<PAGE> 1
ARMADA FUNDS
PROSPECTUS
August 1, 1997
Core Equity Fund
<PAGE> 2
ARMADA FUNDS
INVESTMENT ADVISER
AN AFFILIATE OF NATIONAL
CITY CORPORATION
National Asset Management Corporation
101 South Fifth Street
Louisville, KY 40202
TABLE OF CONTENTS
PAGE
EXPENSE TABLE.................................................... 3
INTRODUCTION..................................................... 5
INVESTMENT OBJECTIVES AND POLICIES............................... 5
INVESTMENT LIMITATIONS........................................... 8
PERFORMANCE INFORMATION.......................................... 9
PRICING OF SHARES................................................ 10
HOW TO PURCHASE AND REDEEM SHARES................................ 11
DISTRIBUTION AGREEMENT........................................... 20
SHAREHOLDER SERVICES PLAN........................................ 20
DIVIDENDS AND DISTRIBUTIONS...................................... 21
TAXES............................................................ 21
MANAGEMENT OF THE TRUST.......................................... 23
DESCRIPTION OF THE TRUST AND ITS SHARES.......................... 24
CUSTODIAN AND TRANSFER AGENT..................................... 27
EXPENSES......................................................... 27
MISCELLANEOUS.................................................... 27
- ------------------------------------------------------------
|- SHARES OF ARMADA FUNDS ARE NOT BANK DEPOSITS OR |
|OBLIGATIONS OF, OR GUARANTEED OR ENDORSED OR OTHER- |
|WISE SUPPORTED BY, NATIONAL CITY BANK, ITS PARENT |
|COMPANY OR ANY OF ITS AFFILIATES OR ANY BANK. |
| |
|- SHARES OF ARMADA FUNDS ARE NOT INSURED OR |
|GUARANTEED BY THE U.S. GOVERNMENT, FDIC, OR ANY |
|GOVERNMENTAL AGENCY OR STATE. |
| |
|- AN INVESTMENT IN ARMADA FUNDS INVOLVES INVEST- |
|MENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL |
|AMOUNT INVESTED. |
| |
|National City Bank and National Asset Management |
|Corporation serve as investment advisers to Armada Funds |
|for which they receive an investment advisory fee. Past |
|performance is not indicative of future performance, and |
|the investment return will fluctuate, so that you may |
|have a gain or loss when you sell your shares. |
- ------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST
OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE TRUST
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
<PAGE> 3
ARMADA FUNDS
- --------------------------------------------------------------------------------
Oaks, Pennsylvania 19456 If you purchased your shares
through NatCity Investments, Inc.,
please call your Investment
Consultant for information.
For current performance, fund
information, account redemption
information, and to purchase shares,
please call 1-800-622-FUND (3863).
This Prospectus describes the Core Equity Fund (the "Fund") of Armada
Funds (the "Trust"):
CORE EQUITY FUND'S investment objective is to seek a total rate of
return, before Fund expenses, greater than that of the Standard & Poor's 500
Composite Stock Price Index (the "S&P 500"). The Fund invests in a diversified
portfolio of domestic common stocks of issuers with large capitalizations.
The net asset value per share of the Fund will fluctuate as the value
of its investment portfolio changes in response to changing market prices and
other factors.
National Asset Management Corporation ("NAM") serves as investment
adviser to the Fund (the "adviser").
SEI Investments Distribution Co. (the "Distributor") serves as the
Trust's sponsor and distributor. The Fund pays a fee to the Distributor for
distributing its shares. See "Distribution Agreement."
This Prospectus sets forth concisely the information about the Fund
that a prospective investor should consider before investing. Investors should
carefully read this Prospectus and retain it for future reference. Additional
information about the Fund, contained in a Statement of Additional Information,
has been filed with the Securities and Exchange Commission ("SEC") and is
available upon request without charge by contacting the Trust at its telephone
number or address shown above. The Statement of Additional Information bears the
same date as this Prospectus and is incorporated by reference in its entirety
into this Prospectus.
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SHARES OF THE TRUST ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED OR OTHERWISE SUPPORTED BY, NATIONAL CITY BANK, NATIONAL
ASSET MANAGEMENT CORPORATION, THEIR PARENT COMPANY OR ANY OF THEIR AFFILIATES,
AND ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, FEDERAL
DEPOSIT INSURANCE CORPORATION, OR ANY GOVERNMENTAL AGENCY OR STATE. INVESTMENT
IN THE TRUST INVOLVES RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
August 1, 1997
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<PAGE> 5
<TABLE>
<CAPTION>
EXPENSE TABLE
CORE CORE
EQUITY EQUITY
FUND FUND
RETAIL INSTITUTIONAL
SHARES(1, 2) SHARES(2)
------------ -------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge
Imposed on Purchases.................. 3.75% None
Sales Charge Imposed
on Reinvested Dividends............... None None
Deferred Sales Charge................... None None
Redemption Fee.......................... None None
Exchange Fee............................ None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net
assets)
Management Fees......................... 0.75% 0.75%
12b-1 Fees(3) (after fee waivers)....... 0.06% 0.06%
Other Expenses(4) (after fee waivers)... 0.42% 0.17%
----- -----
Total Fund Operating
Expenses(4) (after fee waivers)..... 1.23% 0.98%
===== =====
<FN>
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1 The Trust has implemented a Shareholder Services Plan (the "Services Plan")
with respect to Retail shares in the Fund. Pursuant to the Services Plan, the
Trust may enter into shareholder servicing agreements with certain financial
institutions under which they agree to provide shareholder administrative
services to their customers who beneficially own Retail shares in
consideration for the payment of up to .25% (on an annualized basis) of the
net asset value of Retail shares.
2 As of the date of this Prospectus, the Fund had not commenced investment
operations, and, therefore, the other expenses for this Fund are estimates
only.
3 Without fee waivers during the current fiscal year by the Administrator,
Other Expenses and Total Fund Operating Expenses would be 0.52% and 1.33%,
respectively, for the Retail Shares and 0.27% and 1.08%, respectively, for
the Institutional Shares of the Fund. Additionally, if the maximum
distribution fee permitted under the 12b-1 Plan were imposed, Total Fund
Operating Expenses would be 1.37% and 1.12% for the Retail and Institutional
Shares, respectively.
4 The Fund has in effect a 12b-1 Plan pursuant to which it may bear fees in an
amount of up to .10% of average daily net assets. As a result of the payment
of sales charges and 12b-1 fees, long-term shareholders may pay more than the
economic equivalent of the maximum front-end sales charge permitted by the
National Association of Securities Dealers, Inc. ("NASD"). The NASD has
adopted rules which generally limit the aggregate sales charges and payments
under the Trust's Service and Distribution Plan ("Distribution Plan") and
Services Plan to a certain percentage of total new gross share sales, plus
interest. The Trust would stop accruing 12b-1 and related fees if, to the
extent, and for as long as, such limit would otherwise be exceeded.
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</TABLE>
EXAMPLE
For example, you would pay the following expenses on a hypothetical $1,000
investment, assuming: (1) a 5% annual return (a hypothetical return required by
SEC regulations); (2) the redemption of your investment at the end of the
following time periods (the Fund does not charge a redemption fee); and (3) the
imposition of the maximum sales charge at the beginning of the period:
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<TABLE>
<CAPTION>
1 Year 3 Years
------ -------
<S> <C> <C>
Retail Shares...................................... $50 $75
Institutional Shares............................... $10 $31
</TABLE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE GREATER
OR LESS THAN THOSE SHOWN.
The purpose of this Expense Table is to assist an investor in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly. For more complete descriptions of these costs and
expenses, see "Financial Highlights," "Management of the Trust" and
"Distribution Agreement" in this Prospectus. Any fees that are charged by
affiliates of the adviser or other institutions directly to their customer
accounts for services related to an investment in Retail shares of the Fund are
in addition to and not reflected in the fees and expenses described above.
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INTRODUCTION
The Trust is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"). The Fund
consists of a pool of assets with investment objectives and policies as
described below under "Investment Objectives and Policies." The Fund is
classified as a diversified investment fund under the 1940 Act.
Shares of the Fund have been classified into two separate classes --
Retail shares and Institutional shares. Retail shares and Institutional shares
represent equal pro rata interests in the Fund except that, as described more
fully below under "Shareholder Services Plan," the Trust has implemented the
Services Plan with respect to Retail shares of the Fund. Under the Services
Plan, only the beneficial owners of Retail shares bear the expenses of
shareholder administrative services which are provided by financial institutions
for their benefit (not to exceed .25% annually). See "Shareholder Services
Plan," "Dividends and Distributions" and "Description of the Trust and Its
Shares" for a description of the impact that the Services Plan may have on
holders of Retail shares.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the Fund is to seek a total rate
of return greater than that of the S&P 500. The Fund seeks to achieve this
objective by investing in a diversified portfolio of common stocks of issuers
with large capitalizations. The Fund normally invests in three types of equity
securities: growth securities, defined as common stocks having a five-year
annual earnings-per-share growth rate of 10% or more, with no decline in the
annual earnings-per-share rate during the last five years; securities with low
price-to-earnings ratios (i.e., at least 20% below the average of the companies
included in the S&P 500); and securities that pay high dividend yields (i.e., at
least 20% above such average). The two components of total rate of return are
current income and change in the value of portfolio securities. Under normal
market conditions the Fund will invest 20% to 50% of its total assets in each of
these three types of stocks. The Fund may also invest in preferred stock,
warrants and securities convertible into common stock. The Fund may also invest
up to 20% of its total assets at the time of purchase in American Depository
Receipts ("ADRs") and securities issued by foreign entities. The Fund's
investment objective and investment policies may be changed without a vote of
shareholders. There can be no assurance that the Fund will achieve its
objective.
The S&P 500 is an index composed of approximately 500 common stocks,
most of which are listed on the New York Stock Exchange (the "NYSE"). The
adviser believes that the S&P 500 is
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<PAGE> 8
an appropriate benchmark for the Portfolio because it is diversified, it is
familiar to many investors and it is widely accepted as a reference for common
stock investments.
Standard & Poor's Ratings Group is not a sponsor of, or in any way
affiliated with, the Fund.
In order to meet liquidity needs, the Fund may hold cash reserves,
and may, for temporary defensive purposes, invest up to 100% of its assets in
Short Term obligations (as described below).
OTHER INVESTMENT POLICIES
Investment methods described in this Prospectus are among those which
the Fund has the power to utilize. Some may be employed on a regular basis;
others may not be used at all. Accordingly, reference to any particular method
or technique carries no implication that it will be utilized or, if it is, that
it will be successful.
Short Term Obligations
During temporary defensive periods the Fund may invest up to 100% of
its assets in short term obligations (with maturities of 18 months or less) such
as domestic commercial paper, bankers' acceptances, certificates of deposit and
demand and time deposits of domestic and foreign branches of U.S. banks, U.S.
Government securities, and repurchase agreements. In the case of repurchase
agreements, in which the Fund purchases securities subject to the seller's
agreement to repurchase them at an agreed upon time and price, default or
bankruptcy of the seller may expose a Fund to possible loss because of adverse
market action or delays connected with the disposition of the underlying
obligations. Further, it is uncertain whether the Fund would be entitled, as
against a claim by such seller or its receiver or trustee in bankruptcy, to
retain the underlying securities. For further information, see "Investment
Objectives and Policies" in the Statement of Additional Information.
Foreign Securities and American Depository Receipts
The Fund may invest in securities issued by foreign issuers either
directly or indirectly through investments in ADRs. ADRs are receipts issued by
an American bank or trust company evidencing ownership of underlying securities
issued by foreign issuers. ADRs may be listed on a national securities exchange
or may be traded in the over-the-counter market. ADR prices are denominated in
U.S. dollars; the underlying security may be denominated in a foreign currency.
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<PAGE> 9
Investments in foreign securities involve certain inherent risks,
such as political or economic instability of the issuer or the country of issue,
the difficulty of predicting international trade patterns, changes in exchange
rates of foreign currencies and the possibility of adverse changes in investment
or exchange control regulations. There may be less publicly available
information about a foreign company than about a domestic company. Foreign
companies generally are not subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
companies. Further, foreign stock markets are generally not as developed or
efficient as those in the U.S., and in most foreign markets volume and liquidity
are less than in the U.S. Fixed commissions on foreign stock exchanges are
generally higher than the negotiated commissions on U.S. exchanges, and there is
generally less government supervision and regulation of foreign stock exchanges,
brokers and companies than in the U.S. With respect to certain foreign
countries, there is a possibility of expropriation or confiscatory taxation,
limitations on the removal of funds or other assets, or diplomatic developments
that could affect investment within those countries. Because of these and other
factors, securities of foreign companies acquired by the Funds may be subject to
greater fluctuation in price than securities of domestic companies. For further
information, see "Investment Objectives and Policies" in the Statement of
Additional Information.
Securities of Other Investment Companies
Subject to 1940 Act limitations, the Fund may invest in securities
issued by other investment companies which invest in high quality, short-term
debt securities and which determine their net asset value per share based on the
amortized cost or penny-rounding method. The Fund may also purchase shares of
investment companies investing primarily in foreign securities, including so
called "country funds" which have portfolios consisting exclusively of
securities of issuers located in one foreign country. As a shareholder of
another investment company, the Fund would bear, along with other shareholders,
its pro rata portion of that company's expenses, including advisory fees. These
expenses would be in addition to the advisory and other expenses that the Fund
bears directly in connection with its own operations. Investment companies in
which the Fund may invest may also impose a sales or distribution charge in
connection with the purchase or redemption of their shares and other types of
commissions or charges. Such charges will be payable by the Fund and, therefore,
will be borne indirectly by its shareholders. For further information, see "Risk
Factors, Investment Objectives and Policies" in the Statement of Additional
Information.
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<PAGE> 10
INVESTMENT LIMITATIONS
The Fund is subject to a number of investment limitations. The
following investment limitations are matters of fundamental policy and may not
be changed without the affirmative vote of the Fund's outstanding shares (as
defined under "Miscellaneous"). (Other investment limitations that also cannot
be changed without a vote of shareholders are contained in the Statement of
Additional Information under "Investment Objectives and Policies.")
The Fund may not:
1. Purchase any securities which would cause 25% or more of the value
of its total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the same
industry, provided that
(a) there is no limitation with respect to obligations issued or
guaranteed by the U.S. government, any state, territory or possession of the
United States, the District of Columbia or any of their authorities, agencies,
instrumentalities or political subdivisions, and repurchase agreements secured
by such instruments
(b) wholly-owned finance companies will be considered to be in
the industries of their parents if their activities are primarily related to
financing the activities of the parents
(c) utilities will be divided according to their services, for
example, gas, gas transmission, electric and gas, electric and telephone will
each be considered a separate industry
(d) personal credit and business credit businesses will be
considered separate industries
2. Make loans, except that it may purchase and hold debt instruments
and enter into repurchase agreements in accordance with its investment objective
and policies and may lend portfolio securities in an amount not exceeding
one-third of its total assets.
3. Borrow money, issue senior securities or mortgage, pledge or
hypothecate its assets except to the extent permitted under the 1940 Act.
4. Purchase securities of any one issuer, other than securities
issued or guaranteed by the U.S. government or its agencies or
instrumentalities, if, immediately after such
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<PAGE> 11
purchase, more than 5% of the value of the Fund's total assets would be invested
in such issuer or the Fund would hold more than 10% of any class of securities
of the issuer or more than 10% of the outstanding voting securities of the
issuer, except that up to 25% of the value of the Fund's total assets may be
invested without regard to such limitations.
Generally, if a percentage limitation is satisfied at the time of
investment, a later increase or decrease in such percentage resulting from a
change in the value of a Fund's portfolio securities will not constitute a
violation of such limitation for purposes of the 1940 Act.
For purposes of investment limitation No. 1 the Fund treats, as a
matter of non-fundamental policy that may be changed without a vote of
shareholders, all supranational organizations as a single industry and each
foreign government (and all of its agencies) as a separate industry.
PERFORMANCE INFORMATION
From time to time, the Trust may provide in advertisements or in
reports to shareholders the Fund's total return data for its Institutional
shares and Retail shares.
The Fund calculates its total return for each class of shares on an
"average annual total return" basis for various periods from the date of
commencement of investment operations and for other periods as permitted under
the rules of the SEC. Average annual total return reflects the average annual
percentage change in value of an investment in the class over the measuring
period. Total returns for each class of shares may also be calculated on an
"aggregate total return" basis for various periods. Aggregate total return
reflects the total percentage change in value over the measuring period. Both
methods of calculating total return reflect changes in the price of the shares
and assume that any dividends and capital gain distributions made by the Fund
with respect to a class during the period are reinvested in shares of that
class. When considering average total return figures for periods longer than one
year, it is important to note that the annual total return of a class for any
one year in the period might have been greater or less than the average for the
entire period. The Fund may also advertise, from time to time, the total returns
of one or more classes of shares on a year-by-year or other basis for various
specified periods by means of quotations, charts, graphs or schedules.
Investors may compare the performance of each class of shares of the
Fund to the performance of other mutual funds with comparable investment
objectives, to various mutual fund or market indices, such as the S&P 500, and
to data or rankings prepared by independent services such as Lipper Analytical
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<PAGE> 12
Services, Inc. or other financial or industry publications that monitor the
performance of mutual funds. Comparisons may also be made to indices or data
published in Money Magazine, Forbes, Barron's, The Wall Street Journal, The New
York Times, Business Week, U.S.A. Today, CDA/Weisenberger, The American Banker,
Morningstar, Incorporated and other publications of a local, regional or
financial industry nature.
The past performance of each class of shares of the Fund is based on
historical earnings and is not intended to indicate future performance. The
investment return and principal value of an investment in a class will fluctuate
so that an investor's shares, when redeemed, may be worth more or less than
their original cost. Performance data may not provide a basis for comparison
with bank deposits and other investments which provide a fixed yield for a
stated period of time. Changes in the net asset value of a class should be
considered in ascertaining the total return to shareholders for a given period.
Yield and total return data should also be considered in light of the risks
associated with the Fund's portfolio composition, quality, maturity, operating
expenses and market conditions. Any fees charged by financial institutions (as
described in "How to Purchase and Redeem Shares") are not included in the
computation of performance data but will reduce a shareholder's net return on an
investment in the Fund.
Further information about the performance of the Fund is available in
the annual and semi-annual reports to shareholders. Shareholders may obtain
these materials from the Trust free of charge by calling 1-800-622-FUND (3863).
PRICING OF SHARES
For purposes of pricing purchases and redemption orders, the net
asset value per share of the Fund is calculated as of the close of trading on
the New York Stock Exchange (the "Exchange") (generally, 4:00 p.m. Eastern
Time). Net asset value per share is determined on each business day, except
those holidays which the Exchange, or banks and trust companies which are
affiliated with National City Corporation (the "Banks"), observe (currently New
Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day,
Thanksgiving Day and Christmas Day) ("Business Day"). Net asset value per share
of a particular class in the Fund is calculated by dividing the value of all
securities and other assets belonging to the Fund allocable to such class, less
the liabilities charged to that class, by the number of the outstanding shares
of that class.
The Fund's investments in securities for which market quotations are
readily available are valued at their market
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<PAGE> 13
values determined on the basis of closing sales prices, if the principal market
is an exchange, or the mean between their current available bid and asked
prices, for unlisted securities, or for securities traded on a national
securities market. Securities and other assets for which quotations are not
readily available are valued at their fair value under procedures approved by
the Board of Trustees. Absent unusual circumstances, short-term investments
having maturities of 60 days or less are valued on the basis of amortized cost
unless the Trust's Board of Trustees determines that this does not represent
fair value. The net asset value per share of each class of shares of the Fund
will fluctuate as the value of its investment fund changes.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by the Trust's
sponsor and distributor. The Distributor is a registered broker/dealer with
principal offices located at Oaks, Pennsylvania 19456.
From time to time, the Distributor, at its expense, may offer
promotional incentives to dealers. As of the date of this Prospectus, the
Distributor intends to offer certain promotional incentives, including trips and
monetary awards, to NatCity Investments, Inc. and other affiliates of National
City.
PURCHASE OF RETAIL SHARES
Retail shares are sold to the public ("Investors") primarily through
financial institutions such as banks, brokers and dealers. Investors may
purchase Retail shares directly in accordance with the procedures set forth
below or through procedures established by their financial institutions in
connection with the requirements of their accounts.
Financial institutions may charge certain account fees depending on
the type of account the Investor has established with the institution. (For
information on such fees, the Investor should review his agreement with the
institution or contact it directly.) In addition, certain financial institutions
may enter into shareholder servicing agreements with the Trust whereby a
financial institution would perform various administrative support services for
its customers who are the beneficial owners of Retail shares and would receive
fees from the Fund for such services of up to .25% (on an annualized basis) of
the average daily net asset value of such shares. See "Shareholder Services
Plan." To purchase shares, Investors should call 1-800-622-FUND (3863) or visit
their local NatCity Investments, Inc. office:
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<PAGE> 14
Akron 1-800-229-0295
Cleveland 1-800-624-6450
Columbus 1-800-345-0278
Dayton 1-800-755-8723
Indianapolis 1-800-826-2868
Louisville 1-800-727-5656
Pittsburgh 1-800-282-1078
Toledo 1-800-331-8275
Youngstown 1-800-742-4098
Shares may be purchased in conjunction with an individual retirement
account ("IRA") and rollover IRAs where a designated custodian acts as
custodian. Investors should contact NatCity Investments, Inc., the Distributor
or their financial institutions for information as to applications and annual
fees. Investors should also consult their tax advisers to determine whether the
benefits of an IRA are available or appropriate.
The minimum investment for the initial purchase of Retail shares in
each Fund is $2,500, except for purchases for an IRA or other retirement plan in
which event the minimum initial investment is $500. All subsequent investments
for Retail shares and IRAs are subject to a minimum investment of $250.
Investments made in Retail shares through a monthly savings program described
below are not subject to the minimum initial and subsequent investment
requirements or any minimum account balance requirements described in "Other
Redemption Information." Purchases for an IRA through the monthly savings
program will be considered as contributions for the year in which the purchases
are made.
Under a monthly savings program, Investors may add to their
investment in the Retail shares of a Fund, in a consistent manner twice each
month, with a minimum amount of $50 per month. Monies may be automatically
withdrawn from a shareholder's checking or savings account available through an
Investor's financial institution and invested in additional Retail shares at the
Public Offering Price next determined after an order is received by the Trust.
An Investor may apply for participation in a monthly program by completing an
application obtained through a financial institution, such as banks, brokers, or
dealers selling Retail shares of the Fund, or by calling 1-800-622-FUND (3863).
The program may be modified or terminated by an Investor on 30 days written
notice or by the Trust at any time.
All shareholders of record will receive confirmations of share
purchases and redemptions. Financial institutions will be responsible for
transmitting purchase and redemption orders to the Trust's transfer agent, State
Street Bank and Trust Company (the "Transfer Agent"), on a timely basis.
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<PAGE> 15
The Trust reserves the right to reject any purchase order.
SALES CHARGES APPLICABLE TO PURCHASES OF RETAIL SHARES
The Public Offering Price for Retail shares of the Fund is the sum of
the net asset value of the shares being purchased plus any applicable sales
charge per account, which is assessed as follows:
<TABLE>
<CAPTION>
As a % As a % Dealers'
of offering of net Reallowance
price per asset value as a % of
Amount of Transaction share per share offering price
- --------------------- ----- --------- --------------
<S> <C> <C> <C>
Less than $100,000 3.75 3.90 3.75
$100,000 but less
than $250,000 2.75 2.83 2.75
$250,000 but less
than $500,000 2.00 2.04 2.00
$500,000 but less
than $1,000,000 1.25 1.27 1.25
$1,000,000 or more 0.00 0.00 0.00
</TABLE>
Under the 1933 Act, the term "underwriter" includes persons who offer
or sell for an issuer in connection with the distribution of a security or have
a direct or indirect participation in such undertaking, but excludes persons
whose interest is limited to a commission from an underwriter or dealer not in
excess of the usual and customary distributors' or sellers' commission. The
Staff of the SEC has expressed the view that persons who receive 90% or more of
a sales load may be deemed to be underwriters within the meaning of this
definition. The Dealers' Reallowance may be changed from time to time.
