53% 51.10%(c)
Portfolio turnover.......................................... 28% 0%
</TABLE>

See notes to financial statements.
69
<PAGE> 72

GOVERNOR FUNDS

U.S. TREASURY OBLIGATIONS MONEY MARKET FUND(+)

Q. HOW DID THE U.S. TREASURY OBLIGATIONS MONEY MARKET FUND PERFORM DURING THE
YEAR ENDED JUNE 30, 2000?

A. The Fund's total return for the period was 4.76%, compared to 4.84% for the
Lipper U.S. Treasury Money Market Fund Index.(1) The Fund's 7-day and 7-day
effective yields were 5.41% and 5.56%, respectively, as of June 30, 2000.(2)

Q. WHAT WERE CONDITIONS LIKE IN THE TREASURY MONEY MARKETS DURING THE PERIOD?

A. The Treasury market performed relatively well during the period, in part
because the federal budget surplus allowed the Treasury to issue fewer new
Treasury bills. The diminished supply of short-term Treasuries helped their
performance. Limited supply counteracted the tightening monetary policy
enacted by the Fed, which raised the federal funds rate six times during the
period for a total increase of 150 basis points. The period was unusual in
that the yield curve was inverted: Overnight securities--the shortest-term
bonds, actually provided higher yields than did 90-day Treasury bills.

Q. HOW DID YOU MANAGE THE FUND IN THAT ENVIRONMENT?

A. We kept the Fund's duration very short relative to its index during most of
the period. This approach helped the Fund earn extra yield, given the
inverted yield curve. It also provided the Fund with a constant supply of
cash, which we used to invest in attractive opportunities as they developed.
For example, our cash reserves allowed us to take advantage of a rare
opportunity to buy six-month Treasury bills very inexpensively, boosting the
Fund's yield.

Q. WHAT IS YOUR OUTLOOK FOR THE ECONOMY AND THE TREASURY MONEY MARKETS GOING
FORWARD?

A. We expect the economy to slow somewhat as the Fed's interest rate hikes
continue to take effect. That said, the economic data is unclear, so it is
possible that the Fed will raise rates again to prevent an uptick in
inflation. The lack of new Treasury issuance should continue to put downward
pressure on Treasury yields, potentially limiting the number of attractive
investment opportunities. That said, if the economy slows enough to cause
federal budget deficits, the buyback program could stall and we could see
yields increase dramatically.

Q. HOW WILL YOU MANAGE THE FUND IN THAT ENVIRONMENT?

A. We will continue to monitor economic data and Treasury issuance. We will
keep the Fund's duration relatively short to provide strong cash flow and
allow us the flexibility to invest in opportunities as they develop. A cash
reserve will also help if we see the economy and Treasury markets are moving
in a more definite direction.

------------------
(+) 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 Lipper U.S. Treasury 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 in its
underlying securities.
(2) The 7-Day yield quoted is as of June 30, 2000, 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.
70
<PAGE> 73

GOVERNOR FUNDS SCHEDULE OF PORTFOLIO INVESTMENTS
U.S. TREASURY OBLIGATIONS MONEY MARKET FUND JUNE 30, 2000

<TABLE>
U.S. TREASURY OBLIGATIONS - 55.7%
PRINCIPAL AMORTIZED
SECURITY DESCRIPTION AMOUNT COST
-------------------- ----------- -----------
U.S. TREASURY NOTES - 55.7%
U.S. Treasury Notes, 5.13%,
8/31/00............................ $10,000,000 $ 9,984,719
-----------
TOTAL U.S. TREASURY OBLIGATIONS (Amortized Cost
$9,984,719)..................................... 9,984,719
-----------
REPURCHASE AGREEMENTS - 43.2%
Lehman Brothers, 6.40% due 7/3/00,
with maturity value of $3,139,674
(collateralized by $2,185,000 U.S.
Treasury Bond 12.50%, 8/15/14,
market value $3,202,016)........... 3,138,000 3,138,000
Merrill Lynch Securities, Inc., 6.40%
due 7/3/00, with maturity value of
$3,613,926 (collateralized by
$2,950,000 U.S. Treasury Bond,
11.75%, 2/15/10, market value
$3,688,860)........................ 3,612,000 3,612,000
PaineWebber, 6.73% due 7/3/00, with
maturity value of $1,000,564
(collateralized by $1,440,000 FNMA,
6.50%, 2/1/28, market value
$1,020,285)........................ 1,000,000 1,000,000
-----------
TOTAL REPURCHASE AGREEMENTS (Cost $7,750,000).....
7,750,000
-----------
INVESTMENT COMPANIES - 0.7%
SECURITY DESCRIPTION SHARES VALUE
-------------------- ----------- -----------
<S> <C> <C>
Federated Treasury Fund.............. 117,847 $ 117,847
-----------
TOTAL INVESTMENT COMPANIES (Cost $117,847)........ 117,847
-----------
TOTAL INVESTMENTS (Cost $17,852,566)(a) - 99.6%...
17,852,566
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.4%......
66,826
-----------
NET ASSETS - 100.0%............................... $17,919,392
===========
</TABLE>

------------------

(a) Cost for federal income tax and financial reporting purposes is the same.

FNMA--Federal National Mortgage Association

See notes to financial statements.