No sales charge will be assessed on purchases of Retail shares made
by:
(a) trustees and officers of the Trust
(b) directors, employees and participants in employee
benefit/retirement plans (annuitants) of National City Corporation or
any of its affiliates
(c) the spouses, children, grandchildren, and parents of individuals
referred to in clauses (a) and (b) above
(d) qualified retirement plans purchasing shares through NatCity
Investments, Inc.
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<PAGE> 16
(e) individuals investing in the Fund by way of a direct transfer or
a rollover from a qualified plan distribution and subsequent
transactions into the same account where affiliates of National City
Corporation are serving as a trustee or agent
(f) investors purchasing Fund shares through a payroll deduction
plan
(g) individuals investing in the Fund by way of an asset allocation
program sponsored by financial institutions, although certain
account level fees may apply
REDUCED SALES CHARGES APPLICABLE TO PURCHASES OF RETAIL SHARES
The applicable sales charge may be reduced on purchases of Retail
shares of the Fund made under the Right of Accumulation or Letter of Intent, as
described below. To qualify for a reduced sales charge, Investors must so
notify their financial institutions or the Trust directly by calling
1-800-622-FUND (3863) at the time of purchase. Reduced sales charges may be
modified or terminated at any time and are subject to confirmation of an
Investor's holdings.
Right of Accumulation.
Investors may use their aggregate investments in Retail shares in
determining the applicable sales charge. An Investor's aggregate investment in
Retail shares is the total value (based on the higher of current net asset value
or any Public Offering Price originally paid) of
(a) current purchases
(b) Retail shares that are already beneficially owned by the
Investor for which a sales charge has been paid
(c) Retail shares that are already beneficially owned by the
Investor which were purchased prior to July 22, 1990
(d) Retail shares purchased by dividends or capital gains that are
reinvested
If, for example, an Investor beneficially owns Retail shares of the
Fund with an aggregate current value of $90,000 and subsequently purchases
Retail shares of the Fund having a current value of $10,000, the sales charge
applicable to the subsequent purchase would be reduced to 2.75% of the Public
Offering Price.
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<PAGE> 17
Letter of Intent.
An Investor may qualify for a reduced sales charge immediately upon
signing a nonbinding Letter of Intent stating the Investor's intention to invest
during the next 13 months a specified amount which, if made at one time, would
qualify for a reduced sales charge. The Letter of Intent option is included on
the account application which may be obtained from the Investor's financial
institution or directly from the Trust by calling 1-800-622-FUND (3863). If an
Investor so elects, the 13-month period may begin up to 30 days prior to the
Investor's signing the Letter of Intent. The initial investment under the Letter
of Intent must be equal to at least 4.0% of the amount indicated in the Letter
of Intent. During the term of a Letter of Intent, the Transfer Agent will hold
Retail shares representing 4.0% of the amount indicated in the Letter of Intent
in escrow for payment of a higher sales charge if the entire amount is not
purchased. Upon completing the purchase of the entire amount indicated in the
Letter of Intent, the escrowed shares will be released. If the entire amount is
not purchased within the 13-month period or is redeemed within one year from the
time of fulfillment, the Investor will be required to pay an amount equal to the
difference in the dollar amount of sales charge actually paid and the amount of
sales charge the Investor would have had to pay on the aggregate purchases if
the total of such purchases had been made at a single time.
PURCHASE OF INSTITUTIONAL SHARES
Institutional shares are sold primarily to the Banks and NAM
customers ("Customers") that are large institutions. Institutional shares are
sold without a sales charge imposed by the Trust or the Distributor. However,
depending on the terms governing the particular account, the Banks or NAM may
impose account charges such as account maintenance fees, compensating balance
requirements or other charges based upon account transactions, assets or income
which will have the effect of reducing the shareholder's net return on his
investment in the Fund. There is no minimum investment.
It is the responsibility of the Banks and NAM to transmit their
Customers' purchase orders to the Transfer Agent and to deliver required funds
on a timely basis, in accordance with the procedures stated above. Institutional
shares will normally be held of record by the Banks or NAM. Confirmations of
share purchases and redemptions will be sent to the Banks and NAM. Beneficial
ownership of Institutional shares will be recorded by the Banks or NAM and
reflected in the account statements provided by them to their Customers.
The Trust reserves the right to reject any purchase order.
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<PAGE> 18
EFFECTIVE TIME OF PURCHASES
Purchase orders for shares of the Fund which are received by the
Transfer Agent prior to 4:00 p.m. (Eastern Time) on any Business Day are priced
according to the net asset value per share determined on that day plus any
applicable sales charge (the "Public Offering Price"). Immediately available
funds must be received by the Trust's custodian prior to 2:00 p.m. (Eastern
Time) on the third Business Day following the receipt of such order, at which
time the order will be executed. If funds are not received by such date, the
order will not be accepted and notice thereof will be given to the Bank or
financial institution placing the order. Purchase orders for which payment has
not been received or accepted will be returned after prompt inquiry to the
sending Bank or institution.
REDEMPTION OF RETAIL SHARES
Redemption orders must be placed in writing or by telephone to the
same financial institution that placed the original purchase order. It is the
responsibility of the financial institutions to transmit redemption orders to
the Transfer Agent. Investors who purchased shares directly from the Trust may
redeem shares in any amount by calling 1-800-622-FUND (3863). Redemption
proceeds are paid by check or credited to the Investor's account with his
financial institution.
REDEMPTION OF INSTITUTIONAL SHARES
Customers may redeem all or part of their Institutional shares in
accordance with instructions and limitations pertaining to their accounts at the
Banks or NAM. It is the responsibility of the Banks or NAM to transmit
redemption orders to the Transfer Agent and credit their Customers' accounts
with the redemption proceeds on a timely basis. Redemption orders are effected
at the net asset value per share next determined after receipt of the order by
the Transfer Agent. No charge for wiring redemption payments is imposed by the
Trust, although the Banks or NAM may charge their Customers' accounts for
services. Information relating to such services and charges, if any, is
available from the Banks or NAM.
If a Customer has agreed with a particular Bank to maintain a minimum
balance in his account at the Bank and the balance in such account falls below
that minimum, the Customer may be obliged to redeem all or part of his
Institutional shares to the extent necessary to maintain the required minimum
balance. Customers who have instructed that automatic purchases and redemptions
be made for their accounts receive monthly confirmations of share transactions.
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<PAGE> 19
WRITTEN REDEMPTION PROCEDURES
A shareholder of record may redeem shares in any amount by sending a
written request to Armada Funds, P.O. Box 8421, Boston, Massachusetts
02266-8421. Redemption requests must be signed by each shareholder, including
each joint owner on redemption requests for joint accounts, in the exact manner
as the Fund account is registered, and must state the number of shares or the
amount to be redeemed and identify the shareholder account number and tax
identification number. For a redemption amount of $10,000 or more, each
signature on the written request must be guaranteed by a commercial bank or
trust company which is a member of the Federal Reserve System or FDIC, a member
firm of a national securities exchange or a savings and loan association. A
signature guaranteed by a savings bank or notarized by a notary public is not
acceptable. For a redemption amount of less than $10,000, no signature guarantee
is needed. The Trust may require additional supporting documents for redemptions
made by corporations, fiduciaries, executors, administrators, trustees,
guardians and institutional investors.
TELEPHONE REDEMPTION PROCEDURES
A shareholder of record may redeem shares in any amount by calling
1-800-622-FUND (3863) provided the appropriate election was made on the
shareholder's account application.
During periods of unusual economic or market changes, telephone
redemptions may be difficult to implement. In such event, shareholders should
mail their redemption requests to their financial institutions or Armada Funds
at the address shown above. Neither the Trust nor its Transfer Agent will be
responsible for the authenticity of instructions received by telephone that are
reasonably believed to be genuine. In attempting to confirm that telephone
instructions are genuine, the Trust and its Transfer Agent will use such
procedures as are considered reasonable, including recording those instructions
and requesting information as to account registration (such as the name in which
an account is registered, the account number and recent transactions in the
account). To the extent that the Trust and its Transfer Agent fail to use
reasonable procedures to verify the genuineness of telephone instructions, they
may be liable for such instructions that prove to be fraudulent and
unauthorized. In all other cases, shareholders will bear the risk of loss for
fraudulent telephone transactions. The Trust reserves the right to refuse a
telephone redemption if it believes it is advisable to do so. Procedures for
redeeming Retail shares by telephone may be modified or terminated at any time
by the Trust or the Transfer Agent.
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<PAGE> 20
OPTION TO MAKE SYSTEMATIC WITHDRAWALS
The Trust has available a Systematic Withdrawal Plan (the "Plan") for
a shareholder who owns shares of any fund of the Trust held on the Transfer
Agent's system. The Plan allows the shareholder to have a fixed minimum sum of
$250 distributed at regular intervals. The shareholder's account must have a
minimum value of $5,000 to be eligible for the Plan. Additional information
regarding this service may be obtained from an Investor's financial institution
or the Transfer Agent at 1-800-622-FUND (3863).
OTHER REDEMPTION INFORMATION
Due to the relatively high cost of maintaining small accounts, the
Trust reserves the right to redeem, at net asset value, any account maintained
by a shareholder that has a value of less than $1,000 due to redemptions where
the shareholder does not increase the amount in the account to at least $1,000
upon 60 days' notice.
If any portion of the shares to be redeemed represents an investment
made by personal check, the Trust reserves the right to delay payment of the
redemption proceeds until the Transfer Agent is reasonably satisfied that the
check has been collected, which could take up to 15 calendar days from the date
of purchase. A shareholder who anticipates the need for more immediate access to
his investment should purchase shares by federal funds, bank wire, certified or
cashier's check. Financial institutions normally impose a charge in connection
with the use of bank wires, as well as certified checks, cashier's checks and
federal funds.
Payment to shareholders for shares redeemed will be made within seven
days after receipt of the request for redemption or such shorter time period as
may be required by the Securities Exchange Act of 1934.
EXCHANGE PRIVILEGE APPLICABLE TO RETAIL SHARES
The Trust offers an exchange program whereby Investors who have paid
a sales charge to purchase Retail shares of the Fund or another investment
portfolio of the Trust (each a "load Fund") may exchange those Retail shares for
Retail shares of another load Fund offered by the Trust, or another investment
fund offered by the Trust without the imposition of a sales charge (each a "no
load Fund") at the net asset value per share on the date of exchange, provided
that such other Retail shares may be legally sold in the state of the
shareholder's residence. As a result, no additional sales charge will be
incurred with respect to such an exchange.
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<PAGE> 21
Shareholders may also exchange Retail shares of a no load Fund for
Retail shares of another no load Fund at the net asset value per share without
payment of a sales charge.
In addition, shareholders of a no load Fund may exchange Retail
shares for Retail shares of a load Fund subject to payment of the applicable
sales charge. However, shareholders exchanging Retail shares of a no load Fund
which were received in a previous exchange transaction involving Retail shares
of a load Fund will not be required to pay an additional sales charge upon
notification of the reinvestment of the equivalent amount into the Retail shares
of a load Fund.
Shareholders contemplating an exchange should carefully review the
Prospectus of the fund into which the exchange is being considered. An Armada
Funds Prospectus may be obtained from NatCity Investments, Inc., an Investor's
financial institution, or by calling 1-800-622-FUND (3863).
Any Retail shares exchanged must have a value at least equal to the
minimum initial investment required by the particular investment fund into which
the exchange is being made. Investors should make their exchange requests in
writing or by telephone to the financial institutions through which they
purchased their original Retail shares. It is the responsibility of financial
institutions to transmit exchange requests to the Transfer Agent. Investors who
purchased shares directly from the Trust should transmit exchange requests
directly to the Transfer Agent. Exchange requests received by the Transfer Agent
prior to 4:00 p.m. (Eastern Time) will be processed as of the close of business
on the day of receipt; requests received by the Transfer Agent after 4:00 p.m.
(Eastern Time) will be processed on the next Business Day. The Trust reserves
the right to reject any exchange request. During periods of unusual economic or
market changes, telephone exchanges may be difficult to implement. In such
event, an Investor should mail the exchange request to his financial
institution, and an Investor who directly purchased shares from the Trust should
mail the exchange request to the Transfer Agent. The exchange privilege may be
modified or terminated at any time upon 60 days notice to shareholders.
SYSTEMATIC EXCHANGE PROGRAM APPLICABLE TO RETAIL SHARES
Shares of a Fund may also be purchased through automatic monthly
deductions from a shareholder's account from any Armada money market fund. Under
a systematic exchange program, a shareholder enters an agreement to purchase
shares of one or more specified funds over a specified period of time, and
initially purchases shares of one Armada money market fund in an amount equal to
the total amount of the investment. On a monthly basis, a specified dollar
amount of shares of the Armada money market fund is exchanged for shares of the
Funds specified.
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<PAGE> 22
The systematic exchange program of investing a fixed dollar amount at
regular intervals over time has the effect of reducing the average cost per
share of the Funds. This effect also can be achieved through the systematic
investment program described previously in this prospectus. Because purchases of
Retail Shares are subject to an initial sales charge, it may be beneficial for
an investor to execute a Letter of Intent in connection with the systematic
exchange program. A shareholder may apply for participation in this program
through his or her financial institution or by calling 1-800-622-FUND (3863).
DISTRIBUTION AGREEMENT
Under the Trust's Distribution Agreement and related Distribution
Plan adopted pursuant to Rule 12b-1 under the 1940 Act, the Trust compensates
the Distributor monthly for the direct and indirect expenses incurred by the
Distributor for services provided and expenses assumed in providing such fund
advertising, marketing, prospectus printing and other distribution services up
to a maximum of .10% per annum of the average net assets of the fund, inclusive
of an annual base fee of $1,250,000 plus incentive fees related to asset growth.
Such fees are payable monthly and accrued daily among the investment funds with
respect to which the Distributor is distributing shares.
SHAREHOLDER SERVICES PLAN
The Trust has implemented the Services Plan with respect to Retail
shares of the Fund. Pursuant to the Services Plan, the Trust enters into
shareholder servicing agreements with certain financial institutions pursuant to
which the institutions render shareholder administrative services to their
customers who are the beneficial owners of Retail shares of the Fund in
consideration for the payment of up to .25% (on an annualized basis) of the
average daily net asset value of such shares. Persons entitled to receive
compensation for servicing Retail shares may receive different compensation with
respect to those shares than with respect to Institutional shares in the same
Fund. Shareholder administrative services may include aggregating and processing
purchase and redemption orders, processing dividend payments from the Trust on
behalf of customers, providing information periodically to customers showing
their position in Retail shares, and providing sub-transfer agent services or
the information necessary for subaccounting, with respect to Retail shares
beneficially owned by customers. Since financial institutions may charge their
customers fees depending on the type of customer account the Investor has
established, beneficial owners of Retail shares should read this Prospectus in
light of the terms and fees governing their accounts with financial
institutions.
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<PAGE> 23
DIVIDENDS AND DISTRIBUTIONS
Dividends from the net investment income of the Fund are declared
daily and paid quarterly. Any net realized capital gains will be distributed at
least annually. Dividends and distributions will reduce the Fund's net asset
value per share by the per share amount thereof.
Shareholders may elect to have their dividends reinvested in
additional full and fractional Fund shares of the same class or series at the
net asset value of such shares on the payment date. Shareholders must make such
election, or any revocation thereof, in writing to his Bank or financial
institution. The election will become effective with respect to dividends and
distributions paid after its receipt.
Under the Services Plan, the amount of the Fund's net investment
income available for distribution to the holders of Retail shares is reduced by
the amount of shareholder servicing fees payable to financial institutions under
the Services Plan.
TAXES
The Fund intends to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986, as amended (the "Code"). Such qualification
generally relieves the Fund of liability for federal income taxes to the extent
its earnings are distributed in accordance with the Code.
Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that the Fund distribute to its
shareholders an amount equal to at least the sum of 90% of its investment
company taxable income and 90% of its tax-exempt interest income (if any) net of
certain deductions for such year. In general, the Fund's investment company
taxable income will be its taxable income (including any dividends, interest and
short-term capital gains) subject to certain adjustments and excluding the
excess of any net long-term capital gain for the taxable year over the net
short-term capital loss, if any, for such year. The Fund intends to distribute
substantially all of its investment company taxable income and net tax-exempt
income each taxable year. Such distributions by the Fund will be taxable as
ordinary income to its shareholders who are not currently exempt from federal
income taxes, whether such income is received in cash or reinvested in
additional shares. (Federal income taxes for distributions to an IRA or to a
qualified retirement plan are deferred under the Code.) For corporate
shareholders, the dividends received deduction will apply to such distributions
to the extent of the gross amount of
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<PAGE> 24
qualifying dividends received by the Fund from domestic corporations for the
taxable year.
Substantially all of the Fund's net realized long-term capital gains,
if any, will be distributed at least annually to Fund shareholders. The Fund
generally will have no tax liability with respect to such gains, and the
distributions will be taxable to Fund shareholders who are not currently exempt
from federal income taxes as long-term capital gains, regardless of how long the
shareholders have held Fund shares and whether such gains are received in cash
or reinvested in additional shares.
Dividends declared in December of any year payable to shareholders of
record on a specified date in such month will be deemed to have been received by
shareholders and paid by the Fund on December 31 of such year in the event such
dividends are actually paid during January of the following year.
Prior to purchasing Fund shares, the impact of dividends or
distributions which are expected to be declared or have been declared, but not
paid, should be carefully considered. Any dividend or distribution paid shortly
after a purchase of shares prior to the record date will have the effect of
reducing the per share net asset value by the per share amount of the dividend
or distribution. All or a portion of such dividend or distribution, although in
effect a return of capital, may be subject to tax.
A taxable gain or loss may be realized by a shareholder upon his
redemption, transfer or exchange of Fund shares depending upon the tax basis of
such shares and their price at the time of redemption, transfer or exchange. If
a shareholder has held shares for six months or less and during that time
received a distribution taxable as a long-term capital gain, then any loss the
shareholder might realize on the sale of those shares will be treated as a
long-term capital loss to the extent of the earlier capital gain distribution.
Generally, a shareholder may include sales charges incurred upon the purchase of
Fund shares in his tax basis for such shares for the purpose of determining gain
or loss on a redemption, transfer or exchange of such shares. However, if the
shareholder effects an exchange of such shares for shares of another Fund within
90 days of the purchase and is able to avoid the sales charges applicable to the
new shares (by virtue of the Trust's exchange privilege), the original sales
charges will be included in the tax basis of the new shares rather than the
exchanged shares.
Shareholders of the Fund will be advised at least annually as to the
federal income tax consequences of distributions made to them each year.
Shareholders are advised to consult their tax advisers concerning the
application of state
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<PAGE> 25
and local taxes which may differ from federal tax consequences described above.
The foregoing discussion is based on tax laws and regulations which
were in effect as of the date of this Prospectus; such laws and regulations may
be changed by legislative or administrative actions. The foregoing summarizes
some of the important tax considerations generally affecting the Fund and its
shareholders and is not intended as a substitute for careful tax planning.
Accordingly, potential investors should consult their tax advisers with specific
reference to their own tax situation.
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES
The business and affairs of the Trust are managed under the direction
of the Trust's Board of Trustees. The trustees of the Trust, their addresses,
principal occupations during the past five years, other affiliations, and the
compensation paid by the Trust and the fees and reimbursed expenses they receive
in connection with each meeting of the Board of Trustees they attend are
included in the Statement of Additional Information.
INVESTMENT ADVISER
NAM serves as the investment adviser to the Fund. The adviser is a
wholly owned subsidiary of National City Corporation. The adviser is a
registered investment adviser providing investment advisory and related
services.
On May 31, 1997, NAM managed over $7.1 billion for a diverse group of
108 clients. NAM has its principal offices at 101 South Fifth Street,
Louisville, Kentucky 40202.
Subject to the general supervision of the Trust's Board of Trustees
and in accordance with the Fund's investment policies, the adviser has agreed to
manage the Fund, make decisions with respect to and place orders for all
purchases and sales of the Fund's securities, and maintain the Fund's records
relating to such purchases and sales.
For the services provided and expenses assumed pursuant to the
Advisory Agreement relating to the Fund, the adviser is entitled to receive an
advisory fee, computed daily and payable monthly, at the annual rate of .35% of
the average net assets of the Fund. Shareholders should note that these fees are
higher than those payable by other investment companies. The adviser may from
time to time waive all or a portion of its advisory fees
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<PAGE> 26
to increase the net income of the Fund available for distribution as dividends.
ADMINISTRATOR
PFPC Inc. ("PFPC"), located at 400 Bellevue Parkway, Wilmington,
Delaware 19809, serves as the administrator to the Fund. PFPC is an indirect,
wholly-owned subsidiary of PNC Bank Corp., a multi-bank holding company.
Under its Administration and Accounting Services Agreement with the
Trust, PFPC has agreed to provide the following services with respect to the
Fund: statistical data, data processing services and accounting and bookkeeping
services; prepare tax returns and certain reports filed with the SEC; assist in
the preparation of reports to shareholders and the preparation of the Trust's
registration statement; maintain the required fidelity bond coverage; calculate
the Fund's net asset value per share, net income, and realized capital gains
(losses); and generally assist the Fund with respect to all aspects of its
administration and operation. PFPC is entitled to receive with respect to the
Fund an administrative fee, computed daily and paid monthly, at the annual rate
of .10% of the first $200,000,000 of its net assets, .075% of the next
$200,000,000 of its net assets, .045% of the next $200,000,000 of its net assets
and .02% of its net assets over $600,000,000 and is entitled to be reimbursed
for its out-of-pocket expenses incurred on behalf of the Fund.
DESCRIPTION OF THE TRUST AND ITS SHARES
The Trust was organized as a Massachusetts business trust on January
28, 1986. The Trust is a series fund authorized to issue 40 separate classes or
series of shares of beneficial interest ("shares"). Two of these classes or
series, which represent interests in the Fund (Class W and Class W - Special
Series 1) are described in this Prospectus. Class W shares constitute the
Institutional class or series of shares; and Class W - Special Series 1 shares
constitute the Retail class or series of shares. The other Funds of the Trust
are:
Money Market Fund
(Class A and Class A - Special Series 1)
Government Fund
(Class B and Class B - Special Series 1)
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<PAGE> 27
Treasury Fund
(Class C and Class C - Special Series 1)
Tax Exempt Fund
(Class D and Class D - Special Series 1)
Equity Growth Fund
(Class H and Class H - Special Series 1)
Fixed Income Fund
(Class I and Class I - Special Series 1)
Ohio Tax Exempt Fund
(Class K and Class K - Special Series 1)
National Tax Exempt Fund
(Class L and Class L - Special Series 1)
Equity Income Fund
(Class M and Class M - Special Series 1)
Mid Cap Regional Fund
(Class N and Class N - Special Series 1)
Enhanced Income Fund
(Class O and Class O - Special Series 1)
Total Return Advantage Fund
(Class P and Class P - Special Series 1)
Pennsylvania Tax Exempt Fund
(Class Q and Class Q - Special Series 1)
Intermediate Government Fund
(Class R and Class R - Special Series 1)
GNMA Fund
(Class S and Class S - Special Series 1)
Pennsylvania Municipal Fund
(Class T and Class T - Special Series 1)
International Equity Fund
(Class U and Class U - Special Series 1)
Equity Index Fund
(Class V and Class V - Special Series 1)
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<PAGE> 28
Small Cap Growth Fund
(Class X and Class X - Special Series 1)
Real Return Advantage Fund
(Class Y and Class Y - Special Series 1)
Each share has no par value, represents an equal proportionate
interest in the investment fund with other shares of the same class or series
outstanding, and is entitled to such dividends and distributions out of the
income earned on the assets belonging to such fund as are declared in the
discretion of the Trust's Board of Trustees. The Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any unissued shares
into any number of additional classes of shares and to classify or reclassify
any class of shares into one or more series of shares.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held. Shareholders will
vote in the aggregate and not by investment fund, except as otherwise expressly
required by law or when the Board of Trustees determines that the matter to be
voted on affects only the interests of shareholders of a particular investment
fund. The Statement of Additional Information gives examples of situations in
which the law requires voting by investment fund. In addition, shareholders of
each of the investment funds will vote in the aggregate and not by class or
series, except as otherwise expressly required by law or when the Board of
Trustees determines the matter to be voted on affects only the interests of the
holders of a particular class or series of shares. Under the Services Plan, only
the holders of Retail shares in an investment fund are, or would be entitled to
vote on matters submitted to a vote of shareholders (if any) concerning the
Services Plan. Voting rights are not cumulative, and accordingly, the holders of
more than 50% of the aggregate shares of the Trust may elect all of the trustees
irrespective of the vote of the other shareholders.