71
<PAGE> 74

GOVERNOR FUNDS
U.S. TREASURY OBLIGATIONS MONEY MARKET FUND

STATEMENT OF ASSETS AND LIABILITIES

JUNE 30, 2000

<TABLE>
<S> <C> <C>
ASSETS:
Investments, at amortized cost
$10,102,566........................... $10,102,566
Repurchase agreements................... 7,750,000
-----------
Total investments................... 17,852,566
Cash.................................... 785
Interest receivable..................... 172,685
Dividends receivable.................... 830
Deferred organization costs............. 3,456
Prepaid expenses........................ 1,428
-----------
TOTAL ASSETS........................ 18,031,750
LIABILITIES:
Dividends payable....................... $89,613
Accrued expenses and other liabilities:
Investment advisor.................... 203
Administration........................ 116
Administrative services............... 332
Other................................. 22,094
-------
TOTAL LIABILITIES................... 112,358
-----------
NET ASSETS:............................. $17,919,392
===========
COMPOSITION OF NET ASSETS:
Capital................................. $17,918,121
Accumulated net investment income....... 1,890
Accumulated net realized losses from
investment transactions............... (619)
-----------
NET ASSETS.............................. $17,919,392
===========
Shares Outstanding (par value $0.0001,
unlimited number of authorized
shares)............................... 17,920,011
===========
Net Asset Value, Offering Price and
Redemption Price per share............ $1.00
=====
</TABLE>

STATEMENT OF OPERATIONS

FOR THE YEAR ENDED JUNE 30, 2000

<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest.................................. $1,113,342
Dividend.................................. 11,703
----------
TOTAL INVESTMENT INCOME............... 1,125,045
EXPENSES:
Investment advisor........................ $83,746
Administration............................ 31,405
Administrative services................... 4,187
Accounting................................ 30,000
Audit..................................... 10,566
Custodian................................. 13,833
Transfer agent............................ 23,260
Other..................................... 926
-------
Total expenses before voluntary and
contractual fee reductions.......... 197,923
Voluntary and contractual fee
reductions.......................... (52,640)
----------
NET EXPENSES.......................... 145,283
----------
NET INVESTMENT INCOME..................... 979,762
----------
CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS.............................. $ 979,762
==========
</TABLE>

See notes to financial statements.

72
<PAGE> 75

GOVERNOR FUNDS
U.S. TREASURY OBLIGATIONS MONEY MARKET FUND
STATEMENTS OF CHANGES IN NET ASSETS

NET ASSETS:
Beginning of period....................................... 19,574,943 23,519,661
------------ ------------
End of period............................................. $ 17,919,392 $ 19,574,943
============ ============
SHARE TRANSACTIONS:
Issued.................................................... 41,901,318 38,220,231
Reinvested................................................ 106,294 215,526
Redeemed.................................................. (43,663,163) (42,380,450)
------------ ------------
CHANGE IN SHARES............................................ (1,655,551) (3,944,693)
============ ============
</TABLE>

See notes to financial statements.

73
<PAGE> 76

GOVERNOR FUNDS
U.S. TREASURY OBLIGATIONS MONEY MARKET FUND
FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED.

<TABLE>
<CAPTION>
FOR THE YEARS FOR THE PERIOD
ENDED JUNE 30, JULY 1, 1997
------------------ TO JUNE 30,
2000 1999 1998(a)
------- ------- --------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 1.00 $ 1.00 $ 1.00
------- ------- -------
INVESTMENT ACTIVITIES:
Net investment income..................................... 0.05 0.04 0.05
Net realized gains/(losses) from investment
transactions............................................ -- (0.00)* (0.00)*
------- ------- -------
Total from investment activities.......................... 0.05 0.04 0.05
------- ------- -------
DIVIDENDS:
Net investment income..................................... (0.05) (0.04) (0.05)
------- ------- -------
Total dividends........................................... (0.05) (0.04) (0.05)
------- ------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 1.00 $ 1.00 $ 1.00
======= ======= =======
TOTAL RETURN................................................ 4.76% 4.28% 4.78%
RATIOS/SUPPLEMENTARY DATA:
Net assets at end of period (000's)......................... $17,919 $19,575 $23,520
Ratio of expenses to average net assets..................... 0.69% 0.72% 0.71%
Ratio of net investment income to average net assets........ 4.68% 4.20% 4.64%
Ratio of expenses to average net assets(b).................. 0.95% 1.05% 1.07%
</TABLE>

* Less than $0.005 per share.
(a) Period from commencement of operations.
(b) During the period, certain fees were voluntarily or contractually reduced.
If such fee reductions had not occurred, the ratio would have been as
indicated.

See notes to financial statements.

74
<PAGE> 77

GOVERNOR FUNDS

PRIME MONEY MARKET FUND(+)

Q. HOW DID THE PRIME MONEY MARKET FUND PERFORM DURING THE YEAR ENDED JUNE 30,
2000?

A. The Fund posted a strong performance during the period; its return was in
the 14(th) percentile among 362 funds in the Lipper Money Market Funds
category(1). The Fund (Class A (Investor) Shares) returned 5.46% during the
period, compared to 5.33% for the Lipper Money Market Fund Index.(2) The
Fund's 7-day and 7-day effective yields as of June 30, 2000 were 6.10% and
6.28%, respectively.(3)

Q. WHAT WERE THE CONDITIONS IN THE SHORT-TERM MONEY MARKETS DURING THE PERIOD?

A. Yields rose throughout most of the period, as the Fed tightened monetary
policy to slow the fast-growing economy and hold off inflation. All told,
the Fed raised the federal funds rate six times, for a total increase of 150
basis points. Yields on short-term issues rose dramatically during the first
half of the period, as the economy grew quickly and investors worried the
potential for inflation would force the Fed to raise rates dramatically.
Investor sentiment moderated during the second half of the period, however,
as the economy showed some signs of slowing. Consequently, yields on
short-term fixed-income securities rose only slightly.

Q. HOW DID YOU MANAGE THE FUND IN THAT ENVIRONMENT?

A. We invested in the market's best values just after the Fed raised rates,
then allowed those securities to mature and provide the Fund with strong
cash flow. We kept the Fund's duration relatively short, as there was no
yield advantage from riskier, longer-term issues.*

Q. WHAT OTHER STRATEGIES DID YOU EMPLOY TO BOOST THE FUND'S PERFORMANCE?

A. Last fall we were able to anticipate and profit from an increase in the
London Inter-Bank Offer Rate (LIBOR),(4) which affects yields of many
short-term issues. We shortened the Fund's duration immediately before the
LIBOR increase, which provided the Fund with cash to invest after rates
rose.*

Q. WHAT IS YOUR OUTLOOK FOR THE ECONOMY AND THE MONEY MARKETS GOING FORWARD?

A. We expect economic growth will slow as the Fed's rate hikes continue to take
hold. This slowdown may allow the Fed to leave interest rates unchanged for
the next several months. However, economic and inflationary data are still
unclear, and the Fed may again raise rates if there are indications of a
pickup in economic growth or inflation.