As stated previously in the text of this document, the Trust is
organized as a trust under the laws of Massachusetts. Shareholders of such a
trust may, under certain circumstances, be held personally liable (as if they
were partners) for the obligations of the Trust. The Declaration of Trust of the
Trust provides for indemnification out of the Trust property for any shareholder
held personally liable solely by reason of his being or having been a
shareholder and not because of his acts or omissions or some other reason.
The Trust does not presently intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The
Trust's Code of Regulations provides that special meetings of shareholders shall
be called at the
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<PAGE> 29
written request of shareholders entitled to cast at least 10% of the votes
entitled to be cast at such meeting. Such meeting may be called by shareholders
to consider the removal of one or more trustees. Shareholders will receive
shareholder communication assistance with respect to such matter as required by
the 1940 Act.
CUSTODIAN AND TRANSFER AGENT
National City Bank serves as the custodian of the Trust's assets.
State Street Bank and Trust Company serves as the Trust's transfer and dividend
disbursing agent. Communications to the Transfer Agent should be directed to
P.O. Box 8421, Boston, Massachusetts 02266-8421. The fees payable by the Trust
for these services are described in the Statement of Additional Information.
EXPENSES
Except as noted below, the Trust's adviser bears all expenses in
connection with the performance of its services. The Fund bears its own expenses
incurred in its operations including: taxes; interest; fees (including fees paid
to its trustees and officers); SEC fees; state securities qualification fees;
costs of preparing and printing prospectuses for regulatory purposes and for
distribution to existing shareholders; expenses related to the Distribution
Plan; advisory fees; administration fees and expenses; charges of the custodian
and Transfer Agent; certain insurance premiums; outside auditing and legal
expenses; costs of shareholders' reports and shareholder meetings; and any
extraordinary expenses. The Fund also pays for brokerage fees and commissions in
connection with the purchase of its portfolio securities. Under the Services
Plan, the Retail shares in the Fund also bear the expense of shareholder
servicing fees.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and annual
financial statements audited by independent auditors.
Pursuant to Rule 17f-2, as NAM is affiliated with National City Bank,
which serves as custodian, a procedure has been established requiring three
annual verifications, two of which are to be unannounced, of all investments
held pursuant to the Custodian Services Agreement, to be conducted by the
Trust's independent auditors.
As used in this Prospectus, a "vote of the holders of a majority of
the outstanding shares" of the Trust or the Fund
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<PAGE> 30
means, with respect to the approval of an investment advisory agreement, a
distribution plan or a change in a fundamental investment policy, the
affirmative vote of the lesser of (a) 50% or more of the outstanding shares of
the Trust or the fund or (b) 67% or more of the shares of the Trust or the fund
present at a meeting if more than 50% of the outstanding shares of the Trust or
the fund are represented at the meeting in person or by proxy.
The portfolio managers of the Funds and other investment
professionals may from time to time discuss in advertising, sales literature or
other material, including periodic publications, various topics of interest to
shareholders and prospective investors. The topics may include, but are not
limited to, the advantages and disadvantages of investing in tax-deferred and
taxable investments; Fund performance and how such performance may compare to
various market indices; shareholder profiles and hypothetical investor
scenarios; the economy; the financial and capital markets; investment strategies
and techniques; investment products and tax, retirement and investment planning.
Inquiries regarding the Trust or any of its investment funds may be
directed to 1-800-622-FUND (3863).
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<PAGE> 31
ARMADA FUNDS
BOARD OF TRUSTEES Robert D. Neary
Chairman
Retired Co-Chairman, Ernst & Young
Director, Cold Metal Products, Inc.
Director, Zurn Industries, Inc.
Leigh Carter
Retired President and Chief Operating Officer,
B.F. Goodrich Company
Director, Adams Express Company
Director, Acromed Corporation
Director, Petroleum & Resources Corp.
Director, Morrison Products
John F. Durkott
President and Chief Operating Officer,
Kittle's Home Furnishings Center, Inc.
Richard W. Furst, Dean
Professor of Finance and Dean, Carol Martin
Gatton College of Business and Economics,
University of Kentucky
Director, The Seed Corporation
Director, Foam Design, Inc.
Gerald L. Gherlein
Executive Vice President and General Counsel,
Eaton Corporation
Trustee, Cleveland Initiative for Education
Trustee, Meridia Health System
Trustee, WVIZ Educational Television
J. William Pullen
President and Chief Executive Officer,
Whayne Supply Company
President and Chief Executive Officer,
American Contractors Rentals & Sales
Richard B. Tullis
Chairman Emeritus, Harris Corporation
Director, NACCO Materials Handling Group, Inc.
Director, Hamilton Beach/Proctor-Silex, Inc.
Director, Waste-Quip, Inc.
<PAGE> 32
ARMADA FUNDS
PROSPECTUS
August 1, 1997
Small Cap Growth Fund
<PAGE> 33
ARMADA FUNDS
INVESTMENT ADVISER
AN AFFILIATE OF NATIONAL
CITY CORPORATION
National City Bank
1900 East Ninth Street
Cleveland, Ohio 44114
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXPENSE TABLE.......................................................................................... 3
INTRODUCTION........................................................................................... 5
INVESTMENT OBJECTIVES AND POLICIES..................................................................... 5
INVESTMENT LIMITATIONS................................................................................ 12
PERFORMANCE INFORMATION............................................................................... 14
PRICING OF SHARES...................................................................................... 15
HOW TO PURCHASE AND REDEEM SHARES...................................................................... 16
DISTRIBUTION AGREEMENT................................................................................. 25
SHAREHOLDER SERVICES PLAN.............................................................................. 25
DIVIDENDS AND DISTRIBUTIONS............................................................................ 25
TAXES.................................................................................................. 26
MANAGEMENT OF THE TRUST................................................................................ 28
DESCRIPTION OF THE TRUST AND ITS SHARES................................................................ 29
CUSTODIAN AND TRANSFER AGENT........................................................................... 32
EXPENSES............................................................................................... 32
MISCELLANEOUS.......................................................................................... 32
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</TABLE>
|- SHARES OF ARMADA FUNDS ARE NOT BANK DEPOSITS OR |
|OBLIGATIONS OF, OR GUARANTEED OR ENDORSED OR OTHER- |
|WISE SUPPORTED BY, NATIONAL CITY BANK, ITS PARENT |
|COMPANY OR ANY OF ITS AFFILIATES OR ANY BANK. |
| |
|- SHARES OF ARMADA FUNDS ARE NOT INSURED OR |
|GUARANTEED BY THE U.S. GOVERNMENT, FDIC, OR ANY |
|GOVERNMENTAL AGENCY OR STATE. |
| |
|- AN INVESTMENT IN ARMADA FUNDS INVOLVES INVEST- |
|MENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL |
|AMOUNT INVESTED. |
| |
|National City Bank and National Asset Management Corpora- |
|tion serve as investment advisers to Armada Funds for |
|which they receive an investment advisory fee. Past |
|performance is not indicative of future performance, |
|and the investment return will fluctuate, so that you may |
|have a gain or loss when you sell your shares. |
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST
OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE TRUST
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
<PAGE> 34
ARMADA FUNDS
Oaks, Pennsylvania 19456 If you purchased your shares through
NatCity Investments, Inc., please call
your Investment Consultant for
information.
For current performance, fund
information, account redemption
information, and to purchase shares,
please call 1-800-622-FUND (3863).
This Prospectus describes the Small Cap Growth Fund (the "Fund") of
Armada Funds (the "Trust"):
SMALL CAP GROWTH FUND'S investment objective is to seek long term
capital appreciation. The Fund will normally invest at least 80% of its total
assets in securities of companies with stock market capitalizations of under
$1.5 billion at the time of purchase.
The net asset value per share of the Fund will fluctuate as the value
of its investment portfolio changes in response to changing market prices and
other factors.
National City Bank ("National City") serves as investment adviser to
the Fund (the "adviser"). Wellington Management Company, LLP serves as the
investment sub-adviser to the Fund (the "sub-adviser").
SEI Investments Distribution Co. (the "Distributor") serves as the
Trust's sponsor and distributor. The Fund pays a fee to the Distributor for
distributing its shares. See "Distribution Agreement."
This Prospectus sets forth concisely the information about the Fund
that a prospective investor should consider before investing. Investors should
carefully read this Prospectus and retain it for future reference. Additional
information about the Fund, contained in a Statement of Additional Information,
has been filed with the Securities and Exchange Commission ("SEC") and is
available upon request without charge by contacting the Trust at its telephone
number or address shown above. The Statement of Additional Information bears the
same date as this Prospectus and is incorporated by reference in its entirety
into this Prospectus.
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<PAGE> 35
SHARES OF THE TRUST ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED OR OTHERWISE SUPPORTED BY, NATIONAL CITY BANK, ITS PARENT
COMPANY OR ANY OF ITS AFFILIATES, AND ARE NOT FEDERALLY INSURED OR GUARANTEED BY
THE U.S. GOVERNMENT, FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY GOVERNMENTAL
AGENCY OR STATE. INVESTMENT IN THE TRUST INVOLVES RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
August 1, 1997
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<PAGE> 36
EXPENSE TABLE
<TABLE>
<CAPTION>
SMALL CAP SMALL CAP
GROWTH GROWTH
RETAIL INSTITUTIONAL
SHARES(1),(2) SHARES(2)
------------- -------------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge
Imposed on Purchases 3.75% None
Sales Charge Imposed
on Reinvested Dividends None None
Deferred Sales Charge None None
Redemption Fee None None
Exchange Fee None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net
assets)
Management Fees 0.75% 0.75%
12b-1 Fees(4) (after fee
waivers) 0.06%(2) 0.06%(2)
Other Expenses(3) (after fee
waivers) 0.42%(4) 0.17%(4)
TOTAL FUND OPERATING
EXPENSES(3) (after fee
waivers) 1.23%(4) 0.98%(4)
</TABLE>
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1 The Trust has implemented a Shareholder Services Plan (the "Services
Plan") with respect to Retail shares in the Fund. Pursuant to the
Services Plan, the Trust may enter into shareholder servicing
agreements with certain financial institutions under which they agree
to provide shareholder administrative services to their customers who
beneficially own Retail shares in consideration for the payment of up
to .25% (on an annualized basis) of the net asset value of Retail
shares.
2 As of the date of this Prospectus, the Fund had not commenced
investment operations, and therefore, the other expenses for this Fund
are estimates only.
3 Without fee waivers by the Administrator, Other Expenses and Total Fund
Operating Expenses would be 0.52% and 1.33%, respectively, for the
Retail Shares and 0.27% and 1.08%, respectively, for the Institutional
Shares of the Fund. Additionally, if the maximum distribution fee
permitted under the 12b-1 Plan were imposed, Total Fund Operating
Expenses would be 1.37% and 1.12% for the Retail and Institutional
Shares, respectively.
4 The Fund has in effect a 12b-1 Plan pursuant to which it may bear fees
in an amount of up to .10% of average daily net assets. As a result of
the payment of sales charges and 12b-1 fees, long-term shareholders may
pay more than the economic equivalent of the maximum front-end sales
charge permitted by the National Association of Securities Dealers,
Inc. ("NASD"). The NASD has adopted rules which generally limit the
aggregate sales charges and payments under the Trust's Service and
Distribution Plan ("Distribution Plan") and Services Plan to a certain
percentage of total new gross share sales, plus interest. The Trust
would stop accruing 12b-1 and related fees if, to the extent, and for
as long as, such limit would otherwise be exceeded.
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<PAGE> 37
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EXAMPLE
For example, you would pay the following expenses on a hypothetical $1,000
investment, assuming: (1) a 5% annual return (a hypothetical return required by
SEC regulations); (2) the redemption of your investment at the end of the
following time periods (the Fund does not charge a redemption fee); and (3) the
imposition of the maximum sales charge at the beginning of the period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Retail Shares.............................. $50 $75
Institutional Shares....................... $10 $31
</TABLE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE GREATER
OR LESS THAN THOSE SHOWN.
The purpose of this Expense Table is to assist an investor in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly. For more complete descriptions of these costs and
expenses, see "Management of the Trust" and "Distribution Agreement" in this
Prospectus. Any fees that are charged by affiliates of the adviser or other
institutions directly to their customer accounts for services related to an
investment in Retail shares of the Fund are in addition to and not reflected in
the fees and expenses described above.
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<PAGE> 38
INTRODUCTION
The Trust is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"). The Fund consists of a pool of assets with investment objectives and
policies as described below under "Investment Objectives and Policies." The Fund
is classified as a diversified investment fund under the 1940 Act.
Shares of the Fund have been classified into two separate
classes -- Retail shares and Institutional shares. Retail shares and
Institutional shares represent equal pro rata interests in the Fund except that,
as described more fully below under "Shareholder Services Plan," the Trust has
implemented the Services Plan with respect to Retail shares of the Fund. Under
the Services Plan, only the beneficial owners of Retail shares bear the expenses
of shareholder administrative services which are provided by financial
institutions for their benefit (not to exceed .25% annually). See "Shareholder
Services Plan," "Dividends and Distributions" and "Description of the Trust and
Its Shares" for a description of the impact that the Services Plan may have on
holders of Retail shares.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the Fund is to provide long term
capital appreciation. The Fund will normally invest at least 80% of its total
assets in equity securities of companies with stock market capitalizations of
under $1.5 billion at the time of purchase. The Fund's investment objective and
investment policies may be changed without a vote of shareholders. There can be
no assurance that the Fund will achieve its objective.
The Fund generally invests in equity securities of small
public companies. As discussed below, while such stocks may at times yield
greater returns on investment than stocks of larger, more established companies,
their positions in the market may be more tenuous, subjecting them to increased
price volatility, which can result in a fund share price with wider or more
frequent fluctuations than those of other equity portfolios. The Fund may also
hold other instruments with equity characteristics, such as preferred stocks,
convertible securities, rights, and warrants. In selecting stocks, the
subadviser will consider the relationship between price and book value, and
other factors such as trading volume and bid-ask spreads in an effort to allow
the Fund to achieve diversification.
In addition to investing in equity securities, the Fund is
authorized to invest in cash equivalents to provide cash reserves. With respect
to the remaining portion of its total
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<PAGE> 39
assets, the Fund may hold temporary cash balances which may be invested in U.S.
government obligations and money market instruments. The Fund may also engage in
options and futures transactions, and may enter into repurchase agreements,
reverse repurchase agreements, and lend its portfolio securities. For further
information, see "Investment Objectives and Policies" in the Statement of
Additional Information.
SPECIAL RISK FACTORS -- SMALL CAPITALIZATION STOCKS
As mentioned above, securities held by the Fund will generally
be issued by public companies with small capitalizations relative to those which
predominate the major market indices, such as the Standard & Poor's 500 Index or
the Dow Jones Industrial Average. The market capitalization of the issuers of
securities purchased by the Fund will normally be less than $1.5 billion at the
time of purchase. The sub-adviser will seek companies with above-average growth
prospects. Factors considered in selecting such issuers include participation in
a fast growing industry, a strategic niche position in a specialized market, and
fundamental value.
The Fund has been designed to provide investors with
potentially greater long-term rewards than those provided by an investment in a
fund that seeks capital appreciation from equity securities of larger, more
established companies. Since small capitalization companies are generally not as
well-known to investors and have less of an investor following than larger
companies, they may provide opportunities for greater investment gains as a
result of inefficiencies in the marketplace.
Small capitalization companies typically are subject to a
greater degree of change in earnings and business prospects than larger, more
established companies. In addition, securities of smaller capitalized companies
are traded in lower volume than those issued by larger companies and may be more
volatile. As a result, the Fund may be subject to greater price volatility than
a fund consisting of larger capitalization stocks. By maintaining a broadly
diversified portfolio, the sub-adviser will attempt to reduce this volatility.
OTHER INVESTMENT POLICIES
Investment methods described in this Prospectus are among
those which the Fund has the power to utilize. Some may be employed on a regular
basis; others may not be used at all. Accordingly, reference to any particular
method or technique carries no implication that it will be utilized or, if it
is, that it will be successful.
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<PAGE> 40
Foreign Securities and American Depository Receipts ("ADRs")
The Fund may invest in securities issued by foreign issuers
either directly or indirectly through investments in ADRs. ADRs are receipts
issued by an American bank or trust company evidencing ownership of underlying
securities issued by foreign issuers. ADRs may be listed on a national
securities exchange or may be traded in the over-the-counter market. ADR prices
are denominated in U.S. dollars; the underlying security may be denominated in a
foreign currency.
Investments in foreign securities involve certain inherent
risks, such as political or economic instability of the issuer or the country of
issue, the difficulty of predicting international trade patterns, changes in
exchange rates of foreign currencies and the possibility of adverse changes in
investment or exchange control regulations. There may be less publicly available
information about a foreign company than about a domestic company. Foreign
companies generally are not subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
companies. Further, foreign stock markets are generally not as developed or
efficient as those in the U.S., and in most foreign markets volume and liquidity
are less than in the U.S. Fixed commissions on foreign stock exchanges are
generally higher than the negotiated commissions on U.S. exchanges, and there is
generally less government supervision and regulation of foreign stock exchanges,
brokers and companies than in the U.S. With respect to certain foreign
countries, there is a possibility of expropriation or confiscatory taxation,
limitations on the removal of funds or other assets, or diplomatic developments
that could affect investment within those countries. Because of these and other
factors, securities of foreign companies acquired by the Fund may be subject to
greater fluctuation in price than securities of domestic companies. For further
information, see "Investment Objectives and Policies" in the Statement of
Additional Information.
Options
The Fund may write covered call options, buy put options, buy
call options and sell or "write" secured put options on a national securities
exchange and issued by the Options Clearing Corporation for hedging purposes.
Such transactions may be effected on a principal basis with primary reporting
dealers in U.S. government securities in an amount not exceeding 5% of a Fund's
net assets, as described further in the Statement of Additional Information.
Such options may relate to particular securities or financial instruments, or to
various stock indices or bond indices. Purchasing options is a specialized
investment
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<PAGE> 41
technique which entails a substantial risk of a complete loss of the amounts
paid as premiums to the writer of the option.
A call option for a particular security gives the purchaser of
the option the right to buy, and a writer the obligation to sell, the underlying
security at the stated exercise price at any time prior to the expiration of the
option, regardless of the market price of the security. The premium paid to the
writer is the consideration for undertaking the obligations under the option
contract. A put option for a particular security gives the purchaser the right
to sell the underlying security at the stated exercise price at any time prior
to the expiration date of the option, regardless of the market price of the
security. In contrast to an option on a particular security, an option on a
securities index provides the holder with the right to make or receive a cash
settlement upon exercise of the option.
The Fund may purchase and sell put options on portfolio
securities at or about the same time that it purchases the underlying security
or at a later time. By buying a put, the Fund limits its risk of loss from a
decline in the market value of the security until the put expires. Any
appreciation in the value of and yield otherwise available from the underlying
security, however, will be partially offset by the amount of the premium paid
for the put option and any related transaction costs. Call options may be
purchased by the Fund in order to acquire the underlying security at a later
date at a price that avoids any additional cost that would result from an
increase in the market value of the security. The Fund may also purchase call
options to increase its return to investors at a time when the call is expected
to increase in value due to anticipated appreciation of the underlying security.
Prior to its expiration, a purchased put or call option may be sold in a closing
sale transaction (a sale by the Fund, prior to the exercise of an option that it
has purchased, of an option of the same series), and profit or loss from the
sale will depend on whether the amount received is more or less than the premium
paid for the option plus the related transaction costs.
In addition, the Fund may write covered call and secured put
options. A covered call option means that the Fund owns or has the right to
acquire the underlying security subject to call at all times during the option
period. A secured put option means that the Fund maintains in a segregated
account with its custodian cash or U.S. government securities in an amount not
less than the exercise price of the option at all times during the option
period. Such options will be listed on a national securities exchange and issued
by the Options Clearing Corporation and may be effected on a principal basis
with primary reporting dealers in the U.S.
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<PAGE> 42
The aggregate value of the securities subject to options
written by the Fund will not exceed 25% of the value of its net assets. In order
to close out an option position prior to maturity, the Fund may enter into a
"closing purchase transaction" by purchasing a call or put option (depending
upon the position being closed out) on the same security with the same exercise
price and expiration date as the option which it previously wrote.
Options trading is a highly specialized activity and carries
greater than ordinary investment risk. Purchasing options may result in the
complete loss of the amounts paid as premiums to the writer of the option. In
writing a covered call option, the Fund gives up the opportunity to profit from
an increase in the market price of the underlying security above the exercise
price (except to the extent the premium represents such a profit). Moreover, it
will not be able to sell the underlying security until the covered call option
expires or is exercised or the Fund closes out the option. In writing a secured
put option, the Fund assumes the risk that the market value of the security will
decline below the exercise price of the option. The use of covered call and
secured put options will not be a primary investment technique of the Fund.
During temporary defensive periods the Fund may invest in
various short term obligations described below.
Futures Contracts and Options
Futures contracts obligate the Fund, at maturity, to take or
make delivery of certain securities or financial instruments or the cash value
of a securities index. The Fund may sell a futures contract in order to offset a
decrease in the market value of its portfolio securities that might otherwise
result from a market decline. The Fund may do so either to hedge the value of
its portfolio of securities as a whole or to protect against declines occurring
prior to sales of securities in the value of the securities to be sold.
Conversely, the Fund may purchase a futures contract in anticipation of
purchases of securities. In addition, the Fund may utilize futures contracts in
anticipation of changes in the composition of its holdings.
The Fund may purchase and sell call and put options on futures
contracts traded on an exchange or board of trade. When the Fund purchases an
option on a futures contract, it has the right to assume a position as a
purchaser or seller of a futures contract at a specified exercise price at any
time during the option period. When the Fund sells an option on a futures
contract, it becomes obligated to purchase or sell a futures contract if the
option is exercised. In anticipation of a market advance, the Fund may purchase
call options on futures contracts to hedge against a possible increase in the
price of securities
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<PAGE> 43
which the Fund intends to purchase. Similarly, if the value of the Fund's
securities is expected to decline, the Fund might purchase put options or sell
call options on futures contracts rather than sell futures contracts.
The Fund intends to comply with the regulations of the
Commodity Futures Trading Commission ("CFTC") exempting it from registration as
a "commodity pool operator." The Fund's commodities transactions must constitute
bona fide hedging or other permissible transactions pursuant to such
regulations. In addition, the Fund may not engage in such transactions if the
sum of the amount of initial margin deposits and premiums paid for unexpired
commodity options, other than for bona fide hedging transactions, would exceed
5% of the liquidation value of its assets, after taking into account unrealized
profits and unrealized losses on such contracts it has entered into; provided,
however, that in the case of an option that has reached or exceeded its strike
price at the time of purchase, the amount in excess of the strike price may be
excluded in calculating the percentage limitation. In connection with the Fund's
position in a futures contract or option thereon, it will create a segregated
account of liquid assets, such as cash, U.S. government securities or other
liquid high grade debt obligations, or will otherwise cover its position in
accordance with applicable requirements of the SEC.
The primary risks associated with the use of futures contracts
and options are:
(i) an imperfect correlation between the change in market
value of the securities or currencies held by the Fund and the price of the
futures contracts and options;
(ii) possible lack of a liquid secondary market for a futures
contract and the resulting inability to close a futures contract when desired;
(iii) losses greater than the amount of the principal invested
as initial margin due to unanticipated market movements which are potentially
unlimited; and
(iv) the sub-adviser's ability to predict correctly the
direction of securities prices, interest rates and other economic factors.
For further information, see "Investment Objectives and
Policies - Futures Contracts and Options" and Appendix B in the Statement of
Additional Information.