Q. HOW WILL YOU MANAGE THE FUND IN THAT ENVIRONMENT?

A. We will closely monitor the issuance of commercial paper. Yields on
commercial paper currently are not as attractive as they usually are, due to
relatively flat issuance levels. If issuance picks up, yields are likely to
rise, resulting in attractive investment opportunities. We also will
maintain the Fund's relatively overweight position in very short-term
overnight securities to provide the cash flow needed to seize any
opportunities that develop.
------------------
(+) 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) For the one and three- year periods ending June 30, 2000, the Fund ranked 48
out of 362 and 50 out of 281 funds in the Lipper Money Market Funds
category, respectively. The Lipper rankings are based on total returns and
do not reflect a sales charge.
(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
its underlying securities.
(3) The 7-Day yield quoted is as of June 30, 2000 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.
(4) 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.
* The Fund's portfolio composition is subject to change.

PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.

75
<PAGE> 78

GOVERNOR FUNDS SCHEDULE OF PORTFOLIO INVESTMENTS
PRIME MONEY MARKET FUND JUNE 30, 2000

<TABLE>
<S> <C> <C> <C> <C>
COMMERCIAL PAPER - 39.6%
SECURITY MATURITY PRINCIPAL AMORTIZED
DESCRIPTION RATE DATE AMOUNT COST
----------- ---- ------- ----------- -----------
AUTOMOTIVE - 1.7%
Daimler Chrysler
AG................. 6.53% 7/17/00 $ 5,000,000 $ 4,985,489
-----------
BANKS - 4.9%
Zions Bancorp(b)..... 6.65 7/28/00 14,000,000 13,930,175
-----------
BEVERAGES - 3.0%
Coca-Cola Co......... 6.51 7/27/00 8,500,000 8,460,036
-----------
ELECTRIC SERVICES - 3.5%
Potomac Electric
Power.............. 6.50 7/6/00 10,000,000 9,990,972
-----------
FINANCIAL SERVICES - 16.4%
Cooper River
Funding(b)......... 6.80 7/7/00 8,755,000 8,745,078
Ford Motor Credit
Co................. 6.52 7/6/00 14,000,000 13,987,322
General Electric
Capital Corp....... 6.67 1/9/01 15,000,000 14,466,399
Natural Rural Co..... 6.82 1/18/01 10,000,000 9,619,217
-----------
46,818,016
-----------
MACHINERY-DIVERSIFIED - 1.7%
W.W. Grainger, Inc... 6.53 7/17/00 5,000,000 4,985,489
-----------
REAL ESTATE - 4.9%
Marsh & McLennan
Cos.(b)............ 6.55 7/7/00 14,000,000 13,984,717
-----------
TELECOMMUNICATIONS - 3.5%
Motorola, Inc........ 6.60 9/18/00 10,000,000 9,855,167
-----------
TOTAL COMMERCIAL PAPER (Amortized Cost
$113,010,061)....................................... 113,010,061
-----------
CORPORATE OBLIGATIONS - 17.7%
BANKING & FINANCIAL SERVICES - 7.7%
Goldman Sachs &
Co.*............... 6.41 7/14/00 10,000,000 10,000,385
J.P. Morgan & Co.*... 6.61 7/6/00 12,000,000 11,999,971
-----------
22,000,356
-----------
FOOD PRODUCTS & SERVICES - 3.5%
Albertsons*(b)....... 6.63 7/14/00 10,000,000 9,999,860
-----------
GOVERNMENT AGENCIES - 6.5%
Fannie Mae*.......... 6.62 8/9/00 10,000,000 9,999,467
Sallie Mae*.......... 6.54 11/9/00 8,500,000 8,508,945
-----------
18,508,412
-----------
TOTAL CORPORATE OBLIGATIONS (Amortized Cost
$50,508,628)........................................ 50,508,628
-----------
</TABLE>

<TABLE>
<S> <C> <C>
REPURCHASE AGREEMENTS - 43.1%
SHARES AMORTIZED
OR COST
PRINCIPAL OR
SECURITY DESCRIPTION AMOUNT VALUE
-------------------- ----------- ------------
Lehman Brothers, 6.58%, due
7/3/00, with a maturity value
of $58,021,798 (collateralized
by $315,161,471 FHLMC, 0.00% -
1.95%, 9/15/25 - 5/17/30,
$73,259,000 FNMA, 0.00%,
11/25/21, and $318,746,601
GNMA, 0.05% - 1.94%, 7/16/24 -
2/16/30, total market value of
$59,150,085)................... $57,990,000 $ 57,990,000
Merrill Lynch Securities, Inc.,
6.45%, due 7/3/00, with
maturity value of $10,005,375
(collateralized by $9,820,000
FNMA, 6.50%, 8/15/04, market
value of $10,201,114).......... 10,000,000 10,000,000
PaineWebber, 6.73%, due 7/3/00,
with maturity value of
$55,030,846 (collateralized by
$16,590,000 FHLMC, 7.00%,
4/1/28, and $89,883,000 FNMA,
6.50% - 7.00%, 2/1/09 - 2/1/28,
total market value of
$56,100,557)................... 55,000,000 55,000,000
------------
TOTAL REPURCHASE AGREEMENTS
(Cost $122,990,000)............ 122,990,000
------------
</TABLE>

<TABLE>
<S> <C> <C>
INVESTMENT COMPANIES - 0.0%

Federated Treasury Fund.............. 60,348 60,348
------------
TOTAL INVESTMENT COMPANIES (Cost $60,348)....
60,348
------------
TOTAL INVESTMENTS (Cost $286,569,037)(a) -
100.4%..................................... 286,569,037
LIABILITIES IN EXCESS OF OTHER ASSETS -
(0.4)%..................................... (1,079,356)
------------
NET ASSETS - 100.0%.......................... $285,489,681
============
</TABLE>

------------------

(a) Cost for federal income tax and financial reporting purposes is the same.

(b) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. These securities
have been deemed liquid by The Board of Trustees.

* Variable rate investment. The rate presented represents rate in effect at
June 30, 2000. The maturity date presented reflects next rate change date.

<TABLE>
<S> <C>
AG --Aktiengesellschaft (West German Stock Co.)
FHLMC --Federal Home Loan Mortgage Corporation
FNMA --Federal National Mortgage Association
GNMA --Government National Mortgage Association
</TABLE>

See notes to financial statements.

76
<PAGE> 79

GOVERNOR FUNDS
PRIME MONEY MARKET FUND

STATEMENT OF ASSETS AND LIABILITIES

JUNE 30, 2000

<TABLE>
<S> <C> <C>
ASSETS:
Investments, at amortized cost
$163,579,037....................... $163,579,037
Repurchase agreements................ 122,990,000
------------
Total investments................ 286,569,037
Cash................................. 568
Interest receivable.................. 426,832
Dividends receivable................. 221
Deferred organization costs.......... 6,399
Prepaid expenses..................... 17,176
------------
TOTAL ASSETS..................... 287,020,233
LIABILITIES:
Dividends payable.................... $1,465,233
Payable for capital shares
redeemed........................... 244
Accrued expenses and other
liabilities:
Investment advisor................. 3,180
Administration..................... 1,829
Administrative services............ 13,042
Other.............................. 47,024
----------
TOTAL LIABILITIES................ 1,530,552
------------
NET ASSETS:.......................... $285,489,681
============
COMPOSITION OF NET ASSETS:
Capital.............................. $285,478,340
Accumulated net investment income.... 11,341
------------
NET ASSETS........................... $285,489,681
============
CLASS A (INVESTOR) SHARES
Net Assets......................... $282,013,530
Shares Outstanding (par value
$.0001, unlimited number of
authorized shares)............... 282,005,276
============
Net Asset Value, Offering Price and
Redemption Price per share....... $1.00
=====
CLASS S SHARES
Net Assets......................... $ 3,476,151
Shares Outstanding (par value
$.0001, unlimited number of
authorized shares)............... 3,476,054
============
Net Asset Value, Offering Price and
Redemption Price per share....... $1.00
=====
</TABLE>

STATEMENT OF OPERATIONS

FOR THE YEAR ENDED JUNE 30, 2000

<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest.............................. $17,289,691
Dividend.............................. 9,058
-----------
TOTAL INVESTMENT INCOME........... 17,298,749
EXPENSES:
Investment advisor.................... $1,191,581
Administration........................ 446,845
Administrative services:
Class A (Investor) Shares........... 152,611
Class S Shares...................... 6,767
Custodian............................. 38,059
Other................................. 256,168
----------
Total expenses before contractual
fee reductions.................. 2,092,031
Contractual fee reductions........ (700,055)
-----------
NET EXPENSES...................... 1,391,976
-----------
NET INVESTMENT INCOME................. 15,906,773
-----------
Net realized gains from investment
transactions........................ 8,750
-----------
CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS.......................... $15,915,523
===========
</TABLE>

See notes to financial statements.

77
<PAGE> 80

GOVERNOR FUNDS
PRIME MONEY MARKET FUND
STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JUNE 30,
---------------------------
2000 1999
------------ ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income..................................... $ 15,906,773 $ 11,840,184
Net realized gains/(losses) from investment
transactions............................................ 8,750 (940)
------------ ------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS.............. 15,915,523 11,839,244
------------ ------------
DIVIDENDS:
Net investment income:
Class A (Investor) Shares............................... (15,763,392) (11,837,016)
Class S Shares(a)....................................... (143,381) (3,168)
------------ ------------
CHANGE IN NET ASSETS FROM SHAREHOLDER DIVIDENDS............. (15,906,773) (11,840,184)
------------ ------------
CHANGE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS........ 23,234,724 44,386,323
------------ ------------
CHANGE IN NET ASSETS........................................ 23,243,474 44,385,383

NET ASSETS:
Beginning of period....................................... 262,246,207 217,860,824
------------ ------------
End of period............................................. $285,489,681 $262,246,207
============ ============
</TABLE>

(a) The Fund commenced offering Class S Shares on April 19, 1999.

See notes to financial statements.

78
<PAGE> 81

GOVERNOR FUNDS
PRIME MONEY MARKET FUND
FINANCIAL HIGHLIGHTS -- CLASS A (INVESTOR) SHARES

SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED.

<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEARS ENDED JUNE 30, OCTOBER 7, 1996
------------------------------------ TO JUNE 30,
2000 1999 1998 1997 (a)
-------- -------- -------- ---------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------
INVESTMENT ACTIVITIES:
Net investment income..................................... 0.05 0.05 0.05 0.04
Net realized gains/(losses) from investment
transactions............................................ 0.00* (0.00)* 0.00* 0.00*
-------- -------- -------- -------
Total from investment activities.......................... 0.05 0.05 0.05 0.04
-------- -------- -------- -------
DIVIDENDS:
Net investment income..................................... (0.05) (0.05) (0.05) (0.04)
-------- -------- -------- -------
Total dividends........................................... (0.05) (0.05) (0.05) (0.04)
-------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== =======
TOTAL RETURN................................................ 5.46% 4.80% 5.19% 3.73%(b)
RATIOS/SUPPLEMENTARY DATA:
Net assets at end of period (000's)......................... $282,014 $261,561 $217,861 $95,850
Ratio of expenses to average net assets..................... 0.47% 0.49% 0.48% 0.36%(c)
Ratio of net investment income to average net assets........ 5.34% 4.68% 5.14% 5.02%(c)
Ratio of expenses to average net assets(d).................. 0.70% 0.80% 0.76% 0.70%(c)
</TABLE>

See notes to financial statements.

79
<PAGE> 82

GOVERNOR FUNDS
PRIME MONEY MARKET FUND
FINANCIAL HIGHLIGHTS -- CLASS S SHARES

SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED.