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<PAGE> 44
Illiquid Securities
The Fund will not invest more than 15% of the value of its net
assets in securities that are illiquid. Illiquid securities include certain
securities which are subject to trading restrictions because they are not
registered under the Securities Act of 1933, as amended (the "1933 Act"). If the
Fund exceeds the limitation on the holding of illiquid securities, it will sell
illiquid securities as necessary to maintain the required liquidity when the
sub-adviser believes that it is in the best interests of the Fund to do so.
The Fund may purchase securities which are not registered
under the 1933 Act but which can be sold to "qualified institutional buyers" in
accordance with Rule 144A under the 1933 Act. Any such security will not be
considered illiquid so long as it is determined by the Board of Trustees or the
Fund's subadviser, acting under guidelines approved and monitored by the Board,
that an adequate trading market exists for that security. This investment
practice could have the effect of increasing the level of illiquidity in the
Fund during any period that qualified institutional buyers become uninterested
in purchasing these restricted securities.
Short Term Obligations
During temporary defensive periods the Fund may invest up to
100% of its assets in short term obligations (with maturities of 18 months or
less) such as repurchase agreements, reverse repurchase agreements, domestic
commercial paper, bankers' acceptances, certificates of deposit and demand and
time deposits of U.S. banks, foreign branches of U.S. banks and foreign banks.
In the case of repurchase agreements, default or bankruptcy of the seller may
expose a Fund to possible loss because of adverse market action or delays
connected with the disposition of the underlying obligations. Further, it is
uncertain whether the Fund would be entitled, as against a claim by such seller
or its receiver or trustee in bankruptcy, to retain the underlying securities.
Reverse repurchase agreements involve the risk that the market value of the
securities held by the Fund may decline below the price of the securities it is
obligated to repurchase. For further information, see "Investment Objectives and
Policies" in the Statement of Additional Information.
Lending Portfolio Securities
In order to generate additional income, the Fund may, from
time to time, lend its portfolio securities to broker-dealers, banks or other
institutional borrowers. The Fund must receive 100% collateral in the form of
cash or U.S. government securities. This collateral must be valued daily by the
Fund's
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<PAGE> 45
custodian and the borrower will be required to provide additional collateral
should the market value of the loaned securities increase. During the time
portfolio securities are on loan, the borrower pays the Fund involved any
dividends or interest paid on such securities. Loans are subject to termination
by the Fund or the borrower at any time. While a Fund does not have the right to
vote securities on loan, it intends to terminate the loan and regain the right
to vote if this is considered important with respect to the investment. The Fund
will only enter into loan arrangements with broker-dealers, banks or other
institutions which its sub-adviser has determined are creditworthy under
guidelines established by the Trust's Board of Trustees.
Securities of Other Investment Companies
Subject to 1940 Act limitations, the Fund may invest in
securities issued by other investment companies which invest in high quality,
short-term debt securities and which determine their net asset value per share
based on the amortized cost or penny-rounding method. As a shareholder of
another investment company, the Fund would bear, along with other shareholders,
its pro rata portion of that company's expenses, including advisory fees. These
expenses would be in addition to the advisory and other expenses that the Fund
bears directly in connection with its own operations. Investment companies in
which the Fund may invest may also impose a sales or distribution charge in
connection with the purchase or redemption of their shares and other types of
commissions or charges. Such charges will be payable by the Fund and, therefore,
will be borne indirectly by its shareholders. For further information, see
"Investment Objectives and Policies" in the Statement of Additional Information.
INVESTMENT LIMITATIONS
The Fund is subject to a number of investment limitations. The
following investment limitations are matters of fundamental policy and may not
be changed without the affirmative vote of the Fund's outstanding shares (as
defined under "Miscellaneous"). (Other investment limitations that also cannot
be changed without a vote of shareholders are contained in the Statement of
Additional Information under "Investment Objectives and Policies.")
The Fund may not:
1. Purchase any securities which would cause 25% or more of
the value of its total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry, provided that
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<PAGE> 46
(a) there is no limitation with respect to obligations issued or
guaranteed by the U.S. government, any state, territory or possession
of the United States, the District of Columbia or any of their
authorities, agencies, instrumentalities or political subdivisions, and
repurchase agreements secured by such instruments
(b) wholly-owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related
to financing the activities of the parents
(c) utilities will be divided according to their services, for example,
gas, gas transmission, electric and gas, electric and telephone will
each be considered a separate industry
(d) personal credit and business credit businesses will be
considered separate industries.
2. Make loans, except that it may purchase and hold debt
instruments and enter into repurchase agreements in accordance with its
investment objective and policies and may lend portfolio securities in an amount
not exceeding one-third of its total assets.
3. Borrow money, issue senior securities or mortgage, pledge
or hypothecate its assets except to the extent permitted under the 1940 Act.
4. Purchase securities of any one issuer, other than
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities if, immediately after such purchase, more than 5% of the value
of the Fund's total assets would be invested in such issuer or the Fund would
hold more than 10% of any class of securities of the issuer or more than 10% of
the outstanding voting securities of the issuer, except that up to 25% of the
value of the Fund's total assets may be invested without regard to such
limitations.
Generally, if a percentage limitation is satisfied at the time
of investment, a later increase or decrease in such percentage resulting from a
change in the value a Fund's portfolio securities will not constitute a
violation of such limitation for purposes of the 1940 Act.
For purposes of investment limitation No. 1 the Fund treats,
as a matter of non-fundamental policy that may be changed without a vote of
shareholders, all supranational organizations as a single industry and each
foreign government (and all of its agencies) as a separate industry.
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<PAGE> 47
PERFORMANCE INFORMATION
From time to time, the Trust may provide in advertisements or
in reports to shareholders the Fund's total return data for its Institutional
shares and Retail shares.
The Fund calculates its total return for each class of shares
on an "average annual total return" basis for various periods from the date of
commencement of investment operations and for other periods as permitted under
the rules of the SEC. Average annual total return reflects the average annual
percentage change in value of an investment in the class over the measuring
period. Total returns for each class of shares may also be calculated on an
"aggregate total return" basis for various periods. Aggregate total return
reflects the total percentage change in value over the measuring period. Both
methods of calculating total return reflect changes in the price of the shares
and assume that any dividends and capital gain distributions made by the Fund
with respect to a class during the period are reinvested in shares of that
class. When considering average total return figures for periods longer than one
year, it is important to note that the annual total return of a class for any
one year in the period might have been greater or less than the average for the
entire period. The Fund may also advertise, from time to time, the total returns
of one or more classes of shares on a year-by-year or other basis for various
specified periods by means of quotations, charts, graphs or schedules.
Investors may compare the performance of each class of shares
of the Fund to the performance of other mutual funds with comparable investment
objectives, to various mutual fund or market indices, such as the S&P 500, and
to data or rankings prepared by independent services such as Lipper Analytical
Services, Inc. or other financial or industry publications that monitor the
performance of mutual funds. Comparisons may also be made to indices or data
published in Money Magazine, Forbes, Barron's, The Wall Street Journal, The New
York Times, Business Week, U.S.A. Today, CDA/Weisenberger, The American Banker,
Morningstar, Incorporated and other publications of a local, regional or
financial industry nature.
The past performance of each class of shares of the Fund is
based on historical earnings and is not intended to indicate future performance.
The investment return and principal value of an investment in a class will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. Performance data may not provide a basis for
comparison with bank deposits and other investments which provide a fixed yield
for a stated period of time. Changes in the net asset value of a class should be
considered in ascertaining the total return to shareholders for a given period.
Yield and total return data should also be considered in light of
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<PAGE> 48
the risks associated with the Fund's portfolio composition, quality, maturity,
operating expenses and market conditions. Any fees charged by financial
institutions (as described in "How to Purchase and Redeem Shares") are not
included in the computation of performance data but will reduce a shareholder's
net return on an investment in the Fund.
Further information about the performance of the Fund is
available in the annual and semi-annual reports to shareholders. Shareholders
may obtain these materials from the Trust free of charge by calling
1-800-622-FUND (3863).
PRICING OF SHARES
For purposes of pricing purchases and redemption orders, the
net asset value per share of the Fund is calculated as of the close of trading
on the New York Stock Exchange (the "Exchange") (generally, 4:00 p.m. Eastern
Time). Net asset value per share is determined on each business day, except
those holidays which the Exchange, or banks and trust companies which are
affiliated with National City Corporation (the "Banks"), observe (currently New
Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day,
Thanksgiving Day and Christmas Day) ("Business Day"). Net asset value per share
of a particular class in the Fund is calculated by dividing the value of all
securities and other assets belonging to the Fund allocable to such class, less
the liabilities charged to that class, by the number of the outstanding shares
of that class.
The Fund's investments in securities for which market
quotations are readily available are valued at their market values determined on
the basis of closing sales prices, if the principal market is an exchange, or
the mean between their current available bid and asked prices, for unlisted
securities, or for securities traded on a national securities market. Securities
and other assets for which quotations are not readily available are valued at
their fair value under procedures approved by the Board of Trustees. Absent
unusual circumstances, short-term investments having maturities of 60 days or
less are valued on the basis of amortized cost unless the Trust's Board of
Trustees determines that this does not represent fair value. The net asset value
per share of each class of shares of the Fund will fluctuate as the value of its
investment fund changes.
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<PAGE> 49
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by the
Trust's sponsor and distributor. The Distributor is a registered broker/dealer
with principal offices located at Oaks, Pennsylvania 19456.
From time to time, the Distributor, at its expense, may offer
promotional incentives to dealers. As of the date of this Prospectus, the
Distributor intends to offer certain promotional incentives, including trips and
monetary awards, to NatCity Investments, Inc. and other affiliates of National
City.
PURCHASE OF RETAIL SHARES
Retail shares are sold to the public ("Investors") primarily
through financial institutions such as banks, brokers and dealers. Investors may
purchase Retail shares directly in accordance with the procedures set forth
below or through procedures established by their financial institutions in
connection with the requirements of their accounts.
Financial institutions may charge certain account fees
depending on the type of account the Investor has established with the
institution. (For information on such fees, the Investor should review his
agreement with the institution or contact it directly.) In addition, certain
financial institutions may enter into shareholder servicing agreements with the
Trust whereby a financial institution would perform various administrative
support services for its customers who are the beneficial owners of Retail
shares and would receive fees from the Fund for such services of up to .25% (on
an annualized basis) of the average daily net asset value of such shares. See
"Shareholder Services Plan." To purchase shares, Investors should call
1-800-622-FUND (3863) or visit their local NatCity Investments, Inc. office:
Akron 1-800-229-0295
Cleveland 1-800-624-6450
Columbus 1-800-345-0278
Dayton 1-800-755-8723
Indianapolis 1-800-826-2868
Louisville 1-800-727-5656
Pittsburgh 1-800-282-1078
Toledo 1-800-331-8275
Youngstown 1-800-742-4098
Shares may be purchased in conjunction with an
individual retirement account ("IRA") and rollover IRAs where a
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<PAGE> 50
designated custodian acts as custodian. Investors should contact NatCity
Investments, Inc., the Distributor or their financial institutions for
information as to applications and annual fees. Investors should also consult
their tax advisers to determine whether the benefits of an IRA are available or
appropriate.
The minimum investment for the initial purchase of Retail
shares in each Fund is $2,500, except for purchases for an IRA or other
retirement plan in which event the minimum initial investment is $500. All
subsequent investments for Retail shares and IRAs are subject to a minimum
investment of $250. Investments made in Retail shares through a monthly savings
program described below are not subject to the minimum initial and subsequent
investment requirements or any minimum account balance requirements described in
"Other Redemption Information." Purchases for an IRA through the monthly savings
program will be considered as contributions for the year in which the purchases
are made.
Under a monthly savings program, Investors may add to their
investment in the Retail shares of a Fund, in a consistent manner twice each
month, with a minimum amount of $50 per month. Monies may be automatically
withdrawn from a shareholder's checking or savings account available through an
Investor's financial institution and invested in additional Retail shares at the
Public Offering Price next determined after an order is received by the Trust.
An Investor may apply for participation in a monthly program by completing an
application obtained through a financial institution, such as banks, brokers, or
dealers selling Retail shares of the Fund, or by calling 1-800-622-FUND (3863).
The program may be modified or terminated by an Investor on 30 days written
notice or by the Trust at any time.
All shareholders of record will receive confirmations of share
purchases and redemptions. Financial institutions will be responsible for
transmitting purchase and redemption orders to the Trust's transfer agent, State
Street Bank and Trust Company (the "Transfer Agent"), on a timely basis.
The Trust reserves the right to reject any purchase order.
SALES CHARGES APPLICABLE TO PURCHASES OF RETAIL SHARES
The Public Offering Price for Retail shares of the Fund is the
sum of the net asset value of the shares being purchased plus any applicable
sales charge per account, which is assessed as follows:
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<PAGE> 51
<TABLE>
<CAPTION>
As a % As a % Dealers'
of offering of net Reallowance
price per asset value as a % of
Amount Of Transaction Share Per Share Offering Price
- -------------------------- ------------ ----------- --------------
<S> <C> <C> <C>
Less than $100,000 3.75 3.90 3.75
$100,000 but less
than $250,000 2.75 2.83 2.75
$250,000 but less
than $500,000 2.00 2.04 2.00
$500,000 but less
than $1,000,000 1.25 1.27 1.25
$1,000,000 or more 0.00 0.00 0.00
</TABLE>
Under the 1933 Act, the term "underwriter" includes persons
who offer or sell for an issuer in connection with the distribution of a
security or have a direct or indirect participation in such undertaking, but
excludes persons whose interest is limited to a commission from an underwriter
or dealer not in excess of the usual and customary distributors' or sellers'
commission. The Staff of the SEC has expressed the view that persons who receive
90% or more of a sales load may be deemed to be underwriters within the meaning
of this definition. The Dealers' Reallowance may be changed from time to time.
No sales charge will be assessed on purchases of Retail shares
made by:
(a) trustees and officers of the Trust
(b) directors, employees and participants in employee
benefit/retirement plans (annuitants) of National City
Corporation or any of its affiliates
(c) the spouses, children, grandchildren, and parents
of individuals referred to in clauses (a) and (b) above
(d) qualified retirement plans purchasing shares through
NatCity Investments, Inc.
(e) individuals investing in the Fund by way of a direct
transfer or a rollover from a qualified plan distribution and
subsequent transactions into the same account where affiliates
of National City Corporation are serving as a trustee or agent
(f) investors purchasing Fund shares through a payroll
deduction plan
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<PAGE> 52
(g) individuals investing in the Fund by way of an asset
allocation program sponsored by financial institutions,
although certain account level fees may apply
REDUCED SALES CHARGES APPLICABLE TO PURCHASES OF RETAIL SHARES
The applicable sales charge may be reduced on purchases of
Retail shares of the Fund made under the Right of Accumulation or Letter of
Intent, as described below. To qualify for a reduced sales charge, Investors
must so notify their financial institutions or the Trust directly by calling
1-800-622-FUND (3863) at the time of purchase. Reduced sales charges may be
modified or terminated at any time and are subject to confirmation of an
Investor's holdings.
Right of Accumulation.
Investors may use their aggregate investments in Retail shares
in determining the applicable sales charge. An Investor's aggregate investment
in Retail shares is the total value (based on the higher of current net asset
value or any Public Offering Price originally paid) of
(a) current purchases
(b) Retail shares that are already beneficially owned
by the Investor for which a sales charge has been paid
(c) Retail shares that are already beneficially owned by the
Investor which were purchased prior to July 22, 1990
(d) Retail shares purchased by dividends or capital
gains that are reinvested
If, for example, an Investor beneficially owns Retail shares
of the Fund with an aggregate current value of $90,000 and subsequently
purchases Retail shares of the Fund having a current value of $10,000, the sales
charge applicable to the subsequent purchase would be reduced to 2.75% of the
Public Offering Price.
Letter of Intent.
An Investor may qualify for a reduced sales charge immediately
upon signing a nonbinding Letter of Intent stating the Investor's intention to
invest during the next 13 months a specified amount which, if made at one time,
would qualify for a reduced sales charge. The Letter of Intent option is
included on the account application which may be obtained from the Investor's
financial institution or directly from the Trust by calling 1-800-622-FUND
(3863). If an Investor so elects, the 13-month
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<PAGE> 53
period may begin up to 30 days prior to the Investor's signing the Letter of
Intent. The initial investment under the Letter of Intent must be equal to at
least 4.0% of the amount indicated in the Letter of Intent. During the term of a
Letter of Intent, the Transfer Agent will hold Retail shares representing 4.0%
of the amount indicated in the Letter of Intent in escrow for payment of a
higher sales charge if the entire amount is not purchased. Upon completing the
purchase of the entire amount indicated in the Letter of Intent, the escrowed
shares will be released. If the entire amount is not purchased within the
13-month period or is redeemed within one year from the time of fulfillment, the
Investor will be required to pay an amount equal to the difference in the dollar
amount of sales charge actually paid and the amount of sales charge the Investor
would have had to pay on the aggregate purchases if the total of such purchases
had been made at a single time.
PURCHASE OF INSTITUTIONAL SHARES
Institutional shares are sold primarily to the Banks and
National Asset Management Corporation ("NAM") customers ("Customers") that are
large institutions. Institutional shares are sold without a sales charge imposed
by the Trust or the Distributor. However, depending on the terms governing the
particular account, the Banks or NAM may impose account charges such as account
maintenance fees, compensating balance requirements or other charges based upon
account transactions, assets or income which will have the effect of reducing
the shareholder's net return on his investment in the Fund. There is no minimum
investment.
It is the responsibility of the Banks and NAM to transmit
their Customers' purchase orders to the Transfer Agent and to deliver required
funds on a timely basis, in accordance with the procedures stated above.
Institutional shares will normally be held of record by the Banks or NAM.
Confirmations of share purchases and redemptions will be sent to the Banks and
NAM. Beneficial ownership of Institutional shares will be recorded by the Banks
or NAM and reflected in the account statements provided by them to their
Customers.
The Trust reserves the right to reject any purchase order.
EFFECTIVE TIME OF PURCHASES
Purchase orders for shares of the Fund which are received by
the Transfer Agent prior to 4:00 p.m. (Eastern Time) on any Business Day are
priced according to the net asset value per share determined on that day plus
any applicable sales charge (the "Public Offering Price"). Immediately available
funds must be received by the Trust's custodian prior to 2:00 p.m. (Eastern
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<PAGE> 54
Time) on the third Business Day following the receipt of such order, at which
time the order will be executed. If funds are not received by such date, the
order will not be accepted and notice thereof will be given to the Bank or
financial institution placing the order. Purchase orders for which payment has
not been received or accepted will be returned after prompt inquiry to the
sending Bank or institution.
REDEMPTION OF RETAIL SHARES
Redemption orders must be placed in writing or by telephone to
the same financial institution that placed the original purchase order. It is
the responsibility of the financial institutions to transmit redemption orders
to the Transfer Agent. Investors who purchased shares directly from the Trust
may redeem shares in any amount by calling 1-800-622-FUND (3863). Redemption
proceeds are paid by check or credited to the Investor's account with his
financial institution.
REDEMPTION OF INSTITUTIONAL SHARES
Customers may redeem all or part of their Institutional shares
in accordance with instructions and limitations pertaining to their accounts at
the Banks or NAM. It is the responsibility of the Banks or NAM to transmit
redemption orders to the Transfer Agent and credit their Customers' accounts
with the redemption proceeds on a timely basis. Redemption orders are effected
at the net asset value per share next determined after receipt of the order by
the Transfer Agent. No charge for wiring redemption payments is imposed by the
Trust, although the Banks or NAM may charge their Customers' accounts for
services. Information relating to such services and charges, if any, is
available from the Banks or NAM.
If a Customer has agreed with a particular Bank to maintain a
minimum balance in his account at the Bank and the balance in such account falls
below that minimum, the Customer may be obliged to redeem all or part of his
Institutional shares to the extent necessary to maintain the required minimum
balance. Customers who have instructed that automatic purchases and redemptions
be made for their accounts receive monthly confirmations of share transactions.
WRITTEN REDEMPTION PROCEDURES
A shareholder of record may redeem shares in any amount by
sending a written request to Armada Funds, P.O. Box 8421, Boston, Massachusetts
02266-8421. Redemption requests must be signed by each shareholder, including
each joint owner on redemption requests for joint accounts, in the exact manner
as the Fund account is registered, and must state the number of shares or the
amount to be redeemed and identify the shareholder
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<PAGE> 55
account number and tax identification number. For a redemption amount of $10,000
or more, each signature on the written request must be guaranteed by a
commercial bank or trust company which is a member of the Federal Reserve System
or FDIC, a member firm of a national securities exchange or a savings and loan
association. A signature guaranteed by a savings bank or notarized by a notary
public is not acceptable. For a redemption amount of less than $10,000, no
signature guarantee is needed. The Trust may require additional supporting
documents for redemptions made by corporations, fiduciaries, executors,
administrators, trustees, guardians and institutional investors.
TELEPHONE REDEMPTION PROCEDURES
A shareholder of record may redeem shares in any amount by
calling 1-800-622-FUND (3863) provided the appropriate election was made on the
shareholder's account application.
During periods of unusual economic or market changes,
telephone redemptions may be difficult to implement. In such event, shareholders
should mail their redemption requests to their financial institutions or Armada
Funds at the address shown above. Neither the Trust nor its Transfer Agent will
be responsible for the authenticity of instructions received by telephone that
are reasonably believed to be genuine. In attempting to confirm that telephone
instructions are genuine, the Trust and its Transfer Agent will use such
procedures as are considered reasonable, including recording those instructions
and requesting information as to account registration (such as the name in which
an account is registered, the account number and recent transactions in the
account). To the extent that the Trust and its Transfer Agent fail to use
reasonable procedures to verify the genuineness of telephone instructions, they
may be liable for such instructions that prove to be fraudulent and
unauthorized. In all other cases, shareholders will bear the risk of loss for
fraudulent telephone transactions. The Trust reserves the right to refuse a
telephone redemption if it believes it is advisable to do so. Procedures for
redeeming Retail shares by telephone may be modified or terminated at any time
by the Trust or the Transfer Agent.
OPTION TO MAKE SYSTEMATIC WITHDRAWALS
The Trust has available a Systematic Withdrawal Plan (the
"Plan") for a shareholder who owns shares of any fund of the Trust held on the
Transfer Agent's system. The Plan allows the shareholder to have a fixed minimum
sum of $250 distributed at regular intervals. The shareholder's account must
have a minimum value of $5,000 to be eligible for the Plan. Additional
information regarding this service may be obtained from an Investor's financial
institution or the Transfer Agent at 1-800-622-FUND (3863).
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<PAGE> 56
OTHER REDEMPTION INFORMATION
Due to the relatively high cost of maintaining small accounts,
the Trust reserves the right to redeem, at net asset value, any account
maintained by a shareholder that has a value of less than $1,000 due to
redemptions where the shareholder does not increase the amount in the account to
at least $1,000 upon 60 days' notice.
If any portion of the shares to be redeemed represents an
investment made by personal check, the Trust reserves the right to delay payment
of the redemption proceeds until the Transfer Agent is reasonably satisfied that
the check has been collected, which could take up to 15 calendar days from the
date of purchase. A shareholder who anticipates the need for more immediate
access to his investment should purchase shares by federal funds, bank wire,
certified or cashier's check. Financial institutions normally impose a charge in
connection with the use of bank wires, as well as certified checks, cashier's
checks and federal funds.
Payment to shareholders for shares redeemed will be made
within seven days after receipt of the request for redemption or such shorter
time period as may be required by the Securities Exchange Act of 1934.
EXCHANGE PRIVILEGE APPLICABLE TO RETAIL SHARES
The Trust offers an exchange program whereby Investors who
have paid a sales charge to purchase Retail shares of the Fund or another
investment portfolio of the Trust (each a "load Fund") may exchange those Retail
shares for Retail shares of another load Fund offered by the Trust, or another
investment fund offered by the Trust without the imposition of a sales charge
(each a "no load Fund") at the net asset value per share on the date of
exchange, provided that such other Retail shares may be legally sold in the
state of the shareholder's residence. As a result, no additional sales charge
will be incurred with respect to such an exchange.
Shareholders may also exchange Retail shares of a no load Fund
for Retail shares of another no load Fund at the net asset value per share
without payment of a sales charge.
In addition, shareholders of a no load Fund may exchange
Retail shares for Retail shares of a load Fund subject to payment of the
applicable sales charge. However, shareholders exchanging Retail shares of a no
load Fund which were received in a previous exchange transaction involving
Retail shares of a load Fund will not be required to pay an additional sales
charge upon notification of the reinvestment of the equivalent amount into the
Retail shares of a load Fund.
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<PAGE> 57
Shareholders contemplating an exchange should carefully review
the Prospectus of the fund into which the exchange is being considered. An
Armada Funds Prospectus may be obtained from NatCity Investments, Inc., an
Investor's financial institution, or by calling 1-800-622-FUND (3863).
Any Retail shares exchanged must have a value at least equal
to the minimum initial investment required by the particular investment fund
into which the exchange is being made. Investors should make their exchange
requests in writing or by telephone to the financial institutions through which
they purchased their original Retail shares. It is the responsibility of
financial institutions to transmit exchange requests to the Transfer Agent.
Investors who purchased shares directly from the Trust should transmit exchange
requests directly to the Transfer Agent. Exchange requests received by the
Transfer Agent prior to 4:00 p.m. (Eastern Time) will be processed as of the
close of business on the day of receipt; requests received by the Transfer Agent
after 4:00 p.m. (Eastern Time) will be processed on the next Business Day. The
Trust reserves the right to reject any exchange request. During periods of
unusual economic or market changes, telephone exchanges may be difficult to
implement. In such event, an Investor should mail the exchange request to his
financial institution, and an Investor who directly purchased shares from the
Trust should mail the exchange request to the Transfer Agent. The exchange
privilege may be modified or terminated at any time upon 60 days notice to
shareholders.
SYSTEMATIC EXCHANGE PROGRAM APPLICABLE TO RETAIL SHARES
Shares of a Fund may also be purchased through automatic
monthly deductions from a shareholder's account from any Armada money market
fund. Under a systematic exchange program, a shareholder enters an agreement to
purchase shares of one or more specified funds over a specified period of time,
and initially purchases shares of one Armada money market fund in an amount
equal to the total amount of the investment. On a monthly basis, a specified
dollar amount of shares of the Armada money market fund is exchanged for shares
of the Funds specified.
The systematic exchange program of investing a fixed dollar
amount at regular intervals over time has the effect of reducing the average
cost per share of the Funds. This effect also can be achieved through the
systematic investment program described previously in this prospectus. Because
purchases of Retail Shares are subject to an initial sales charge, it may be
beneficial for an investor to execute a Letter of Intent in connection with the
systematic exchange program. A shareholder may apply for participation in this
program through his or her financial institution or by calling 1-800-622-FUND
(3863).
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<PAGE> 58
DISTRIBUTION AGREEMENT
Under the Trust's Distribution Agreement and related
Distribution Plan adopted pursuant to Rule 12b-1 under the 1940 Act, the Trust
compensates the Distributor monthly for the direct and indirect expenses
incurred by the Distributor for services provided and expenses assumed in
providing such fund advertising, marketing, prospectus printing and other
distribution services up to a maximum of .10% per annum of the average net
assets of the fund, inclusive of an annual base fee of $1,250,000 plus incentive
fees related to asset growth. Such fees are payable monthly and accrued daily
among the investment funds with respect to which the Distributor is distributing
shares.
SHAREHOLDER SERVICES PLAN
The Trust has implemented the Services Plan with respect to
Retail shares of the Fund. Pursuant to the Services Plan, the Trust enters into
shareholder servicing agreements with certain financial institutions pursuant to
which the institutions render shareholder administrative services to their
customers who are the beneficial owners of Retail shares of the Fund in
consideration for the payment of up to .25% (on an annualized basis) of the
average daily net asset value of such shares. Persons entitled to receive
compensation for servicing Retail shares may receive different compensation with
respect to those shares than with respect to Institutional shares in the same
Fund. Shareholder administrative services may include aggregating and processing
purchase and redemption orders, processing dividend payments from the Trust on
behalf of customers, providing information periodically to customers showing
their position in Retail shares, and providing subtransfer agent services or the
information necessary for subaccounting, with respect to Retail shares
beneficially owned by customers. Since financial institutions may charge their
customers fees depending on the type of customer account the Investor has
established, beneficial owners of Retail shares should read this Prospectus in
light of the terms and fees governing their accounts with financial
institutions.
DIVIDENDS AND DISTRIBUTIONS
Dividends from the net investment income of the Fund are
declared daily and paid quarterly. Any net realized capital gains will be
distributed at least annually. Dividends and distributions will reduce the
Fund's net asset value per share by the per share amount thereof.
Shareholders may elect to have their dividends reinvested in
additional full and fractional Fund shares of the
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<PAGE> 59
same class or series at the net asset value of such shares on the payment date.
Shareholders must make such election, or any revocation thereof, in writing to
his Bank or financial institution. The election will become effective with
respect to dividends and distributions paid after its receipt.
Under the Services Plan, the amount of the Fund's net
investment income available for distribution to the holders of Retail shares is
reduced by the amount of shareholder servicing fees payable to financial
institutions under the Services Plan.
TAXES
The Fund intends to qualify as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification generally relieves the Fund of liability for federal income taxes
to the extent its earnings are distributed in accordance with the Code.
Qualification as a regulated investment company under the Code
for a taxable year requires, among other things, that the Fund distribute to its
shareholders an amount equal to at least the sum of 90% of its investment
company taxable income and 90% of its tax-exempt interest income (if any) net of
certain deductions for such year. In general, the Fund's investment company
taxable income will be its taxable income (including any dividends, interest and
short-term capital gains) subject to certain adjustments and excluding the
excess of any net long-term capital gain for the taxable year over the net
short-term capital loss, if any, for such year. The Fund intends to distribute
substantially all of its investment company taxable income and net tax-exempt
income each taxable year. Such distributions by the Fund will be taxable as
ordinary income to its shareholders who are not currently exempt from federal
income taxes, whether such income is received in cash or reinvested in
additional shares. (Federal income taxes for distributions to an IRA or to a
qualified retirement plan are deferred under the Code.) For corporate
shareholders, the dividends received deduction will apply to such distributions
to the extent of the gross amount of qualifying dividends received by the Fund
from domestic corporations for the taxable year.
Substantially all of the Fund's net realized long-term capital
gains, if any, will be distributed at least annually to Fund shareholders. The
Fund generally will have no tax liability with respect to such gains, and the
distributions will be taxable to Fund shareholders who are not currently exempt
from federal income taxes as long-term capital gains, regardless of how long the
shareholders have held Fund shares and whether such gains are received in cash
or reinvested in additional shares.
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<PAGE> 60
Dividends declared in December of any year payable to
shareholders of record on a specified date in such month will be deemed to have
been received by shareholders and paid by the Fund on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Prior to purchasing Fund shares, the impact of dividends or
distributions which are expected to be declared or have been declared, but not
paid, should be carefully considered. Any dividend or distribution paid shortly
after a purchase of shares prior to the record date will have the effect of
reducing the per share net asset value by the per share amount of the dividend
or distribution. All or a portion of such dividend or distribution, although in
effect a return of capital, may be subject to tax.
A taxable gain or loss may be realized by a shareholder upon
his redemption, transfer or exchange of Fund shares depending upon the tax basis
of such shares and their price at the time of redemption, transfer or exchange.
If a shareholder has held shares for six months or less and during that time
received a distribution taxable as a long-term capital gain, then any loss the
shareholder might realize on the sale of those shares will be treated as a
long-term capital loss to the extent of the earlier capital gain distribution.
Generally, a shareholder may include sales charges incurred upon the purchase of
Fund shares in his tax basis for such shares for the purpose of determining gain
or loss on a redemption, transfer or exchange of such shares. However, if the
shareholder effects an exchange of such shares for shares of another Fund within
90 days of the purchase and is able to avoid the sales charges applicable to the
new shares (by virtue of the Trust's exchange privilege), the original sales
charges will be included in the tax basis of the new shares rather than the
exchanged shares.
Shareholders of the Fund will be advised at least annually as
to the federal income tax consequences of distributions made to them each year.
Shareholders are advised to consult their tax advisers concerning the
application of state and local taxes which may differ from federal tax
consequences described above.
The foregoing discussion is based on tax laws and regulations
which were in effect as of the date of this Prospectus; such laws and
regulations may be changed by legislative or administrative actions. The
foregoing summarizes some of the important tax considerations generally
affecting the Fund and its shareholders and is not intended as a substitute for
careful tax planning. Accordingly, potential investors should consult their tax
advisers with specific reference to their own tax situation.
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<PAGE> 61
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES
The business and affairs of the Trust are managed under the direction
of the Trust's Board of Trustees. The trustees of the Trust, their addresses,
principal occupations during the past five years, other affiliations, and the
compensation paid by the Trust and the fees and reimbursed expenses they receive
in connection with each meeting of the Board of Trustees they attend are
included in the Statement of Additional Information.
INVESTMENT ADVISER
National City serves as the investment adviser to the Fund.
The adviser is a wholly owned subsidiary of National City Corporation. The
adviser provides trust and banking services to individuals, corporations, and
institutions, both nationally and internationally, including investment
management, estate and trust administration, financial planning, corporate trust
and agency, and personal and corporate banking. The adviser is a member bank of
the Federal Reserve System and the Federal Deposit Insurance Corporation.
On December 31, 1996, the Trust Department of National City
had approximately $9.9 billion in assets under management, and had approximately
$18.6 billion in total trust assets. National City has its principal offices at
1900 East Ninth Street, Cleveland, Ohio 44114.
Subject to the general supervision of the Trust's Board of
Trustees and in accordance with the Fund's investment policies, the adviser has
agreed to manage the Fund, make decisions with respect to and place orders for
all purchases and sales of the Fund's securities, and maintain the Fund's
records relating to such purchases and sales.
For the services provided and expenses assumed pursuant to the
Advisory Agreement relating to the Fund, the adviser is entitled to receive an
advisory fee, computed daily and payable monthly, at the annual rate of .35% of
the average net assets of the Fund. Shareholders should note that these fees are
higher than those payable by other investment companies. The adviser may from
time to time waive all or a portion of its advisory fees to increase the net
income of the Fund available for distribution as dividends.
SUB-INVESTMENT ADVISER
Wellington Management Company, LLP serves as the investment
adviser to the Fund under a sub-advisory agreement (the Sub-Advisory Agreement")
with the adviser.
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<PAGE> 62
Pursuant to the Sub-Advisory Agreement and subject to the
supervision of the adviser and of the Trust's Board of Trustees and in
accordance with the Fund's investment policies, the sub-adviser has agreed to
assist the adviser in providing a continuous investment program for the Fund and
in determining investments for the Fund. The sub-adviser will maintain the
Trust's records relating to purchases and sales effected by it. For the services
provided and expenses assumed pursuant to the Sub-Advisory Agreement, the
sub-adviser is entitled to an advisory fee, payable by the adviser, calculated
daily and payable monthly, at the maximum annual rate of .75% of the average
daily net assets of the Fund. The sub-adviser may occasionally waive all or a
portion of its fee from the adviser.
ADMINISTRATOR
PFPC Inc. ("PFPC"), located at 400 Bellevue Parkway,
Wilmington, Delaware 19809, serves as the administrator to the Fund. PFPC is an
indirect, wholly-owned subsidiary of PNC Bank Corp., a multi-bank holding
company.
Under its Administration and Accounting Services Agreement
with the Trust, PFPC has agreed to provide the following services with respect
to the Fund: statistical data, data processing services and accounting and
bookkeeping services; prepare tax returns and certain reports filed with the
SEC; assist in the preparation of reports to shareholders and the preparation of
the Trust's registration statement; maintain the required fidelity bond
coverage; calculate the Fund's net asset value per share, net income, and
realized capital gains (losses); and generally assist the Fund with respect to
all aspects of its administration and operation. PFPC is entitled to receive
with respect to the Fund an administrative fee, computed daily and paid monthly,
at the annual rate of .10% of the first $200,000,000 of its net assets, .075% of
the next $200,000,000 of its net assets, .045% of the next $200,000,000 of its
net assets and .02% of its net assets over $600,000,000 and is entitled to be
reimbursed for its out-of-pocket expenses incurred on behalf of the Fund.
DESCRIPTION OF THE TRUST AND ITS SHARES
The Trust was organized as a Massachusetts business trust on
January 28, 1986. The Trust is a series fund authorized to issue 40 separate
classes or series of shares of beneficial interest ("shares"). Two of these
classes or series, which represent interests in the Fund (Class X and Class X -
Special Series 1) are described in this Prospectus. Class X shares constitute
the Institutional class or series of shares; and Class X - Special Series 1
shares constitute the Retail class or series of shares. The other Funds of the
Trust are:
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<PAGE> 63
Money Market Fund
(Class A and Class A - Special Series 1)
Government Fund
(Class B and Class B - Special Series 1)
Treasury Fund
(Class C and Class C - Special Series 1)
Tax Exempt Fund
(Class D and Class D - Special Series 1)
Equity Growth Fund
(Class H and Class H - Special Series 1)
Fixed Income Fund
(Class I and Class I - Special Series 1)
Ohio Tax Exempt Fund
(Class K and Class K - Special Series 1)
National Tax Exempt Fund
(Class L and Class L - Special Series 1)
Equity Income Fund
(Class M and Class M - Special Series 1)
Mid Cap Regional Fund
(Class N and Class N - Special Series 1)
Enhanced Income Fund
(Class O and Class O - Special Series 1)
Total Return Advantage Fund
(Class P and Class P - Special Series 1)
Pennsylvania Tax Exempt Fund
(Class Q and Class Q - Special Series 1)
GNMA Fund
(Class S and Class S - Special Series 1)
Pennsylvania Municipal Fund
(Class T and Class T - Special Series 1)
International Equity Fund
(Class U and Class U - Special Series 1)
Real Income Protection Fund
(Class Y and Class Y - Special Series 1)
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<PAGE> 64
Core Equity Fund
(Class W and Class W - Special Series 1)
Equity Index Fund
(Class V and Class V - Special Series 1)
Each share has no par value, represents an equal proportionate
interest in the investment fund with other shares of the same class or series
outstanding, and is entitled to such dividends and distributions out of the
income earned on the assets belonging to such fund as are declared in the
discretion of the Trust's Board of Trustees. The Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any unissued shares
into any number of additional classes of shares and to classify or reclassify
any class of shares into one or more series of shares.
Shareholders are entitled to one vote for each full share
held, and a proportionate fractional vote for each fractional share held.
Shareholders will vote in the aggregate and not by investment fund, except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular investment fund. The Statement of Additional Information gives
examples of situations in which the law requires voting by investment fund. In
addition, shareholders of each of the investment funds will vote in the
aggregate and not by class or series, except as otherwise expressly required by
law or when the Board of Trustees determines the matter to be voted on affects
only the interests of the holders of a particular class or series of shares.
Under the Services Plan, only the holders of Retail shares in an investment fund
are, or would be entitled to vote on matters submitted to a vote of shareholders
(if any) concerning the Services Plan. Voting rights are not cumulative, and
accordingly, the holders of more than 50% of the aggregate shares of the Trust
may elect all of the trustees irrespective of the vote of the other
shareholders.
As stated previously in the text of this document, the Trust
is organized as a trust under the laws of Massachusetts. Shareholders of such a
trust may, under certain circumstances, be held personally liable (as if they
were partners) for the obligations of the Trust. The Declaration of Trust of the
Trust provides for indemnification out of the Trust property for any shareholder
held personally liable solely by reason of his being or having been a
shareholder and not because of his acts or omissions or some other reason.
The Trust does not presently intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The
Trust's Code of Regulations provides
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<PAGE> 65
that special meetings of shareholders shall be called at the written request of
shareholders entitled to cast at least 10% of the votes entitled to be cast at
such meeting. Such meeting may be called by shareholders to consider the removal
of one or more trustees. Shareholders will receive shareholder communication
assistance with respect to such matter as required by the 1940 Act.
CUSTODIAN AND TRANSFER AGENT
National City Bank serves as the custodian of the Trust's
assets. State Street Bank and Trust Company serves as the Trust's transfer and
dividend disbursing agent. Communications to the Transfer Agent should be
directed to P.O. Box 8421, Boston, Massachusetts 02266-8421. The fees payable by
the Trust for these services are described in the Statement of Additional
Information.
EXPENSES
Except as noted below, the Trust's advisers and subadviser
bear all expenses in connection with the performance of their services. The Fund
bears its own expenses incurred in its operations including: taxes; interest;
fees (including fees paid to its trustees and officers); SEC fees; state
securities qualification fees; costs of preparing and printing prospectuses for
regulatory purposes and for distribution to existing shareholders; expenses
related to the Distribution Plan; advisory fees; administration fees and
expenses; charges of the custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholders' reports
and shareholder meetings; and any extraordinary expenses. The Fund also pays for
brokerage fees and commissions in connection with the purchase of its portfolio
securities. Under the Services Plan, the Retail shares in the Fund also bear the
expense of shareholder servicing fees.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and
annual financial statements audited by independent auditors.
Pursuant to Rule 17f-2, as National City serves the Trust as
both the custodian and investment adviser, a procedure has been established
requiring three annual verifications, two of which are to be unannounced, of all
investments held pursuant to the Custodian Services Agreement, to be conducted
by the Trust's independent auditors.
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<PAGE> 66
As used in this Prospectus, a "vote of the holders of a
majority of the outstanding shares" of the Trust or the Fund means, with respect
to the approval of an investment advisory agreement, a distribution plan or a
change in a fundamental investment policy, the affirmative vote of the lesser of
(a) 50% or more of the outstanding shares of the Trust or the fund or (b) 67% or
more of the shares of the Trust or the fund present at a meeting if more than
50% of the outstanding shares of the Trust or the fund are represented at the
meeting in person or by proxy.
The portfolio managers of the Funds and other investment
professionals may from time to time discuss in advertising, sales literature or
other material, including periodic publications, various topics of interest to
shareholders and prospective investors. The topics may include, but are not
limited to, the advantages and disadvantages of investing in tax-deferred and
taxable investments; Fund performance and how such performance may compare to
various market indices; shareholder profiles and hypothetical investor
scenarios; the economy; the financial and capital markets; investment strategies
and techniques; investment products and tax, retirement and investment planning.
Inquiries regarding the Trust or any of its investment funds
may be directed to 1-800-622-FUND (3863).
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<PAGE> 67
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 68
ARMADA FUNDS
BOARD OF TRUSTEES Robert D. Neary
Chairman
Retired Co-Chairman, Ernst & Young
Director, Cold Metal Products, Inc.
Director, Zurn Industries, Inc.
Leigh Carter
Retired President and Chief Operating Officer,
B.F. Goodrich Company
Director, Adams Express Company
Director, Acromed Corporation
Director, Petroleum & Resources Corp.
Director, Morrison Products
John F. Durkott
President and Chief Operating Officer,
Kittle's Home Furnishings Center, Inc.
Richard W. Furst, Dean
Professor of Finance and Dean, Carol Martin
Gatton College of Business and Economics,
University of Kentucky
Director, The Seed Corporation
Director, Foam Design, Inc.
Gerald L. Gherlein
Executive Vice President and General Counsel,
Eaton Corporation
Trustee, Cleveland Initiative for Education
Trustee, Meridia Health System
Trustee, WVIZ Educational Television
J. William Pullen
President and Chief Executive Officer,
Whayne Supply Company
President and Chief Executive Officer,
American Contractors Rentals & Sales
Richard B. Tullis
Chairman Emeritus, Harris Corporation
Director, NACCO Materials Handling Group, Inc.
Director, Hamilton Beach/Proctor-Silex, Inc.
Director, Waste-Quip, Inc.
<PAGE> 69
ARMADA FUNDS
PROSPECTUS
August 1, 1997
International Equity Fund
<PAGE> 70
ARMADA FUNDS
INVESTMENT ADVISER
AN AFFILIATE OF NATIONAL
CITY CORPORATION
National City Bank
1900 East Ninth Street
Cleveland, Ohio 44114
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXPENSE TABLE.......................................................................................... 3
INTRODUCTION........................................................................................... 5
INVESTMENT OBJECTIVES AND POLICIES..................................................................... 5
INVESTMENT LIMITATIONS................................................................................ 13
PERFORMANCE INFORMATION............................................................................... 15
PRICING OF SHARES..................................................................................... 16
HOW TO PURCHASE AND REDEEM SHARES..................................................................... 17
DISTRIBUTION AGREEMENT................................................................................. 26
SHAREHOLDER SERVICES PLAN.............................................................................. 26
DIVIDENDS AND DISTRIBUTIONS............................................................................ 27
TAXES.................................................................................................. 27
MANAGEMENT OF THE TRUST................................................................................ 29
DESCRIPTION OF THE TRUST AND ITS SHARES................................................................ 30
CUSTODIAN AND TRANSFER AGENT........................................................................... 33
EXPENSES............................................................................................... 33
MISCELLANEOUS.......................................................................................... 33
</TABLE>
- ------------------------------------------------------------
|- SHARES OF ARMADA FUNDS ARE NOT BANK DEPOSITS OR |
|OBLIGATIONS OF, OR GUARANTEED OR ENDORSED OR OTHER- |
|WISE SUPPORTED BY, NATIONAL CITY BANK, ITS PARENT |
|COMPANY OR ANY OF ITS AFFILIATES OR ANY BANK. |
| |
|- SHARES OF ARMADA FUNDS ARE NOT INSURED OR |
|GUARANTEED BY THE U.S. GOVERNMENT, FDIC, OR ANY |
|GOVERNMENTAL AGENCY OR STATE. |
| |
|- AN INVESTMENT IN ARMADA FUNDS INVOLVES INVEST- |
|MENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL |
|AMOUNT INVESTED. |
| |
|National City Bank and National Asset Management |
|Corporation serve as investment advisers to Armada Funds |
|for which they receive an investment advisory fee. Past |
|performance is not indicative of future performance, and |
|the investment return will fluctuate, so that you may |
|have a gain or loss when you sell your shares. |
- ------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST
OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE TRUST
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
<PAGE> 71
ARMADA FUNDS
Oaks, Pennsylvania 19456 If you purchased your shares
through NatCity Investments,
Inc., please call your
Investment Consultant for
information.
For current performance,
fund information, account
redemption information,
and to purchase shares,
please call 1-800-622-FUND (3863).
This Prospectus describes the International Equity Fund (the "Fund") of
Armada Funds (the "Trust"):
INTERNATIONAL EQUITY FUND'S investment objective is to seek capital
growth consistent with reasonable investment risk. The Fund will normally invest
at least 80% of its total assets in equity securities of foreign issuers.
The net asset value per share of the Fund will fluctuate as the value
of its investment portfolio changes in response to changing market prices and
other factors.
National City Bank ("National City"), serves as investment adviser to
the Fund (the "adviser").
SEI Investments Distribution Co. (the "Distributor") serves as the
Trust's sponsor and distributor. The Fund pays a fee to the Distributor for
distributing its shares. See "Distribution Agreement."
This Prospectus sets forth concisely the information about the Fund
that a prospective investor should consider before investing. Investors should
carefully read this Prospectus and retain it for future reference. Additional
information about the Fund, contained in a Statement of Additional Information,
has been filed with the Securities and Exchange Commission ("SEC") and is
available upon request without charge by contacting the Trust at its telephone
number or address shown above. The Statement of Additional Information bears the
same date as this Prospectus and is incorporated by reference in its entirety
into this Prospectus.
SHARES OF THE TRUST ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED OR OTHERWISE SUPPORTED BY, NATIONAL CITY BANK, ITS PARENT
COMPANY OR ANY OF ITS AFFILIATES, AND ARE NOT FEDERALLY INSURED OR GUARANTEED BY
THE U.S. GOVERNMENT,
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<PAGE> 72
FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY GOVERNMENTAL AGENCY OR STATE.