<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD
YEAR ENDED APRIL 19, 1999
JUNE 30, TO JUNE 30,
2000 1999(a)
---------- --------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 1.00 $ 1.00
------ ------
INVESTMENT ACTIVITIES:
Net investment income..................................... 0.05 0.01
Net realized gains/(losses) from investment
transactions............................................ 0.00* (0.00)*
------ ------
Total from investment activities.......................... 0.05 0.01
------ ------
DIVIDENDS:
Net investment income..................................... (0.05) (0.01)
------ ------
Total dividends........................................... (0.05) (0.01)
------ ------
NET ASSET VALUE, END OF PERIOD.............................. $ 1.00 $ 1.00
====== ======
TOTAL RETURN................................................ 5.25% 0.85%(b)
RATIOS/SUPPLEMENTARY DATA:
Net assets at end of period (000's)......................... $3,476 $ 685
Ratio of expenses to average net assets..................... 0.67% 0.68%(c)
Ratio of net investment income to average net assets........ 5.30% 4.23%(c)
Ratio of expenses to average net assets(d).................. 0.90% 0.91%(c)
</TABLE>

See notes to financial statements.

80
<PAGE> 83

GOVERNOR FUNDS

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000

1. ORGANIZATION:

The Established Growth Fund, Aggressive Growth Fund, International
Equity Fund, Intermediate Term Income Fund, Limited Duration Government
Securities Fund, Pennsylvania Municipal Bond Fund, Lifestyle Conservative
Growth Fund, Lifestyle Moderate Growth Fund, Lifestyle Growth Fund, U.S.
Treasury Obligations Money Market Fund, and the Prime Money Market Fund
(individually, a "Fund," collectively the "Funds") are separate series of
Governor Funds (the "Trust"), a Delaware business trust 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 "Act"),
as an open-end management investment company.

The Lifestyle Conservative Growth Fund, Lifestyle Moderate Growth Fund,
and the Lifestyle Growth Fund (collectively the "Lifestyle Funds") invest in
the following Governor Funds: Established Growth Fund, Aggressive Growth
Fund, International Equity Fund, Intermediate Term Income Fund, Limited
Duration Government Securities Fund, and the U.S. Treasury Obligations Money
Market Fund (collectively the "Underlying Funds").

The Prime Money Market Fund offers two classes of shares, Class A
(Investor) Shares and Class S Shares. Each class of shares in the Fund has
identical rights and privileges except with respect to fees paid under the
administrative services agreement, voting rights on matters affecting a
single class of shares, and the exchange privilege of each class of shares.

2. SIGNIFICANT ACCOUNTING POLICIES:

The following is a summary of significant accounting policies followed
by the Funds in the preparation of their financial statements. The policies
are in conformity with generally accepted accounting principles in the
United States of America. 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:

The value of each equity security is based either on the last sale price
on a national securities exchange, or in the absence of recorded sales, at
the closing bid prices on such exchanges, or at the quoted bid price in the
over-the-counter market. Securities or other assets for which market
quotations are not readily available are valued at fair market value as
determined in good faith by or at the direction of the Board of Trustees.

Bonds and other fixed income securities (other than short-term
obligations but including listed issues) are valued on the basis of
valuations furnished by a pricing service, the use of which has been
approved by the Funds' Board of Trustees. In making such valuations, the
pricing service utilizes both dealer-supplied valuations and electronic data
processing techniques which take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, and trading characteristics other than
market data and without exclusive reliance upon quoted prices or exchanges
or over-the-counter prices, since such valuations are believed to reflect
more accurately the fair value of such securities. All debt portfolio
securities with a remaining maturity of 60 days or less are valued at
amortized cost. Under the amortized cost method, discount or premium, if
any, is accreted or amortized, respectively, on a constant (straight-line)
basis to the maturity of the security.

Investments of the U.S. Treasury Obligations Money Market Fund and the
Prime Money Market Fund are valued at amortized cost, which approximates
market value.

Investments in investment companies are quoted at net asset value.

SECURITY TRANSACTIONS AND RELATED INCOME:

Security transactions are accounted for on trade date. Securities gains
and losses are calculated on the identified cost basis. Dividends of
realized gains from other investment companies are recorded as realized
gains. Interest income is recognized on the accrual basis and includes,
where applicable, the amortization or accretion of a premium or discount.
Dividend income is recorded on the ex-dividend date.

FOREIGN CURRENCY TRANSLATION:

The International Equity Fund translates foreign currencies into U.S.
dollars at the current rate of exchange to determine the value of
investments, assets and liabilities. Purchases and sales of securities, and
income and expenses are translated at the prevailing rate of exchange on the
respective dates of such transactions. The changes in foreign exchange rates
on investments are not isolated on the Statement of Operations. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.

Continued
81
<PAGE> 84
GOVERNOR FUNDS

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000

FORWARD FOREIGN CURRENCY CONTRACTS:

The International Equity Fund entered into forward foreign currency
exchange contracts in connection with planned purchases or sales of
securities or to hedge the U.S. dollar value of portfolio securities
denominated in a particular currency. The Fund could be exposed to risks if
the counter-parties to the contracts are unable to meet the terms of their
contracts and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar. The forward foreign currency exchange
contracts are adjusted by the daily exchange rate of the underlying currency
and any gains or losses are recorded for financial statement purposes as
unrealized gains or losses until the contract settle date.

FUTURES CONTRACTS:

The Established Growth Fund, Aggressive Growth Fund, International
Equity Fund, Intermediate Term Income Fund and Pennsylvania Municipal Bond
Fund may invest in financial futures contracts for hedging their existing
portfolio securities or securities it intends to purchase against
fluctuations in fair value caused by changes in prevailing market interest
rates. Upon entering into a financial futures contract, a pledge is required
to the broker in cash and/or other assets equal to a certain percentage of
the contract amount (initial margin deposit). Subsequent payments, known as
"variation margin", are made or received each day, depending on the daily
fluctuations in the fair value of the underlying security. A gain or loss
equal to the daily variation margin is recognized on a daily basis. Should
market conditions move unexpectedly, the anticipated benefits of the
financial futures contracts may not be achieved, in which case, a loss will
be realized. The use of futures transactions involves the risk of imperfect
correlation in movements in the price of futures contracts, interest rates
and the underlying hedged assets.