INVESTMENT IN THE TRUST INVOLVES RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
August 1, 1997
-2-
<PAGE> 73
EXPENSE TABLE
<TABLE>
<CAPTION>
INTERNATIONAL INTERNATIONAL
EQUITY EQUITY
RETAIL INSTITUTIONAL
SHARES(1),(2) SHARES(2)
------------- -------------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge
Imposed on Purchases.................... 3.75% None
Sales Charge Imposed
on Reinvested Dividends................. None None
Deferred Sales Charge..................... None None
Redemption Fee............................ None None
Exchange Fee.............................. None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net
assets)
Management Fees........................... 0.75% 0.75%
12b-1 Fees(4) (after fee waivers)........... 0.06% 0.06%
Other Expenses(3) (after fee
waivers).................................. 0.59% 0.34%
TOTAL FUND OPERATING
EXPENSES(3) (after fee waivers)......... 1.40% 1.15%
==== ====
</TABLE>
- ---------------------------
1 The Trust has implemented a Shareholder Services Plan (the "Services
Plan") with respect to Retail shares in the Fund. Pursuant to the
Services Plan, the Trust may enter into shareholder servicing
agreements with certain financial institutions under which they agree
to provide shareholder administrative services to their customers who
beneficially own Retail shares in consideration for the payment of up
to .25% (on an annualized basis) of the net asset value of Retail
shares.
2 As of the date of this Prospectus, the Fund had not commenced
investment operations, and therefore, the other expenses for this Fund
are estimates only.
3 Without fee waivers during the current fiscal year by the
Administrator, Other Expenses and Total Fund Operating Expenses would
be 0.69% and 1.50%, respectively, for the Retail shares and 0.44% and
1.25%, respectively, for the Institutional shares of the Fund.
Additionally, if the maximum distribution fee permitted under the 12b-1
Plan were imposed, Total Fund Operating Expenses would be 1.54% and
1.29% for the Retail and Institutional Shares, respectively.
4 The Fund has in effect a 12b-1 Plan pursuant to which it may bear fees
in an amount of up to .10% of average daily net assets. As a result of
the payment of sales charges and 12b-1 fees, long-term shareholders may
pay more than the economic equivalent of the maximum front-end sales
charge permitted by the National Association of Securities Dealers,
Inc. ("NASD"). The NASD has adopted rules which generally limit the
aggregate sales charges and payments under the Trust's Service and
Distribution Plan ("Distribution Plan") and Services Plan to a certain
percentage of total new gross share sales, plus interest. The Trust
would stop accruing 12b-1 and related fees if, to the extent, and for
as long as, such limit would otherwise be exceeded.
-3-
<PAGE> 74
- ----------------------
EXAMPLE
For example, you would pay the following expenses on a hypothetical $1,000
investment, assuming: (1) a 5% annual return (a hypothetical return required by
SEC regulations); (2) the redemption of your investment at the end of the
following time periods; and, (3) the imposition of the maximum sales charge fee
at the beginning of the period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Retail Shares......................................... $51 $80
Institutional Shares.................................. $12 $37
</TABLE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE GREATER
OR LESS THAN THOSE SHOWN.
The purpose of this Expense Table is to assist an investor in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly. For more complete descriptions of these costs and
expenses, see "Management of the Trust" and "Distribution Agreement" in this
Prospectus. Any fees that are charged by affiliates of the adviser or other
institutions directly to their customer accounts for services related to an
investment in Retail shares of the Fund are in addition to and not reflected in
the fees and expenses described above.
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<PAGE> 75
INTRODUCTION
The Trust is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"). The Fund consists of a pool of assets with investment objectives and
policies as described below under "Investment Objectives and Policies." The Fund
is classified as a diversified investment fund under the 1940 Act.
Shares of the Fund have been classified into two separate
classes -- Retail shares and Institutional shares. Retail shares and
Institutional shares represent equal pro rata interests in the Fund except that,
as described more fully below under "Shareholder Services Plan," the Trust has
implemented the Services Plan with respect to Retail shares of the Fund. Under
the Services Plan, only the beneficial owners of Retail shares bear the expenses
of shareholder administrative services which are provided by financial
institutions for their benefit (not to exceed .25% annually). See "Shareholder
Services Plan," "Dividends and Distributions" and "Description of the Trust and
Its Shares" for a description of the impact that the Services Plan may have on
holders of Retail shares.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the Fund is to provide capital
growth consistent with reasonable investment risk. The Fund seeks to achieve its
investment objective by investing, under normal market conditions, at least 80%
of its total assets in equity securities of foreign issuers. The Fund's assets
will normally be invested in the securities of issuers located in at least three
foreign countries. Foreign investments may also include debt obligations issued
or guaranteed by foreign governments or their agencies, authorities,
instrumentalities or political subdivisions, including a foreign state, province
or municipality. The Fund's investment objective and investment policies may be
changed without a vote of shareholders. There can be no assurance that the Fund
will achieve its objective.
The Fund will invest primarily in equity securities, including
common and preferred stocks, rights, warrants, securities convertible into
common stocks and American Depository Receipts ("ADRs") of companies included in
the Morgan Stanley Capital International Europe, Australia, Far East ("EAFE")
Index, a broadly diversified international index consisting of more than 1,000
equity securities of companies located in Australia, Austria, Belgium, Denmark,
Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Malaysia, the
Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland, and the
United Kingdom. The Fund is not an "index" fund, and is neither sponsored by nor
affiliated with Morgan Stanley Capital
-5-
<PAGE> 76
International. The Fund does not anticipate making investments in markets where,
in the judgment of the adviser, property rights are not defined and supported by
adequate legal infrastructure. However, investors should read "Special Risk
Factors -- Foreign Securities and Currencies" to understand the nature of this
and other risks involved in foreign investments. More than 25% of the Fund's
assets may be invested in the securities of issuers located in the same country.
Investment in a particular country of 25% or more of the Fund's total assets
will make the Fund's performance more dependent upon the political and economic
circumstances of that country than a mutual fund more widely diversified among
issuers in different countries. Criteria for determining the appropriate
distribution of investments among countries may include relative valuation,
growth prospects, and fiscal, monetary, and regulatory government policies.
SPECIAL RISK FACTORS -- FOREIGN SECURITIES AND CURRENCIES
The Fund may invest in securities issued by foreign issuers
either directly or indirectly through investments in American, European or
Global Depository Receipts (see "American, European and Global Depository
Receipts" below). Such securities may or may not be listed on foreign or
domestic stock exchanges.
Investments in foreign securities involve certain inherent
risks, such as political or economic instability of the issuer or the country of
issue, the difficulty of predicting international trade patterns, changes in
exchange rates of foreign currencies and the possibility of adverse changes in
investment or exchange control regulations. There may be less publicly available
information about a foreign company than about a domestic company. Foreign
companies generally are not subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
companies. Further, foreign stock markets are generally not as developed or
efficient as those in the U.S., and in most foreign markets, volume and
liquidity are less than in the U.S. Fixed commissions on foreign stock exchanges
are generally higher than the negotiated commissions on U.S. exchanges, and
there is generally less government supervision and regulation of foreign stock
exchanges, brokers and companies than in the U.S.
With respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, limitations on the
removal of funds or other assets, or diplomatic developments that could affect
investment within those countries. Because of these and other factors,
securities of foreign companies acquired by the Funds may be subject to greater
fluctuation in price than securities of domestic companies. For further
information, see "Investment Objectives and Policies" in the Statement of
Additional Information.
-6-
<PAGE> 77
Since the Fund will invest substantially in securities
denominated in or quoted in currencies other than the U.S. dollar, changes in
currency exchange rates (as well as changes in market values) will affect the
value in U.S. dollars of securities in the Fund. Foreign exchange rates are
influenced by trade and investment flows, policy decisions of governments, and
investor sentiment about these and other issues. Costs are incurred in
connection with conversions between various currencies.
The expense ratio of the Fund can be expected to be higher
than that of funds investing in domestic securities. The costs of investing
abroad are generally higher for several reasons, including the cost of
investment research, higher costs of custody for foreign securities, higher
commissions paid for comparable transactions involving foreign securities, and
costs arising from delays in settlements of transactions involving foreign
securities.
Interest and dividends payable on the Fund's foreign portfolio
securities may be subject to foreign withholding taxes. To the extent such taxes
are not offset by tax credits or deductions allowed to investors under U.S.
federal income tax provisions, they may reduce the return to the Fund's
shareholders.
OTHER INVESTMENT POLICIES
Investment methods described in this Prospectus are among
those which the Fund has the power to utilize. Some may be employed on a regular
basis; others may not be used at all. Accordingly, reference to any particular
method or technique carries no implication that it will be utilized or, if it
is, that it will be successful.
-7-
<PAGE> 78
American, European and Global Depository Receipts
The Fund may invest in both sponsored and unsponsored ADRs,
European Depository Receipts ("EDRs"), Global Depository Receipts ("GDRs") and
other similar global instruments. ADRs are receipts issued in registered form by
a U.S. bank or trust company evidencing ownership of underlying securities
issued by a foreign issuer. EDRs, which are sometimes referred to as Continental
Depository Receipts, are receipts issued in Europe typically by non-U.S. banks
or trust companies and foreign branches of U.S. banks that evidence ownership of
foreign or U.S. securities. GDRs are receipts structured similarly to EDRs and
are marketed globally. ADRs may be listed on a national securities exchange or
may be traded in the over-the-counter markets. EDRs are designed for use in
European exchange and over-the-counter markets. GDRs are designed for trading in
non-U.S. securities markets. Investments in ADRs, EDRs and GDRs involve risks
similar to those accompanying direct investments in foreign securities, but
those that are traded in the over-the-counter market which do not have an active
or substantial secondary market will be considered illiquid and, therefore, will
be subject to the Fund's limitation with respect to such securities. ADR prices
are denominated in U.S. dollars although the underlying securities may be
denominated in a foreign currency.
The principal difference between sponsored and unsponsored
ADR, EDR and GDR programs is that the latter are organized independently and
without the cooperation of the issuer of the underlying securities.
Consequently, available information concerning the issuer may not be as current
as for sponsored ADRs, EDRs and GDRs, and the prices of unsponsored ADRs, EDRs
and GDRs may be more volatile.
"Covered Call" Options
The Fund may write covered call options, which are options on
securities owned by the Fund. A call option on a particular security gives the
purchaser of the option the right to buy, and the Fund the obligation to sell,
the security at a stated exercise price at any time prior to the expiration of
the option, regardless of the market price of the security. The Fund would
receive a premium as consideration for writing the option. A consequence of
writing covered call options is that the Fund would forego any capital
appreciation above the exercise price on the underlying securities. In order to
close out a call option it has written, the Fund would enter into a "closing
purchase transaction"--the purchase of a call option on the same security with
the same exercise price and expiration date as the call option which the Fund
previously wrote on the security. When a portfolio security subject to a call
option is sold, the Fund will effect a closing purchase transaction to close out
any
-8-
<PAGE> 79
existing call option on that security. If the Fund is unable to effect a closing
purchase transaction, it will not be able to sell the underlying security until
the option expires or the Fund delivers the underlying security upon exercise.
Under normal conditions, it is expected that the underlying value of portfolio
securities subject to such options would not exceed 25% of the net asset value
of the Fund.
Foreign Currency and Stock Index Futures Contracts and
Options
The Fund may purchase and sell futures contracts that would
obligate the Fund to take or make delivery of the cash value of a stated amount
of a foreign currency or a securities index. The Fund may invest in futures
contracts either to attempt to hedge against changes in the value of securities
that it holds or intends to purchase, or in anticipation of changes in currency
exchange rates.
The Fund may purchase and sell call and put options on futures
contracts traded on an exchange or board of trade. When the Fund purchases an
option on a futures contract, it has the right to assume a position as a
purchaser or seller of a futures contract at a specified exercise price at any
time during the option period. When the Fund sells an option on a futures
contract, it becomes obligated to purchase or sell a futures contract if the
option is exercised. In anticipation of a market advance, the Fund may purchase
call options on futures contracts to hedge against a possible increase in the
price of securities which the Fund intends to purchase. Similarly, if the value
of the Fund's securities is expected to decline, the Fund might purchase put
options or sell call options on futures contracts rather than sell futures
contracts.
The Fund intends to comply with the regulations of the
Commodity Futures Trading Commission ("CFTC") exempting it from registration as
a "commodity pool operator." The Funds' commodities transactions must constitute
bona fide hedging or other permissible transactions pursuant to such
regulations. In addition, the Funds may not engage in such transactions if the
sum of the amount of initial margin deposits and premiums paid for unexpired
commodity options, other than for bona fide hedging transactions, would exceed
5% of the liquidation value of its assets, after taking into account unrealized
profits and unrealized losses on such contracts it has entered into; provided,
however, that in the case of an option that has reached or exceeded its strike
price at the time of purchase, the amount in excess of the strike price may be
excluded in calculating the percentage limitation. In connection with a Fund's
position in a futures contract or option thereon, it will create a segregated
account of liquid assets, such as cash, U.S. government securities or other
liquid high grade debt obligations, or will
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otherwise cover its position in accordance with applicable requirements of the
SEC.
The primary risks associated with the use of futures contracts
and options are:
(i) an imperfect correlation between the change in market
value of the securities or currencies held by the Funds and the price of the
futures contracts and options;
(ii) possible lack of a liquid secondary market for a futures
contract and the resulting inability to close a futures contract when desired;
(iii) losses greater than the amount of the principal invested
as initial margin due to unanticipated market movements which are potentially
unlimited; and
(iv) the adviser's ability to predict correctly the direction
of securities prices, interest rates and other economic factors.
For further information, see "Investment Objectives and
Policies - Futures Contracts and Options" and Appendix B in the Statement of
Additional Information.
Forward Currency Exchange Contracts
The Fund may enter into forward currency exchange contracts in
an effort to reduce the level of volatility caused by changes in foreign
currency exchange rates or where such transactions are deemed economically
appropriate for the reduction of risks inherent in the ongoing management of the
Fund. The Fund may not enter into such contracts for speculative purposes. A
forward currency exchange contract is an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of contract. Although such contracts tend to minimize the risk of loss due to a
decline in the value of the hedged currency, at the same time they tend to limit
any potential gain that might be realized should the value of such currency
increase. Consequently, the Fund may choose to refrain from entering into such
contracts. In connection with forward currency exchange contracts, the Fund will
create a segregated account of liquid assets.
Exchange Rate-Related Securities
The Fund may invest in debt securities for which the principal
due at maturity, while paid in U.S. dollars, is determined by reference to the
exchange rate between the U.S.
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dollar and the currency of one or more foreign countries ("Exchange Rate-Related
Securities"). The interest payable on these securities is also denominated in
U.S. dollars and is not subject to foreign currency risk and, in most cases, is
paid at rates higher than most other similarly rated securities in recognition
of the risks associated with these securities. There is the possibility of
significant changes in rates of exchange between the U.S. dollar and any foreign
currency to which an Exchange Rate-Related Security is linked. In addition,
there is no assurance that sufficient trading interest to create a liquid
secondary market will exist for a particular Exchange Rate-Related Security due
to conditions in the debt and foreign currency markets. Illiquidity in the
forward foreign exchange market and the high volatility of the foreign exchange
market may, from time to time, combine to make it difficult to sell an Exchange
Rate-Related Security prior to maturity without incurring a significant price
loss.
Illiquid Securities
The Fund will not invest more than 15% of the value of its net
assets in securities that are illiquid. Illiquid securities include certain
securities which are subject to trading restrictions because they are not
registered under the Securities Act of 1933, as amended (the "1933 Act"). If the
Fund exceeds the limitation on the holding of illiquid securities, it will sell
illiquid securities as necessary to maintain the required liquidity when the
adviser believes that it is in the best interests of the Fund to do so.
The Fund may purchase securities which are not registered
under the 1933 Act but which can be sold to "qualified institutional buyers" in
accordance with Rule 144A under the 1933 Act. Any such security will not be
considered illiquid so long as it is determined by the Board of Trustees or the
Fund's adviser, acting under guidelines approved and monitored by the Board,
that an adequate trading market exists for that security. This investment
practice could have the effect of increasing the level of illiquidity in the
Fund during any period that qualified institutional buyers become uninterested
in purchasing these restricted securities.
Short Term Obligations
During temporary defensive periods the Fund may invest up to
100% of its assets in short term obligations (with maturities of 18 months or
less) such as repurchase agreements, foreign commercial paper, bankers'
acceptances, certificates of deposit and demand and time deposits of foreign
branches of U.S. banks and foreign banks. In the case of repurchase agreements,
default or bankruptcy of the seller may expose a Fund to possible loss because
of adverse market action or delays connected with
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the disposition of the underlying obligations. Further, it is uncertain whether
the Fund would be entitled, as against a claim by such seller or its receiver or
trustee in bankruptcy, to retain the underlying securities. Reverse repurchase
agreements involve the risk that the market value of the securities held by a
Fund may decline below the price of the securities it is obligated to
repurchase. For further information, see "Investment Objectives and Policies" in
the Statement of Additional Information.
Lending Portfolio Securities
In order to generate additional income, the Fund may, from
time to time, lend its portfolio securities to broker-dealers, banks or other
institutional borrowers. The Fund must receive 100% collateral in the form of
cash or U.S. Government securities. This collateral must be valued daily by the
Fund's adviser or advisers and the borrower will be required to provide
additional collateral should the market value of the loaned securities increase.
During the time portfolio securities are on loan, the borrower pays the Fund any
dividends or interest paid on such securities. Loans are subject to termination
by the Fund or the borrower at any time. While the Fund does not have the right
to vote securities on loan, it intends to terminate the loan and regain the
right to vote if this is considered important with respect to the investment.
The Fund will only enter into loan arrangements with broker-dealers, banks or
other institutions which one of its advisers has determined are creditworthy
under guidelines established by the Trust's Board of Trustees.
Securities of Other Investment Companies
Subject to 1940 Act limitations, the Fund may invest in
securities issued by other investment companies which invest in high quality,
short-term debt securities and which determine their net asset value per share
based on the amortized cost or penny-rounding method.
The Fund may also purchase shares of investment companies
investing primarily in foreign securities, including "country funds" which have
portfolios consisting exclusively of securities of issuers located in one
foreign country. Such "country funds" may be either open-end or closed-end
investment companies, and may include a portfolio or portfolios of The
CountryBaskets Index Fund, Inc. ("CountryBaskets"), a registered, open-end
management investment company that, through its portfolios, seeks to provide
investment results that substantially correspond to the price and yield
performance of a broad-based index of publicly traded equity securities in a
particular country, geographic region or industry sector.
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The Fund may purchase World Equity Benchmark Shares(sm) issued
by The Foreign Fund, Inc. ("WEBS") and similar securities of other issuers. WEBS
are shares of an investment company that invests substantially all of its assets
in securities included in the Morgan Stanley Capital International indices for
specific countries. Because the expense associated with an investment in WEBS
can be substantially lower than the expense of small investments directly in the
securities comprising the indices they seek to track, the adviser believes that
investments in WEBS of countries that are included in the EAFE Index can provide
a cost-effective means of diversifying the Fund's assets across a broader range
of equity securities.
WEBS are listed on the American Stock Exchange (the "AMEX"),
and were initially offered to the public in 1996. The market prices of WEBS are
expected to fluctuate in accordance with both changes in the net asset values of
their underlying indices and supply and demand of WEBS on the AMEX. To date,
WEBS have traded at relatively modest discounts and premiums to their net asset
values. However, WEBS have a limited operating history, and information is
lacking regarding the actual performance and trading liquidity of WEBS for
extended periods or over complete market cycles. In addition, there is no
assurance that the requirements of the AMEX necessary to maintain the listing of
WEBS will continue to be met or will remain unchanged. In the event substantial
market or other disruptions affecting WEBS or CountryBaskets should occur in the
future, the liquidity and value of the Fund's shares could also be substantially
and adversely affected, and the Fund's ability to provide investment results
approximating the performance of securities in the EAFE could be impaired. If
such disruptions were to occur, the Fund could be required to reconsider the use
of WEBS, CountryBaskets or other "country funds" as part of its investment
strategy.
As a shareholder of another investment company, a Fund would
bear, along with other shareholders, its pro rata portion of that company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that the Fund bears directly in connection with its
own operations. Investment companies in which the Fund may invest may also
impose a sales or distribution charge in connection with the purchase or
redemption of their shares and other types of commissions or charges. Such
charges will be payable by the Fund and, therefore, will be borne indirectly by
its shareholders. For further information, see "Investment Objective and
Policies" in the Statement of Additional Information.
INVESTMENT LIMITATIONS
The Fund is subject to a number of investment limitations. The
following investment limitations are matters of fundamental policy and may not
be changed without the affirmative
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vote of the Fund's outstanding shares (as defined under "Miscellaneous"). (Other
investment limitations that also cannot be changed without a vote of
shareholders are contained in the Statement of Additional Information under
"Investment Objectives and Policies.")
The Fund may not:
1. Purchase any securities which would cause 25% or more of
the value of its total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry, provided that
(a) there is no limitation with respect to obligations issued
or guaranteed by the U.S. government, any state, territory or
possession of the United States, the District of Columbia or
any of their authorities, agencies, instrumentalities or
political subdivisions, and repurchase agreements secured by
such instruments
(b) wholly-owned finance companies will be considered to be in
the industries of their parents if their activities are
primarily related to financing the activities of the parents
(c) utilities will be divided according to their services, for
example, gas, gas transmission, electric and gas, electric and
telephone will each be considered a separate industry
(d) personal credit and business credit businesses will be
considered separate industries
2. Make loans, except that it may purchase and hold debt
instruments and enter into repurchase agreements in accordance with its
investment objective and policies and may lend portfolio securities in an amount
not exceeding one-third of its total assets.
3. Borrow money, issue senior securities or mortgage, pledge
or hypothecate its assets except to the extent permitted under the 1940 Act.
4. Purchase securities of any one issuer, other than
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities or securities issued or guaranteed by any foreign government
if, immediately after such purchase, more than 5% of the value of the Fund's
total assets would be invested in such issuer or the Fund would hold more than
10% of any class of securities of the issuer or more than 10% of the outstanding
voting securities of the issuer, except that up to
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25% of the value of the Fund's total assets may be invested without regard to
such limitations.
Generally, if a percentage limitation is satisfied at the time
of investment, a later increase or decrease in such percentage resulting from a
change in the value a Fund's portfolio securities will not constitute a
violation of such limitation for purposes of the 1940 Act.
For purposes of investment limitation No. 1, the Fund treats,
as a matter of non-fundamental policy that may be changed without a vote of
shareholders, all supranational organizations as a single industry and each
foreign government (and all of its agencies) as a separate industry.
PERFORMANCE INFORMATION
From time to time, the Trust may provide in advertisements or
in reports to shareholders the Fund's total return data for its Institutional
shares and Retail shares.
The Fund calculates its total return for each class of shares
on an "average annual total return" basis for various periods from the date of
commencement of investment operations and for other periods as permitted under
the rules of the SEC. Average annual total return reflects the average annual
percentage change in value of an investment in the class over the measuring
period. Total returns for each class of shares may also be calculated on an
"aggregate total return" basis for various periods. Aggregate total return
reflects the total percentage change in value over the measuring period. Both
methods of calculating total return reflect changes in the price of the shares
and assume that any dividends and capital gain distributions made by the Fund
with respect to a class during the period are reinvested in shares of that
class. When considering average total return figures for periods longer than one
year, it is important to note that the annual total return of a class for any
one year in the period might have been greater or less than the average for the
entire period. The Fund may also advertise, from time to time, the total returns
of one or more classes of shares on a year-by-year or other basis for various
specified periods by means of quotations, charts, graphs or schedules.
Investors may compare the performance of each class of shares
of the Fund to the performance of other mutual funds with comparable investment
objectives, to various mutual fund or market indices, such as the S&P 500, and
to data or rankings prepared by independent services such as Lipper Analytical
Services, Inc. or other financial or industry publications that monitor the
performance of mutual funds. Comparisons may also be made to indices or data
published in Money Magazine, Forbes, Barron's, The Wall Street Journal, The New
York Times, Business
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Week, U.S.A. Today, CDA/Weisenberger, The American Banker, Morningstar,
Incorporated and other publications of a local, regional or financial industry
nature.
The past performance of each class of shares of the Fund is
based on historical earnings and is not intended to indicate future performance.
The investment return and principal value of an investment in a class will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. Performance data may not provide a basis for
comparison with bank deposits and other investments which provide a fixed yield
for a stated period of time. Changes in the net asset value of a class should be
considered in ascertaining the total return to shareholders for a given period.
Yield and total return data should also be considered in light of the risks
associated with the Fund's portfolio composition, quality, maturity, operating
expenses and market conditions. Any fees charged by financial institutions (as
described in "How to Purchase and Redeem Shares") are not included in the
computation of performance data but will reduce a shareholder's net return on an
investment in the Fund.
Further information about the performance of the Fund is
available in the annual and semi-annual reports to shareholders. Shareholders
may obtain these materials from the Trust free of charge by calling
1-800-622-FUND (3863).
PRICING OF SHARES
For purposes of pricing purchases and redemption orders, the
net asset value per share of the Fund is calculated as of the close of trading
on the New York Stock Exchange (the "Exchange") (generally, 4:00 p.m. Eastern
Time). Net asset value per share is determined on each business day, except
those holidays which the Exchange, or banks and trust companies which are
affiliated with National City Corporation (the "Banks"), observe (currently New
Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day,
Thanksgiving Day and Christmas Day) ("Business Day"). Net asset value per share
of a particular class in the Fund is calculated by dividing the value of all
securities and other assets belonging to the Fund allocable to such class, less
the liabilities charged to that class, by the number of the outstanding shares
of that class.
The Fund's investments in securities for which market
quotations are readily available are valued at their market values determined on
the basis of closing sales prices, if the principal market is an exchange, or
the mean between their current available bid and asked prices, for unlisted
securities, or for securities traded on a national securities market.
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Securities and other assets for which quotations are not readily available are
valued at their fair value under procedures approved by the Board of Trustees.
Absent unusual circumstances, short-term investments having maturities of 60
days or less are valued on the basis of amortized cost unless the Trust's Board
of Trustees determines that this does not represent fair value. The net asset
value per share of each class of shares of the Fund will fluctuate as the value
of its investment fund changes.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by the
Trust's sponsor and distributor. The Distributor is a registered broker/dealer
with principal offices located at Oaks, Pennsylvania 19456.
From time to time, the Distributor, at its expense, may offer
promotional incentives to dealers. As of the date of this Prospectus, the
Distributor intends to offer certain promotional incentives, including trips and
monetary awards, to NatCity Investments, Inc. and other affiliates of National
City.
PURCHASE OF RETAIL SHARES
Retail shares are sold to the public ("Investors") primarily
through financial institutions such as banks, brokers and dealers. Investors may
purchase Retail shares directly in accordance with the procedures set forth
below or through procedures established by their financial institutions in
connection with the requirements of their accounts.
Financial institutions may charge certain account fees
depending on the type of account the Investor has established with the
institution. (For information on such fees, the Investor should review his
agreement with the institution or contact it directly.) In addition, certain
financial institutions may enter into shareholder servicing agreements with the
Trust whereby a financial institution would perform various administrative
support services for its customers who are the beneficial owners of Retail
shares and would receive fees from the Fund for such services of up to .25% (on
an annualized basis) of the average daily net asset value of such shares. See
"Shareholder Services Plan." To purchase shares, Investors should call
1-800-622-FUND (3863) or visit their local NatCity Investments, Inc. office:
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Akron 1-800-229-0295
Cleveland 1-800-624-6450
Columbus 1-800-345-0278
Dayton 1-800-755-8723
Indianapolis 1-800-826-2868
Louisville 1-800-727-5656
Pittsburgh 1-800-282-1078
Toledo 1-800-331-8275
Youngstown 1-800-742-4098
Shares may be purchased in conjunction with an individual
retirement account ("IRA") and rollover IRAs where a designated custodian acts
as custodian. Investors should contact NatCity Investments, Inc., the
Distributor or their financial institutions for information as to applications
and annual fees. Investors should also consult their tax advisers to determine
whether the benefits of an IRA are available or appropriate.
The minimum investment for the initial purchase of Retail
shares in each Fund is $2,500, except for purchases for an IRA or other
retirement plan in which event the minimum initial investment is $500. All
subsequent investments for Retail shares and IRAs are subject to a minimum
investment of $250. Investments made in Retail shares through a monthly savings
program described below are not subject to the minimum initial and subsequent
investment requirements or any minimum account balance requirements described in
"Other Redemption Information." Purchases for an IRA through the monthly savings
program will be considered as contributions for the year in which the purchases
are made.
Under a monthly savings program, Investors may add to their
investment in the Retail shares of a Fund, in a consistent manner twice each
month, with a minimum amount of $50 per month. Monies may be automatically
withdrawn from a shareholder's checking or savings account available through an
Investor's financial institution and invested in additional Retail shares at the
Public Offering Price next determined after an order is received by the Trust.
An Investor may apply for participation in a monthly program by completing an
application obtained through a financial institution, such as banks, brokers, or
dealers selling Retail shares of the Fund, or by calling 1-800-622-FUND (3863).
The program may be modified or terminated by an Investor on 30 days written
notice or by the Trust at any time.
All shareholders of record will receive confirmations of share
purchases and redemptions. Financial institutions will be responsible for
transmitting purchase and redemption orders to the Trust's transfer agent, State
Street Bank and Trust Company (the "Transfer Agent"), on a timely basis.
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The Trust reserves the right to reject any purchase order.
SALES CHARGES APPLICABLE TO PURCHASES OF RETAIL SHARES
The Public Offering Price for Retail shares of the Fund is the
sum of the net asset value of the shares being purchased plus any applicable
sales charge per account, which is assessed as follows:
<TABLE>
<CAPTION>
As a % As a % Dealers'
of offering of net Reallowance
price per asset value as a % of
Amount of Transaction share per share offering price
- --------------------- ------------ ------------ --------------
<S> <C> <C> <C>
Less than $100,000 3.75 3.90 3.75
$100,000 but less
than $250,000 2.75 2.83 2.75
$250,000 but less
than $500,000 2.00 2.04 2.00
$500,000 but less
than $1,000,000 1.25 1.27 1.25
$1,000,000 or more 0.00 0.00 0.00
</TABLE>
Under the 1933 Act, the term "underwriter" includes persons
who offer or sell for an issuer in connection with the distribution of a
security or have a direct or indirect participation in such undertaking, but
excludes persons whose interest is limited to a commission from an underwriter
or dealer not in excess of the usual and customary distributors' or sellers'
commission. The Staff of the SEC has expressed the view that persons who receive
90% or more of a sales load may be deemed to be underwriters within the meaning
of this definition. The Dealers' Reallowance may be changed from time to time.
No sales charge will be assessed on purchases of Retail shares
made by:
(a) trustees and officers of the Trust
(b) directors, employees and participants in employee
benefit/retirement plans (annuitants) of National City
Corporation or any of its affiliates
(c) the spouses, children, grandchildren, and parents
of individuals referred to in clauses (a) and (b) above
(d) qualified retirement plans purchasing shares
through NatCity Investments, Inc.
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(e) individuals investing in the Fund by way of a direct
transfer or a rollover from a qualified plan distribution and
subsequent transactions into the same account where affiliates
of National City Corporation are serving as a trustee or agent
(f) investors purchasing Fund shares through a payroll
deduction plan
(g) individuals investing in the Fund by way of an asset
allocation program sponsored by financial institutions,
although certain account level fees may apply
REDUCED SALES CHARGES APPLICABLE TO PURCHASES OF RETAIL SHARES
The applicable sales charge may be reduced on purchases of
Retail shares of the Fund made under the Right of Accumulation or Letter of
Intent, as described below. To qualify for a reduced sales charge, Investors
must so notify their financial institutions or the Trust directly by calling
1-800-622-FUND (3863) at the time of purchase. Reduced sales charges may be
modified or terminated at any time and are subject to confirmation of an
Investor's holdings.
Right of Accumulation.
Investors may use their aggregate investments in Retail shares
in determining the applicable sales charge. An Investor's aggregate investment
in Retail shares is the total value (based on the higher of current net asset
value or any Public Offering Price originally paid) of
(a) current purchases
(b) Retail shares that are already beneficially owned
by the Investor for which a sales charge has been paid
(c) Retail shares that are already beneficially owned by the
Investor which were purchased prior to July 22, 1990
(d) Retail shares purchased by dividends or capital
gains that are reinvested
If, for example, an Investor beneficially owns Retail shares
of the Fund with an aggregate current value of $90,000 and subsequently
purchases Retail shares of the Fund having a current value of $10,000, the sales
charge applicable to the subsequent purchase would be reduced to 2.75% of the
Public Offering Price.
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Letter of Intent.
An Investor may qualify for a reduced sales charge immediately
upon signing a nonbinding Letter of Intent stating the Investor's intention to
invest during the next 13 months a specified amount which, if made at one time,
would qualify for a reduced sales charge. The Letter of Intent option is
included on the account application which may be obtained from the Investor's
financial institution or directly from the Trust by calling 1-800-622-FUND
(3863). If an Investor so elects, the 13-month period may begin up to 30 days
prior to the Investor's signing the Letter of Intent. The initial investment
under the Letter of Intent must be equal to at least 4.0% of the amount
indicated in the Letter of Intent. During the term of a Letter of Intent, the
Transfer Agent will hold Retail shares representing 4.0% of the amount indicated
in the Letter of Intent in escrow for payment of a higher sales charge if the
entire amount is not purchased. Upon completing the purchase of the entire
amount indicated in the Letter of Intent, the escrowed shares will be released.
If the entire amount is not purchased within the 13-month period or is redeemed
within one year from the time of fulfillment, the Investor will be required to
pay an amount equal to the difference in the dollar amount of sales charge
actually paid and the amount of sales charge the Investor would have had to pay
on the aggregate purchases if the total of such purchases had been made at a
single time.
PURCHASE OF INSTITUTIONAL SHARES
Institutional shares are sold primarily to the Banks and
National Asset Management Corporation ("NAM") customers ("Customers") that are
large institutions. Institutional shares are sold without a sales charge imposed
by the Trust or the Distributor. However, depending on the terms governing the
particular account, the Banks or NAM may impose account charges such as account
maintenance fees, compensating balance requirements or other charges based upon
account transactions, assets or income which will have the effect of reducing
the shareholder's net return on his investment in the Fund. There is no minimum
investment.
It is the responsibility of the Banks and NAM to transmit
their Customers' purchase orders to the Transfer Agent and to deliver required
funds on a timely basis, in accordance with the procedures stated above.
Institutional shares will normally be held of record by the Banks or NAM.
Confirmations of share purchases and redemptions will be sent to the Banks and
NAM. Beneficial ownership of Institutional shares will be recorded by the Banks
or NAM and reflected in the account statements provided by them to their
Customers.
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The Trust reserves the right to reject any purchase order.
EFFECTIVE TIME OF PURCHASES
Purchase orders for shares of the Fund which are received by
the Transfer Agent prior to 4:00 p.m. (Eastern Time) on any Business Day are
priced according to the net asset value per share determined on that day plus
any applicable sales charge (the "Public Offering Price"). Immediately available
funds must be received by the Trust's custodian prior to 2:00 p.m. (Eastern
Time) on the third Business Day following the receipt of such order, at which
time the order will be executed. If funds are not received by such date, the
order will not be accepted and notice thereof will be given to the Bank or
financial institution placing the order. Purchase orders for which payment has
not been received or accepted will be returned after prompt inquiry to the
sending Bank or institution.
REDEMPTION OF RETAIL SHARES
Redemption orders must be placed in writing or by telephone to
the same financial institution that placed the original purchase order. It is
the responsibility of the financial institutions to transmit redemption orders
to the Transfer Agent. Investors who purchased shares directly from the Trust
may redeem shares in any amount by calling 1-800-622-FUND (3863). Redemption
proceeds are paid by check or credited to the Investor's account with his
financial institution.
REDEMPTION OF INSTITUTIONAL SHARES
Customers may redeem all or part of their Institutional shares
in accordance with instructions and limitations pertaining to their accounts at
the Banks or NAM. It is the responsibility of the Banks or NAM to transmit
redemption orders to the Transfer Agent and credit their Customers' accounts
with the redemption proceeds on a timely basis. Redemption orders are effected
at the net asset value per share next determined after receipt of the order by
the Transfer Agent. No charge for wiring redemption payments is imposed by the
Trust, although the Banks or NAM may charge their Customers' accounts for
services. Information relating to such services and charges, if any, is
available from the Banks or NAM.
If a Customer has agreed with a particular Bank to maintain a
minimum balance in his account at the Bank and the balance in such account falls
below that minimum, the Customer may be obliged to redeem all or part of his
Institutional shares to the extent necessary to maintain the required minimum
balance. Customers who have instructed that automatic purchases and
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redemptions be made for their accounts receive monthly confirmations of share
transactions.
WRITTEN REDEMPTION PROCEDURES
A shareholder of record may redeem shares in any amount by
sending a written request to Armada Funds, P.O. Box 8421, Boston, Massachusetts
02266-8421. Redemption requests must be signed by each shareholder, including
each joint owner on redemption requests for joint accounts, in the exact manner
as the Fund account is registered, and must state the number of shares or the
amount to be redeemed and identify the shareholder account number and tax
identification number. For a redemption amount of $10,000 or more, each
signature on the written request must be guaranteed by a commercial bank or
trust company which is a member of the Federal Reserve System or FDIC, a member
firm of a national securities exchange or a savings and loan association. A
signature guaranteed by a savings bank or notarized by a notary public is not
acceptable. For a redemption amount of less than $10,000, no signature guarantee
is needed. The Trust may require additional supporting documents for redemptions
made by corporations, fiduciaries, executors, administrators, trustees,
guardians and institutional investors.
TELEPHONE REDEMPTION PROCEDURES
A shareholder of record may redeem shares in any amount by
calling 1-800-622-FUND (3863) provided the appropriate election was made on the
shareholder's account application.
During periods of unusual economic or market changes,
telephone redemptions may be difficult to implement. In such event, shareholders
should mail their redemption requests to their financial institutions or Armada
Funds at the address shown above. Neither the Trust nor its Transfer Agent will
be responsible for the authenticity of instructions received by telephone that
are reasonably believed to be genuine. In attempting to confirm that telephone
instructions are genuine, the Trust and its Transfer Agent will use such
procedures as are considered reasonable, including recording those instructions
and requesting information as to account registration (such as the name in which
an account is registered, the account number and recent transactions in the
account). To the extent that the Trust and its Transfer Agent fail to use
reasonable procedures to verify the genuineness of telephone instructions, they
may be liable for such instructions that prove to be fraudulent and
unauthorized. In all other cases, shareholders will bear the risk of loss for
fraudulent telephone transactions. The Trust reserves the right to refuse a
telephone redemption if it believes it is advisable to do so. Procedures for
redeeming Retail shares by telephone may be modified or terminated at any time
by the Trust or the Transfer Agent.
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OPTION TO MAKE SYSTEMATIC WITHDRAWALS
The Trust has available a Systematic Withdrawal Plan (the
"Plan") for a shareholder who owns shares of any fund of the Trust held on the
Transfer Agent's system. The Plan allows the shareholder to have a fixed minimum
sum of $250 distributed at regular intervals. The shareholder's account must
have a minimum value of $5,000 to be eligible for the Plan. Additional
information regarding this service may be obtained from an Investor's financial
institution or the Transfer Agent at 1-800-622-FUND (3863).
OTHER REDEMPTION INFORMATION
Due to the relatively high cost of maintaining small accounts,
the Trust reserves the right to redeem, at net asset value, any account
maintained by a shareholder that has a value of less than $1,000 due to
redemptions where the shareholder does not increase the amount in the account to
at least $1,000 upon 60 days' notice.
If any portion of the shares to be redeemed represents an
investment made by personal check, the Trust reserves the right to delay payment
of the redemption proceeds until the Transfer Agent is reasonably satisfied that
the check has been collected, which could take up to 15 calendar days from the
date of purchase. A shareholder who anticipates the need for more immediate
access to his investment should purchase shares by federal funds, bank wire,
certified or cashier's check. Financial institutions normally impose a charge in
connection with the use of bank wires, as well as certified checks, cashier's
checks and federal funds.
Payment to shareholders for shares redeemed will be made
within seven days after receipt of the request for redemption or such shorter
time period as may be required by the Securities Exchange Act of 1934.
EXCHANGE PRIVILEGE APPLICABLE TO RETAIL SHARES
The Trust offers an exchange program whereby Investors who
have paid a sales charge to purchase Retail shares of the Fund or another
investment portfolio of the Trust (each a "load Fund") may exchange those Retail
shares for Retail shares of another load Fund offered by the Trust, or another
investment fund offered by the Trust without the imposition of a sales charge
(each a "no load Fund") at the net asset value per share on the date of
exchange, provided that such other Retail shares may be legally sold in the
state of the shareholder's residence. As a result, no additional sales charge
will be incurred with respect to such an exchange.
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Shareholders may also exchange Retail shares of a no load Fund
for Retail shares of another no load Fund at the net asset value per share
without payment of a sales charge.
In addition, shareholders of a no load Fund may exchange
Retail shares for Retail shares of a load Fund subject to payment of the
applicable sales charge. However, shareholders exchanging Retail shares of a no
load Fund which were received in a previous exchange transaction involving
Retail shares of a load Fund will not be required to pay an additional sales
charge upon notification of the reinvestment of the equivalent amount into the
Retail shares of a load Fund.
Shareholders contemplating an exchange should carefully review
the Prospectus of the fund into which the exchange is being considered. An
Armada Funds Prospectus may be obtained from NatCity Investments, Inc., an
Investor's financial institution, or by calling 1-800-622-FUND (3863).
Any Retail shares exchanged must have a value at least equal
to the minimum initial investment required by the particular investment fund
into which the exchange is being made. Investors should make their exchange
requests in writing or by telephone to the financial institutions through which
they purchased their original Retail shares. It is the responsibility of
financial institutions to transmit exchange requests to the Transfer Agent.
Investors who purchased shares directly from the Trust should transmit exchange
requests directly to the Transfer Agent. Exchange requests received by the
Transfer Agent prior to 4:00 p.m. (Eastern Time) will be processed as of the
close of business on the day of receipt; requests received by the Transfer Agent
after 4:00 p.m. (Eastern Time) will be processed on the next Business Day. The
Trust reserves the right to reject any exchange request. During periods of
unusual economic or market changes, telephone exchanges may be difficult to
implement. In such event, an Investor should mail the exchange request to his
financial institution, and an Investor who directly purchased shares from the
Trust should mail the exchange request to the Transfer Agent. The exchange
privilege may be modified or terminated at any time upon 60 days notice to
shareholders.
SYSTEMATIC EXCHANGE PROGRAM APPLICABLE TO RETAIL SHARES
Shares of a Fund may also be purchased through automatic
monthly deductions from a shareholder's account from any Armada money market
fund. Under a systematic exchange program, a shareholder enters an agreement to
purchase shares of one or more specified funds over a specified period of time,
and initially purchases shares of one Armada money market fund in an amount
equal to the total amount of the investment. On a monthly basis, a specified
dollar amount of shares of the Armada money market fund is exchanged for shares
of the Funds specified.
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The systematic exchange program of investing a fixed dollar
amount at regular intervals over time has the effect of reducing the average
cost per share of the Funds. This effect also can be achieved through the
systematic investment program described previously in this prospectus. Because
purchases of Retail Shares are subject to an initial sales charge, it may be
beneficial for an investor to execute a Letter of Intent in connection with the
systematic exchange program. A shareholder may apply for participation in this
program through his or her financial institution or by calling 1-800-622-FUND
(3863).
DISTRIBUTION AGREEMENT
Under the Trust's Distribution Agreement and related
Distribution Plan adopted pursuant to Rule 12b-1 under the 1940 Act, the Trust
compensates the Distributor monthly for the direct and indirect expenses
incurred by the Distributor for services provided and expenses assumed in
providing such fund advertising, marketing, prospectus printing and other
distribution services up to a maximum of .10% per annum of the average net
assets of the fund, inclusive of an annual base fee of $1,250,000 plus incentive
fees related to asset growth. Such fees are payable monthly and accrued daily
among the investment funds with respect to which the Distributor is distributing
shares.
SHAREHOLDER SERVICES PLAN
The Trust has implemented the Services Plan with respect to
Retail shares of the Fund. Pursuant to the Services Plan, the Trust enters into
shareholder servicing agreements with certain financial institutions pursuant to
which the institutions render shareholder administrative services to their
customers who are the beneficial owners of Retail shares of the Fund in
consideration for the payment of up to .25% (on an annualized basis) of the
average daily net asset value of such shares. Persons entitled to receive
compensation for servicing Retail shares may receive different compensation with
respect to those shares than with respect to Institutional shares in the same
Fund. Shareholder administrative services may include aggregating and processing
purchase and redemption orders, processing dividend payments from the Trust on
behalf of customers, providing information periodically to customers showing
their position in Retail shares, and providing subtransfer agent services or the
information necessary for subaccounting, with respect to Retail shares
beneficially owned by customers. Since financial institutions may charge their
customers fees depending on the type of customer account the Investor has
established, beneficial owners of Retail shares should read this Prospectus in
light of the terms and fees governing their accounts with financial
institutions.
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<PAGE> 97
DIVIDENDS AND DISTRIBUTIONS
Dividends from the net investment income of the Fund are
declared and paid annually. Any net realized capital gains will be distributed
at least annually. Dividends and distributions will reduce the Fund's net asset
value per share by the per share amount thereof.
Shareholders may elect to have their dividends reinvested in
additional full and fractional Fund shares of the same class or series at the
net asset value of such shares on the payment date. Shareholders must make such
election, or any revocation thereof, in writing to his Bank or financial
institution. The election will become effective with respect to dividends and
distributions paid after its receipt.
Under the Services Plan, the amount of the Fund's net
investment income available for distribution to the holders of Retail shares is
reduced by the amount of shareholder servicing fees payable to financial
institutions under the Services Plan.
TAXES
The Fund intends to qualify as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification generally relieves the Fund of liability for federal income taxes
to the extent its earnings are distributed in accordance with the Code.
Qualification as a regulated investment company under the Code
for a taxable year requires, among other things, that the Fund distribute to its
shareholders an amount equal to at least the sum of 90% of its investment
company taxable income and 90% of its tax-exempt interest income (if any) net of
certain deductions for such year. In general, the Fund's investment company
taxable income will be its taxable income (including any dividends, interest and
short-term capital gains) subject to certain adjustments and excluding the
excess of any net long-term capital gain for the taxable year over the net
short-term capital loss, if any, for such year. The Fund intends to distribute
substantially all of its investment company taxable income and net tax-exempt
income each taxable year. Such distributions by the Fund will be taxable as
ordinary income to its shareholders who are not currently exempt from federal
income taxes, whether such income is received in cash or reinvested in
additional shares. (Federal income taxes for distributions to an IRA or to a
qualified retirement plan are deferred under the Code.) For corporate
shareholders, the dividends received deduction will apply to such distributions
to the extent of the gross amount of
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<PAGE> 98
qualifying dividends received by the Fund from domestic corporations for the
taxable year.
Substantially all of the Fund's net realized long-term capital
gains, if any, will be distributed at least annually to Fund shareholders. The
Fund generally will have no tax liability with respect to such gains, and the
distributions will be taxable to Fund shareholders who are not currently exempt
from federal income taxes as long-term capital gains, regardless of how long the
shareholders have held Fund shares and whether such gains are received in cash
or reinvested in additional shares.
Dividends declared in December of any year payable to
shareholders of record on a specified date in such month will be deemed to have
been received by shareholders and paid by the Fund on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Prior to purchasing Fund shares, the impact of dividends or
distributions which are expected to be declared or have been declared, but not
paid, should be carefully considered. Any dividend or distribution paid shortly
after a purchase of shares prior to the record date will have the effect of
reducing the per share net asset value by the per share amount of the dividend
or distribution. All or a portion of such dividend or distribution, although in
effect a return of capital, may be subject to tax.
A taxable gain or loss may be realized by a shareholder upon
his redemption, transfer or exchange of Fund shares depending upon the tax basis
of such shares and their price at the time of redemption, transfer or exchange.
If a shareholder has held shares for six months or less and during that time
received a distribution taxable as a long-term capital gain, then any loss the
shareholder might realize on the sale of those shares will be treated as a
long-term capital loss to the extent of the earlier capital gain distribution.
Generally, a shareholder may include sales charges incurred upon the purchase of
Fund shares in his tax basis for such shares for the purpose of determining gain
or loss on a redemption, transfer or exchange of such shares. However, if the
shareholder effects an exchange of such shares for shares of another Fund within
90 days of the purchase and is able to avoid the sales charges applicable to the
new shares (by virtue of the Trust's exchange privilege), the original sales
charges will be included in the tax basis of the new shares rather than the
exchanged shares.