Futures contracts may also be entered into for non-hedging purposes. A
"sale" of futures contract means a contractual obligation to deliver the
securities or foreign currency called for by the contract at a fixed price
at a specified time in the future. A "purchase" of a futures contract means
a contractual obligation to acquire the securities or foreign currency at a
fixed price at a specified time in the future.

OPTIONS:

The Established Growth Fund, Aggressive Growth Fund, International
Equity Fund, Intermediate Term Income Fund and Pennsylvania Municipal Bond
Fund may purchase and write (sell) put and call options on securities,
currencies and indices of securities (collectively, an "underlying asset").
These transactions are to hedge against changes in interest rates, security
prices, currency fluctuations and other market developments, or for purposes
of earning additional income (i.e. speculation).

The risk associated with purchasing an option is that the Funds pay a
premium whether or not the option is exercised. Additionally, the Funds bear
the risk of loss of premium and change in market value should the
counterparty not perform under the contract. Put and call options purchased
are accounted for in the same manner as other securities owned. The cost of
securities acquired through the exercise of call options is increased by the
premiums paid. The proceeds from securities sold through the exercise of put
options are decreased by the premiums paid.

In writing an option, the Funds contract with a specified counterparty
to purchase (written put option) or sell (written call option) a specified
quantity (notional amount) of an underlying asset at a specified price
during a specified period upon demand of the counterparty. The risk
associated with writing an option is that the Funds bear the market risk of
an unfavorable change in the price of an underlying asset, and may be
required to buy or sell an underlying asset under the contractual terms of
the option at a price different from the current market value. Written
options involve financial risk which may exceed amounts reflected in the
accompanying financial statements.

The table below reflects the Established Growth Fund's activity in
written options, all of which were for purposes of earning additional
income, during the fiscal year. The Notional Amount column represents the
notional amount of underlying assets subject to such written options. The
Premiums column represents the premiums paid by the option counterparties to
the Fund in connection with entering into the written options. No other
Funds engaged in written option contracts during the year ended June 30,
2000.

Continued
82
<PAGE> 85
GOVERNOR FUNDS

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000

WRITTEN OPTION ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2000:

<TABLE>
<CAPTION>
CALL OPTIONS
NOTIONAL
AMOUNT PREMIUMS
-------- --------
<S> <C> <C>
Balance at beginning of year................................ -- $ --
Options written............................................. 20,000 35,649
Options exercised........................................... (20,000) (35,649)
------- --------
Balance at end of year...................................... -- $ --
======= ========
</TABLE>

REPURCHASE AGREEMENTS:

The Funds may enter into repurchase agreements with an entity which is a
member of the Federal Reserve System or which is a "primary dealer" (as
designated by the Federal Reserve Bank of New York) in U.S. Government
obligations. The repurchase price generally equals the price paid by a 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 collateral
held pursuant to the agreement, with a market value equal to or greater than
the repurchase price (including accrued interest). Collateral subject to
repurchase agreements is held by the Funds' custodian, or another qualified
custodian or in the Federal Reserve/Treasury book-entry system.

EXPENSE ALLOCATION:

Expenses directly attributable to a Fund are charged to that Fund;
expenses not directly attributable to a Fund are allocated proportionately
among each Fund within the Trust in relation to the net assets of each Fund
or on another reasonable basis. Expenses specific to a class are charged to
that class.

ORGANIZATION COSTS:

Costs incurred in connection with the organization and initial
registration of the Trust, which have been allocated among the Funds, have
been deferred and are being amortized over a five year period, beginning
with each Fund's commencement of operations.

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
International Equity Fund, Lifestyle Conservative Growth Fund, Lifestyle
Moderate Growth Fund and Lifestyle Growth Fund were expensed as incurred
during the 1999 fiscal year.

DIVIDENDS TO SHAREHOLDERS:

The Prime Money Market Fund and U.S. Treasury Obligations Money Market
Fund declare all net investment income daily as dividends to their
shareholders and distribute such dividends monthly. Dividends from net
investment income, if any, are declared and distributed monthly for the
Intermediate Term Income Fund, Limited Duration Government Securities Fund
and Pennsylvania Municipal Bond Fund. Dividends from net investment income
are declared and distributed quarterly for the Established Growth Fund,
Aggressive Growth Fund, Lifestyle Conservative Growth Fund, Lifestyle
Moderate Growth Fund, and Lifestyle Growth Fund and annually for the
International Equity Fund. The Funds' net realized gains, if any, are
distributed to shareholders at least annually.

Additional dividends are also paid to the Funds' shareholders to the
extent necessary to avoid the federal excise tax on certain undistributed
income and net realized gains of registered investment companies.

The amount of dividends from net investment income and net realized
gains are determined in accordance with federal income tax regulations which
may differ from the generally accepted accounting principles of the United
States of America. 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 to capital; temporary
differences do not require reclassification.

Continued
83
<PAGE> 86
GOVERNOR FUNDS

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000

As of June 30, 2000, the following reclassifications have been made to
increase (decrease) such accounts with offsetting adjustments made to
capital:

<TABLE>
<CAPTION>
ACCUMULATED NET INVESTMENT ACCUMULATED NET REALIZED
NAME INCOME/(LOSS) GAIN/(LOSS) FROM INVESTMENTS
---- -------------------------- --------------------------------
<S> <C> <C>
Established Growth Fund.............................. $ 7,440 $ (7,440)
Aggressive Growth Fund............................... 344,009 (344,009)
International Equity Fund............................ (558,666) 558,666
Limited Duration Government Securities Fund.......... 5 (5)
Pennsylvania Municipal Bond Fund..................... 84 (84)
Lifestyle Growth Fund................................ 1,478 (1,478)
Prime Money Market Fund.............................. 7,810 (7,810)
</TABLE>

FEDERAL INCOME TAXES:

Each Fund is a separate taxable entity for federal tax purposes. Each
Fund has qualified and intends to qualify each year as a "regulated
investment company" under Subchapter M of the Internal Revenue Code, as
amended and distribute substantially all of their taxable net investment
income and net realized gains, if any, to their shareholders. Accordingly,
no provision for federal income tax is required.

3. RELATED PARTY TRANSACTIONS:

INVESTMENT ADVISOR:

Martindale Andres & Company, LLC (formerly Martindale Andres & Company,
Inc.) acts as Investment Advisor to the Funds. Effective May 31, 2000,
Governors Group Advisors, Inc. reorganized into Martindale Andres & Company,
LLC (the "Advisor") a wholly owned subsidiary of Keystone Financial, Inc.,
with no resulting change of actual control or management. The Advisor
assumed all of the obligations and responsibilities of Governors Group
Advisors, Inc. under the Investment Advisory Agreement with the Trust and
under the Sub-Advisory Agreement with Brinson Partners, Inc., sub-advisor to
the International Equity Fund. For its services as Investment Advisor, the
Advisor is entitled to receive a fee, computed daily and paid monthly, based
on the average daily net assets of the fund, at the following annual
percentage rates:

<TABLE>
<CAPTION>
NAME FEE RATE
---- --------
<S> <C>
Established Growth Fund..................................... 0.75%
Aggressive Growth Fund...................................... 1.00
International Equity Fund................................... 1.25
Intermediate Term Income Fund............................... 0.60
Limited Duration Government Securities Fund................. 0.60
Pennsylvania Municipal Bond Fund............................ 0.60
Lifestyle Conservative Growth Fund.......................... 0.25
Lifestyle Moderate Growth Fund.............................. 0.25
Lifestyle Growth Fund....................................... 0.25
U.S. Treasury Obligations Money Market Fund................. 0.40
Prime Money Market Fund..................................... 0.40
</TABLE>

ADMINISTRATION:

BISYS Fund Services Ohio, Inc. ("BISYS Ohio"), who serves the Trust as
Co-Administrator, is a wholly owned subsidiary of The BISYS Group, Inc.,
with whom certain officers of the Trust are affiliated. Such officers are
paid no fees directly by the Funds for serving as officers of the Trust. The
Advisor, serves as the other Co-Administrator. Under terms of the
administration agreement, BISYS Ohio and the Advisor are entitled to receive
from the Funds, except the Lifestyle Funds, a fee computed daily and paid
monthly, based on the average daily net assets of the fund at an annual rate
of 0.15%. Administration is paid by the underlying funds in the Lifestyle
Funds.

DISTRIBUTION PLAN:

BISYS Fund Services Limited Partnership ("BISYS"), a wholly owned
subsidiary of the BISYS Group, Inc., serves as the Funds' distribution agent
(the "Distributor"). The Trust has adopted a Distribution Plan under Rule
12b-1 under the 1940 Act (the

Continued
84
<PAGE> 87
GOVERNOR FUNDS

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000

"12b-1 Plan") pursuant to which the Lifestyle Funds are authorized to
reimburse the Distributor, for amounts representing actual expenses incurred
by the Distributor for marketing costs and services rendered in distributing
the Lifestyle Funds' shares. 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.

For the fiscal year ended June 30, 2000, BISYS received $259,549 from
commissions earned on sales of shares of the Lifestyle Funds, of which
$233,631 was reallowed to broker-dealers affiliated with Keystone Financial,
Inc.

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 various support services to its shareholders. The compensation,
which is paid monthly, under the Administrative Services Plan, is a fee
computed daily at an annual rate of up to 0.25% of the average daily net
assets of each of the funds.

FUND ACCOUNTING, TRANSFER AGENCY, AND CUSTODIAN:

BISYS Ohio provides fund accounting and transfer agency services for the
Funds. In addition, Bank of New York serves as custodian for the Funds. For
these services to the Funds, BISYS Ohio and Bank of New York received an
annual fee accrued daily and paid monthly.

FEE REDUCTIONS AND REIMBURSEMENTS:

The Advisor and BISYS Ohio have agreed to waive a portion of their fees,
and to the extent necessary, reimburse the Funds for certain expenses. For
the fiscal year ended June 30, 2000, expenses of the Funds were reduced by
the amounts detailed below:

<TABLE>
<CAPTION>
CONTRACTUAL FEE REDUCTIONS
INVESTMENT VOLUNTARY FEE REDUCTIONS
ADVISOR ADMINISTRATION REIMBURSED DISTRIBUTION ACCOUNTING TRANSFER AGENT
---------- -------------- ---------- ------------ ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Established Growth Fund............. $393,485 $91,814 $ -- $ -- $ -- $ --
Aggressive Growth Fund.............. 410,697 47,915 -- -- -- --
International Equity Fund........... 358,395 14,758 -- -- -- --
Intermediate Term Income Fund....... 855,336 99,791 -- -- -- --
Limited Duration Government
Securities Fund................... 172,973 20,180 -- -- -- --
Pennsylvania Municipal Bond Fund.... 300,110 35,013 -- -- 4,988 --
Lifestyle Conservative Growth
Fund.............................. 323 -- 16,153 319 24,257 13,292
Lifestyle Moderate Growth Fund...... 1,229 -- 9,655 1,363 24,817 13,931
Lifestyle Growth Fund............... 1,066 -- 10,972 1,372 24,649 13,854
U.S. Treasury Obligations Money
Market Fund....................... 41,873 7,328 -- -- 3,439 --
Prime Money Market Fund............. 595,791 104,264 -- -- -- --
</TABLE>

4. PURCHASES AND SALES OF SECURITIES:

Purchases of and proceeds from sales, excluding short-term securities,
for the Funds for the fiscal year ended June 30, 2000 totaled:

<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Established Growth Fund..................................... $105,695,004 $109,148,097
Aggressive Growth Fund...................................... 54,677,252 65,369,980
International Equity Fund................................... 23,628,543 23,148,614
Intermediate Term Income Fund............................... 525,925,843 557,222,273
Limited Duration Government Securities Fund................. 77,115,634 89,727,278
Pennsylvania Municipal Bond Fund............................ 90,515,017 109,575,565
Lifestyle Conservative Growth Fund.......................... 216,142 60,350
Lifestyle Moderate Growth Fund.............................. 1,183,723 253,007
Lifestyle Growth Fund....................................... 1,292,059 180,457
</TABLE>

Continued
85
<PAGE> 88
GOVERNOR FUNDS

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000

5. CAPITAL SHARE TRANSACTIONS:

Transactions in capital and shares of beneficial interest by class for
the Prime Money Market Fund were as follows:

<TABLE>
<CAPTION>
PRIME MONEY MARKET FUND
--------------------------------
YEAR ENDED YEAR ENDED
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
<S> <C> <C>
CAPITAL TRANSACTIONS:
CLASS A (INVESTOR) SHARES:
Proceeds from shares issued............................. $ 981,122,385 $ 538,446,396
Dividends reinvested.................................... 1,779,251 1,410,478
Cost of shares redeemed................................. (962,457,888) (496,155,628)
------------- -------------
Class A (Investor) Shares capital transactions.............. 20,443,748 43,701,246
------------- -------------
S SHARES:
Proceeds from shares issued............................. 13,280,176 1,059,052
Cost of shares redeemed................................. (10,489,200) (373,975)
------------- -------------
S Shares capital transactions............................... 2,790,976 685,077
------------- -------------
CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.............. $ 23,234,724 $ 44,386,323
============= =============
SHARE TRANSACTIONS:
CLASS A (INVESTOR) SHARES:
Issued.................................................. 981,122,385 538,446,396
Reinvested.............................................. 1,779,251 1,410,478
Redeemed................................................ (962,457,888) (496,155,628)
------------- -------------
Change in Class A (Investor) Shares......................... 20,443,748 43,701,246
------------- -------------
S SHARES:
Issued.................................................. 13,280,176 1,059,052
Redeemed................................................ (10,489,200) (373,975)
------------- -------------
Change in S Shares.......................................... 2,790,976 685,077
------------- -------------
CHANGE IN SHARES FROM CAPITAL TRANSACTIONS.................. 23,234,724 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 June 30, 2000 (as a percentage of total investments):

<TABLE>
<S> <C>
Airport..................................................... 5.52%
Development................................................. 7.50
Facilities.................................................. 6.16
General Obligations......................................... 15.51
Higher Education............................................ 24.40
Medical..................................................... 6.51
Pollution Control........................................... 3.18
Single Family Housing....................................... 9.40
Transportation.............................................. 5.81
Utilities................................................... 16.01
------
Total....................................................... 100.00%
======
</TABLE>

Continued
86
<PAGE> 89
GOVERNOR FUNDS

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000

7. REALIZED LOSS CARRYFORWARD:

For federal income tax purposes, the following Funds have realized loss
carryforwards as of June 30, 2000, which are available to offset future
realized gains, if any:

<TABLE>
<CAPTION>
AMOUNT EXPIRES
----------- -------
<S> <C> <C>
Intermediate Term Income Fund............................... $12,202,481 2008
===========
Limited Duration Government Securities Fund................. $ 67,802 2007
616,878 2008
-----------
$ 684,680
===========
Pennsylvania Municipal Bond Fund............................ $ 1,311,632 2008
===========
U.S. Treasury Obligations Money Market Fund................. $ 594 2007
25 2008
-----------
$ 619
===========
</TABLE>

The Prime Money Market Fund utilized realized loss carryforwards
totaling $489, which would have otherwise expired in 2007.

8. FEDERAL INCOME TAX INFORMATION (UNAUDITED):

During the fiscal year ended June 30, 2000, the Pennsylvania Municipal
Bond Fund paid tax-exempt income distributions in the amount of $4,402,485.

During the fiscal year ended June 30, 2000, long-term gain distributions
declared and dividends received deduction available to corporations were as
follows:

<TABLE>
<CAPTION>
DIVIDENDS
LONG-TERM RECEIVED
20% DEDUCTION
----------- ---------
<S> <C> <C>
Established Growth Fund..................................... $52,441,529 94.58%
Aggressive Growth Fund...................................... 15,982,524 22.60
Pennsylvania Municipal Bond Fund............................ 80,518 --
Lifestyle Conservative Growth Fund.......................... -- 6.96
Lifestyle Moderate Growth Fund.............................. -- 16.17
Lifestyle Growth Fund....................................... -- 14.88
</TABLE>

Losses incurred after October 31, within the Funds fiscal year are
deemed to arise on the first business day of the following fiscal year for
tax purposes. The Funds have incurred and will elect to defer the following
realized losses:

<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
International Equity Fund................................... $ 244,551
Intermediate Term Income Fund............................... 9,710,075
Limited Duration Government Securities Fund................. 342,809
Pennsylvania Municipal Bond Fund............................ 3,556,118
</TABLE>

87
<PAGE> 90

INDEPENDENT AUDITORS' REPORT

The Shareholders and Board of Trustees of
the Governor Funds:

We have audited the accompanying statements of assets and liabilities of
the Governor Funds comprised of the Established Growth Fund, Aggressive Growth
Fund, International Equity Fund, Intermediate Term Income Fund, Limited Duration
Government Securities Fund, Pennsylvania Municipal Bond Fund, Lifestyle
Conservative Growth Fund, Lifestyle Moderate Growth Fund, Lifestyle Growth Fund,
U.S. Treasury Obligations Money Market Fund, and Prime Money Market Fund
(collectively, the Funds), including the schedules of portfolio investments, as
of June 30, 2000, and the related statements of operations and changes in net
assets and the financial highlights for the periods indicated herein. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included verification of
securities owned as of June 30, 2000, by confirmation, correspondence with
brokers and other appropriate audit procedures. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Funds as of June 30, 2000, the results of operations, changes in net assets and
the financial highlights for each of the periods indicated herein, in conformity
with accounting principles generally accepted in the United States of America.

KPMG LLP

Columbus, Ohio
August 15, 2000

88
<PAGE> 91
INVESTMENT ADVISER

Martindale Andres & Company, LLC
200 Four Falls Corporate Center, Suite 200
West Conshohocken, PA 19428

DISTRIBUTOR

BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219

FOR ADDITIONAL INFORMATION CALL:
1-800-766-3960

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