Shareholders of the Fund will be advised at least annually as
to the federal income tax consequences of distributions made to them each year.
Shareholders are advised to consult their tax advisers concerning the
application of state
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and local taxes which may differ from federal tax consequences
described above.
The foregoing discussion is based on tax laws and regulations
which were in effect as of the date of this Prospectus; such laws and
regulations may be changed by legislative or administrative actions. The
foregoing summarizes some of the important tax considerations generally
affecting the Fund and its shareholders and is not intended as a substitute for
careful tax planning. Accordingly, potential investors should consult their tax
advisers with specific reference to their own tax situation.
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES
The business and affairs of the Trust are managed under the direction
of the Trust's Board of Trustees. The trustees of the Trust, their addresses,
principal occupations during the past five years, other affiliations, and the
compensation paid by the Trust and the fees and reimbursed expenses they receive
in connection with each meeting of the Board of Trustees they attend are
included in the Statement of Additional Information.
INVESTMENT ADVISER
National City serves as the investment adviser to the Fund.
The adviser is a wholly owned subsidiary of National City Corporation. The
adviser provides trust and banking services to individuals, corporations, and
institutions, both nationally and internationally, including investment
management, estate and trust administration, financial planning, corporate trust
and agency, and personal and corporate banking. The adviser is a member bank of
the Federal Reserve System and the Federal Deposit Insurance Corporation.
On December 31, 1996, the Trust Department of National City
had approximately $9.9 billion in assets under management, and had approximately
$18.6 billion in total trust assets. National City has its principal offices at
1900 East Ninth Street, Cleveland, Ohio 44114.
Subject to the general supervision of the Trust's Board of
Trustees and in accordance with the Fund's investment policies, the adviser has
agreed to manage the Fund, make decisions with respect to and place orders for
all purchases and sales of the Fund's securities, and maintain the Fund's
records relating to such purchases and sales.
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<PAGE> 100
For the services provided and expenses assumed pursuant to the
Advisory Agreement relating to the Fund, the adviser is entitled to receive an
advisory fee, computed daily and payable monthly, at the annual rate of .35% of
the average net assets of the Fund. Shareholders should note that these fees are
higher than those payable by other investment companies. The adviser may from
time to time waive all or a portion of its advisory fees to increase the net
income of the Fund available for distribution as dividends.
ADMINISTRATOR
PFPC Inc. ("PFPC"), located at 400 Bellevue Parkway,
Wilmington, Delaware 19809, serves as the administrator to the Fund. PFPC is an
indirect, wholly-owned subsidiary of PNC Bank Corp., a multi-bank holding
company.
Under its Administration and Accounting Services Agreement
with the Trust, PFPC has agreed to provide the following services with respect
to the Fund: statistical data, data processing services and accounting and
bookkeeping services; prepare tax returns and certain reports filed with the
SEC; assist in the preparation of reports to shareholders and the preparation of
the Trust's registration statement; maintain the required fidelity bond
coverage; calculate the Fund's net asset value per share, net income, and
realized capital gains (losses); and generally assist the Fund with respect to
all aspects of its administration and operation. PFPC is entitled to receive
with respect to the Fund an administrative fee, computed daily and paid monthly,
at the annual rate of .10% of the first $200,000,000 of its net assets, .075% of
the next $200,000,000 of its net assets, .045% of the next $200,000,000 of its
net assets and .02% of its net assets over $600,000,000 and is entitled to be
reimbursed for its out-of-pocket expenses incurred on behalf of the Fund.
DESCRIPTION OF THE TRUST AND ITS SHARES
The Trust was organized as a Massachusetts business trust on
January 28, 1986. The Trust is a series fund authorized to issue 42 separate
classes or series of shares of beneficial interest ("shares"). Two of these
classes or series, which represent interests in the Fund (Class U and Class U -
Special Series 1) are described in this Prospectus. Class U shares constitute
the Institutional class or series of shares; and Class U - Special Series 1
shares constitute the Retail class or series of shares. The other Funds of the
Trust are:
Money Market Fund
(Class A and Class A - Special Series 1)
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<PAGE> 101
Government Fund
(Class B and Class B - Special Series 1)
Treasury Fund
(Class C and Class C - Special Series 1)
Tax Exempt Fund
(Class D and Class D - Special Series 1)
Equity Growth Fund
(Class H and Class H - Special Series 1)
Fixed Income Fund
(Class I and Class I - Special Series 1)
Ohio Tax Exempt Fund
(Class K and Class K - Special Series 1)
National Tax Exempt Fund
(Class L and Class L - Special Series 1)
Equity Income Fund
(Class M and Class M - Special Series 1)
Mid Cap Regional Fund
(Class N and Class N - Special Series 1)
Enhanced Income Fund
(Class O and Class O - Special Series 1)
Total Return Advantage Fund
(Class P and Class P - Special Series 1)
Pennsylvania Tax-Exempt Fund
(Class Q and Class Q - Special Series 1)
Intermediate Government Fund
(Class R and Class R - Special Series 1)
GNMA Fund
(Class S and Class S - Special Series 1)
Pennsylvania Municipal Fund
(Class T and Class T - Special Series 1)
Equity Index Fund
(Class V and Class V - Special Series 1)
Core Equity Fund
(Class W and Class W - Special Series 1)
Small Cap Growth Fund
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<PAGE> 102
(Class X and Class X - Special Series 1)
Real Return Advantage Fund
(Class Y and Class Y - Special Series 1)
Each share has no par value, represents an equal proportionate
interest in the investment fund with other shares of the same class or series
outstanding, and is entitled to such dividends and distributions out of the
income earned on the assets belonging to such fund as are declared in the
discretion of the Trust's Board of Trustees. The Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any unissued shares
into any number of additional classes of shares and to classify or reclassify
any class of shares into one or more series of shares.
Shareholders are entitled to one vote for each full share
held, and a proportionate fractional vote for each fractional share held.
Shareholders will vote in the aggregate and not by investment fund, except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular investment fund. The Statement of Additional Information gives
examples of situations in which the law requires voting by investment fund. In
addition, shareholders of each of the investment funds will vote in the
aggregate and not by class or series, except as otherwise expressly required by
law or when the Board of Trustees determines the matter to be voted on affects
only the interests of the holders of a particular class or series of shares.
Under the Services Plan, only the holders of Retail shares in an investment fund
are, or would be entitled to vote on matters submitted to a vote of shareholders
(if any) concerning the Services Plan. Voting rights are not cumulative, and
accordingly, the holders of more than 50% of the aggregate shares of the Trust
may elect all of the trustees irrespective of the vote of the other
shareholders.
As stated previously in the text of this document, the Trust
is organized as a trust under the laws of Massachusetts. Shareholders of such a
trust may, under certain circumstances, be held personally liable (as if they
were partners) for the obligations of the Trust. The Declaration of Trust of the
Trust provides for indemnification out of the Trust property for any shareholder
held personally liable solely by reason of his being or having been a
shareholder and not because of his acts or omissions or some other reason.
The Trust does not presently intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The
Trust's Code of Regulations provides that special meetings of shareholders shall
be called at the written request of shareholders entitled to cast at least 10%
of
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<PAGE> 103
the votes entitled to be cast at such meeting. Such meeting may be called by
shareholders to consider the removal of one or more trustees. Shareholders will
receive shareholder communication assistance with respect to such matter as
required by the 1940 Act.
CUSTODIAN AND TRANSFER AGENT
National City serves as the custodian of the Trust's assets.
State Street Bank and Trust Company serves as the Trust's transfer and dividend
disbursing agent. Communications to the Transfer Agent should be directed to
P.O. Box 8421, Boston, Massachusetts 02266-8421. The fees payable by the Trust
for these services are described in the Statement of Additional Information.
EXPENSES
Except as noted below, the Trust's adviser bears all expenses
in connection with the performance of its services. The Fund bears its own
expenses incurred in its operations including: taxes; interest; fees (including
fees paid to its trustees and officers); SEC fees; state securities
qualification fees; costs of preparing and printing prospectuses for regulatory
purposes and for distribution to existing shareholders; expenses related to the
Distribution Plan; advisory fees; administration fees and expenses; charges of
the custodian and Transfer Agent; certain insurance premiums; outside auditing
and legal expenses; costs of shareholders' reports and shareholder meetings; and
any extraordinary expenses. The Fund also pays for brokerage fees and
commissions in connection with the purchase of its portfolio securities. Under
the Services Plan, the Retail shares in the Fund also bear the expense of
shareholder servicing fees.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and
annual financial statements audited by independent auditors.
Pursuant to Rule 17f-2, as National City serves the Trust as
both the custodian and an investment adviser, a procedure has been established
requiring three annual verifications, two of which are to be unannounced, of all
investments held pursuant to the Custodian Services Agreement, to be conducted
by the Trust's independent auditors.
As used in this Prospectus, a "vote of the holders of a
majority of the outstanding shares" of the Trust or the Fund means, with respect
to the approval of an investment advisory
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<PAGE> 104
agreement, a distribution plan or a change in a fundamental investment policy,
the affirmative vote of the lesser of (a) 50% or more of the outstanding shares
of the Trust or the fund or (b) 67% or more of the shares of the Trust or the
fund present at a meeting if more than 50% of the outstanding shares of the
Trust or the fund are represented at the meeting in person or by proxy.
The portfolio managers of the Funds and other investment
professionals may from time to time discuss in advertising, sales literature or
other material, including periodic publications, various topics of interest to
shareholders and prospective investors. The topics may include, but are not
limited to, the advantages and disadvantages of investing in tax-deferred and
taxable investments; Fund performance and how such performance may compare to
various market indices; shareholder profiles and hypothetical investor
scenarios; the economy; the financial and capital markets; investment strategies
and techniques; investment products and tax, retirement and investment planning.
Inquiries regarding the Trust or any of its investment funds
may be directed to 1-800-622-FUND (3863).
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<PAGE> 105
ARMADA FUNDS
BOARD OF TRUSTEES Robert D. Neary
Chairman
Retired Co-Chairman, Ernst & Young
Director, Cold Metal Products, Inc.
Director, Zurn Industries, Inc.
Leigh Carter
Retired President and Chief Operating Officer,
B.F. Goodrich Company
Director, Adams Express Company
Director, Acromed Corporation
Director, Petroleum & Resources Corp.
Director, Morrison Products
John F. Durkott
President and Chief Operating Officer,
Kittle's Home Furnishings Center, Inc.
Richard W. Furst, Dean
Professor of Finance and Dean, Carol Martin
Gatton College of Business and Economics,
University of Kentucky
Director, The Seed Corporation
Director, Foam Design, Inc.
Gerald L. Gherlein
Executive Vice President and General Counsel,
Eaton Corporation
Trustee, Cleveland Initiative for Education
Trustee, Meridia Health System
Trustee, WVIZ Educational Television
J. William Pullen
President and Chief Executive Officer,
Whayne Supply Company
President and Chief Executive Officer,
American Contractors Rentals & Sales
Richard B. Tullis
Chairman Emeritus, Harris Corporation
Director, NACCO Materials Handling Group, Inc.
Director, Hamilton Beach/Proctor-Silex, Inc.
Director, Waste-Quip, Inc.
<PAGE> 106
ARMADA FUNDS
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 1, 1997
CORE EQUITY FUND
This Statement of Additional Information is not a prospectus but should be read
in conjunction with the current Prospectus for the above Fund of Armada Funds
(the "Trust"), dated August 1, 1997 (the "Prospectus"). A copy of the Prospectus
may be obtained by calling or writing the Trust at 1-800-622-FUND (3863), Oaks,
Pennsylvania 19456.
<PAGE> 107
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
STATEMENT OF ADDITIONAL INFORMATION.................................................................... 1
INVESTMENT OBJECTIVES AND POLICIES..................................................................... 1
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION......................................................... 7
DESCRIPTION OF SHARES.................................................................................. 9
ADDITIONAL INFORMATION CONCERNING TAXES................................................................ 10
TRUSTEES AND OFFICERS.................................................................................. 13
ADVISORY, ADMINISTRATION, DISTRIBUTION, CUSTODIAN
SERVICES AND TRANSFER AGENCY AGREEMENTS................................................................ 18
SHAREHOLDER SERVICES PLAN.............................................................................. 22
PORTFOLIO TRANSACTIONS................................................................................. 22
AUDITORS............................................................................................... 24
COUNSEL................................................................................................ 24
PERFORMANCE INFORMATION................................................................................ 24
MISCELLANEOUS.......................................................................................... 26
APPENDIX A.............................................................................................A-1
</TABLE>
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<PAGE> 108
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
This Statement of Additional Information should be read in
conjunction with the Prospectus of Armada Funds (the "Trust") that describes the
Core Equity Fund. The information contained in this Statement of Additional
Information expands upon matters discussed in the Prospectus. No investment in
shares of the Fund should be made without first reading the Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
----------------------------------
ADDITIONAL INFORMATION ON FUND MANAGEMENT
- -----------------------------------------
Further information on the adviser's investment management
strategies, techniques, policies and related matters may be included from time
to time in advertisements, sales literature, communications to shareholders and
other materials. See also, "Performance Information" below.
Attached to this Statement of Additional Information is
Appendix A which contains descriptions of the rating symbols used by S&P, Fitch,
Duff, IBCA and Moody's for securities which may be held by the Fund.
FOREIGN SECURITIES AND AMERICAN DEPOSITORY RECEIPTS ("ADRS")
- ------------------------------------------------------------
Unanticipated political or social developments may affect the
value of the Fund's investments in emerging market countries and the
availability to the Fund of additional investments in those countries. The small
size and inexperience of the securities markets in certain of such countries and
the limited volume of trading in securities in those countries may make the
Fund's investments in such countries illiquid and more volatile than investments
in Japan or most Western European countries, and the Fund may be required to
establish special custodial or other arrangements before making certain
investments in those countries. There may be little financial or accounting
information available with respect to issuers located in certain of such
countries, and it may be difficult as a result to assess the value or prospects
of an investment in such issuers.
Investors should be aware that investment in foreign markets
can result in higher costs to the Fund. The costs attributable to investing
abroad are usually higher for several reasons, such as the higher cost of
investment research, higher cost of custody of foreign securities, higher
commissions paid on comparable transactions on foreign markets and additional
costs arising from delays in settlements of transactions involving foreign
securities.
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<PAGE> 109
The Fund may invest its assets in ADRs, which are receipts
issued by an American bank or trust company evidencing ownership of underlying
securities issued by a foreign issuer. ADRs may be listed on a national
securities exchange or may trade in the over-the-counter market. ADR prices are
denominated in United States dollars. The securities underlying an ADR, however,
will normally be denominated in a foreign currency. The underlying securities
may be subject to foreign government taxes which could reduce the yield on such
securities.
WHEN-ISSUED SECURITIES
- ----------------------
The Fund may purchase securities on a "when-issued" basis
(i.e., for delivery beyond the normal settlement date at a stated price and
yield). When the Fund agrees to purchase when-issued securities, the custodian
sets aside cash or liquid portfolio securities equal to the amount of the
commitment in a separate account. Normally, the custodian will set aside
portfolio securities to satisfy a purchase commitment, and in such a case the
Fund may be required subsequently to place additional assets in the separate
account in order to ensure that the value of the account remains equal to the
amount of the Fund's commitment, marked to market daily. It is likely that the
Fund's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets aside
cash. Because the Fund will set aside cash or liquid assets to satisfy its
purchase commitments in the manner described, the Fund's liquidity and ability
to manage its funds might be affected in the event its commitments to purchase
when-issued securities ever exceeded 25% of the value of its total assets.
When the Fund engages in when-issued transactions, it relies
on the seller to consummate the trade. Failure of the seller to do so may result
in the Fund's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
WARRANTS
- --------
Warrants enable the owner to subscribe to and purchase a
specified number of shares of the issuing corporation at a specified price
during a specified period of time. The prices of warrants do not necessarily
correlate with the prices of the underlying securities. The purchase of warrants
involves the risk that the purchaser could lose the purchase value of the
warrant if the right to subscribe to additional shares is not exercised prior to
the warrant's expiration. Also, the purchase of warrants involves the risk that
the effective price paid for the warrant added to the subscription price of the
related security may exceed the value of the subscribed security's market price
such as when there is no movement in the level of the underlying security.
-2-
<PAGE> 110
CONVERTIBLE SECURITIES
- ----------------------
Convertible securities entitle the holder to receive interest
paid or accrued on debt or the dividend paid on preferred stock until the
securities mature or are redeemed, converted or exchanged. Prior to conversion,
convertible securities have characteristics similar to ordinary debt securities
in that they normally provide a stable stream of income with generally higher
yields than those of common stock of the same or similar issuers. Convertible
securities rank senior to common stock in a corporation's capital structure and
therefore generally entail less risk than the corporation's common stock. The
value of the convertibility feature depends in large measure upon the degree to
which the convertible security sells above its value as a fixed income security.
In selecting convertible securities, the adviser will
consider, among other factors, the creditworthiness of the issuers of the
securities; the interest or dividend income generated by the securities; the
potential for capital appreciation of the securities and the underlying common
stocks; the prices of the securities relative to other comparable securities and
to the underlying common stocks; whether the securities are entitled to the
benefits of sinking funds or other protective conditions; diversification of the
Fund's portfolio as to issuers; and the ratings of the securities. Since credit
rating agencies may fail to timely change the credit ratings of securities to
reflect subsequent events, the adviser will consider whether such issuers will
have sufficient cash flow and profits to meet required principal and interest
payments. The Fund may retain a portfolio security whose rating has been changed
if the adviser deems that retention of such security is warranted.
VARIABLE AND FLOATING RATE OBLIGATIONS
- --------------------------------------
The Fund may purchase variable and floating rate obligations
(including variable amount master demand notes) which are unsecured instruments
that permit the indebtedness thereunder to vary and provide for periodic
adjustments in the interest rate. Because variable and floating rate obligations
are direct lending arrangements between the Fund and the issuer, they are not
normally traded although certain variable and floating rate obligations, such as
Student Loan Marketing Association variable rate obligations, may have a more
active secondary market because they are issued or guaranteed by the U.S.
Government or its agencies or instrumentalities. Even though there may be no
active secondary market in such instruments, the Fund may demand payment of
principal and accrued interest at a time specified in the instrument or may
resell them to a third party. Such obligations may be backed by bank letters of
credit or guarantees issued by banks, other financial institutions or the U.S.
Government, its agencies or instrumentalities. The quality of any letter of
credit
-3-
<PAGE> 111
or guarantee will be rated high quality or, if unrated, will be determined to be
of comparable quality by the adviser. In the event an issuer of a variable or
floating rate obligation defaulted on its payment obligation, the Fund might be
unable to dispose of the instrument because of the absence of a secondary market
and could, for this or other reasons, suffer a loss to the extent of the
default.
SHORT TERM OBLIGATIONS
- ----------------------
The Fund may invest in various short term obligations
including those described below.
Investments include commercial paper and other short term
promissory notes issued by corporations (including variable and floating rate
instruments). The Fund may also acquire zero coupon obligations, which have
greater price volatility than coupon obligations and which will not result in
the payment of interest until maturity. Bank obligations include bankers'
acceptances, negotiable certificates of deposit, and non-negotiable demand and
time deposits issued for a definite period of time and earning a specified
return by a U.S. bank which is a member of the Federal Reserve System. Bank
obligations also include U.S. dollar denominated bankers' acceptances,
certificates of deposit and time deposits issued by foreign branches of U.S.
banks. Investment in bank obligations is limited to the obligations of financial
institutions having more than $1 billion in total assets at the time of
purchase. The Fund may also make interest bearing savings deposits in commercial
and savings banks not in excess of 5% of its total assets. Investment in
non-negotiable time deposits is limited to no more than 5% of the Fund's total
assets at the time of purchase.
U.S. GOVERNMENT OBLIGATIONS
- ---------------------------
The Fund may purchase obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities. Some of these obligations
are supported by the full faith and credit of the U.S. Treasury, such as
obligations issued by the Government National Mortgage Association. Others, such
as those of the Export-Import Bank of the United States, are supported by the
right of the issuer to borrow from the U.S. Treasury; others, such as those of
the Federal National Mortgage Association, are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; and still
others, such as those of the Student Loan Marketing Association, are supported
only by the credit of the agency or instrumentality issuing the obligation. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored agencies or instrumentalities if it is not
obligated to do so by law. The Fund will invest in the obligations of such
agencies or
-4-
<PAGE> 112
instrumentalities only when the adviser believes that the credit risk with
respect thereto is minimal.
SECURITIES OF OTHER INVESTMENT COMPANIES
- ----------------------------------------
The Fund currently intends to limit its investments in
securities issued by other investment companies so that, as determined
immediately after a purchase of such securities is made: (i) not more than 5% of
the value of the Fund's total assets will be invested in the securities of any
one investment company; (ii) not more than 10% of the value of its total assets
will be invested in the aggregate in securities of investment companies as a
group; and (iii) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Fund or by the Trust as a whole.
PORTFOLIO TURNOVER
- ------------------
The Fund may engage in short term trading and may sell
securities which have been held for periods ranging from several months to less
than a day. Portfolio turnover will tend to rise during periods of economic
turbulence and decline during periods of stable growth. The portfolio turnover
rate for the Fund is calculated by dividing the lesser of purchases or sales of
portfolio securities for the year by the monthly average value of the portfolio
securities. The calculation excludes U.S. Government securities and all
securities whose maturities at the time of acquisition were one year or less.
Portfolio turnover may vary greatly from year to year as well as within a
particular year, and may also be affected by cash requirements for redemptions
of shares and by requirements which enable the Fund to receive certain favorable
tax treatment. Portfolio turnover will not be a limiting factor in making fund
decisions.
ADDITIONAL INVESTMENT LIMITATIONS
- ---------------------------------
In addition to the investment limitations disclosed in the
Prospectus, the Fund is subject to the following investment limitations which
may not be changed without approval of the holders of a majority of the
outstanding shares of the Fund (as defined under "Description of Shares" below).
The Fund may not:
1. Purchase or sell real estate, except that it may purchase
securities of issuers which deal in real estate and may purchase securities
which are secured by interests in real estate.
2. Invest in commodities, except that as consistent with its
investment objective and policies the Fund may: 1) purchase and sell options,
forward contracts, futures contracts, including without limitation those
relating to indices; 2) purchase
-5-
<PAGE> 113
and sell options on futures contracts or indices; 3) purchase publicly traded
securities of companies engaging in whole or in part in such activities.
3. Act as an underwriter of securities within the meaning of
the Securities Act of 1933 except insofar as it might be deemed to be an
underwriter upon the disposition of portfolio securities acquired within the
limitation on purchases of illiquid securities and except to the extent that the
purchase of obligations directly from the issuer thereof in accordance with its
investment objective, policies and limitations may be deemed to be underwriting.
In addition to the above fundamental limitations, the Fund is
subject to the following non-fundamental limitations, which may be changed
without a shareholder vote:
The Fund may not:
1. Acquire any other investment company or investment company
security except in connection with a merger, consolidation, reorganization or
acquisition of assets or where otherwise permitted under the 1940 Act.
2. Write or sell put options, call options, straddles,
spreads, or any combination thereof, except as consistent with the Fund's
investment objective and policies, for transactions in options on securities or
indices of securities, futures contracts and options on futures contracts and in
similar investments.
3. Purchase securities on margin, make short sales of
securities or maintain a short position, except that (a) this investment
limitation shall not apply to its transactions in futures contracts and related
options, options on securities or indices of securities and similar instruments,
and (b) it may obtain short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities.
4. Purchase securities of companies for the purpose of
exercising control.
5. Invest more than 15% of its net assets in illiquid
securities.
The Fund does not intend to purchase securities while its
outstanding borrowings are in excess of 5% of its assets. Securities held in
escrow or separate accounts in connection with its investment practices are not
deemed to be pledging for purposes of this limitation.
-6-
<PAGE> 114
The Fund reserves the right to engage in securities lending,
although it does not presently have the intent of doing so.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
----------------------------------------------
Shares in the Trust are sold on a continuous basis by SEI
Investments Distribution Co. (the "Distributor"), which has agreed to use
appropriate efforts to solicit all purchase orders. The issuance of shares is
recorded on the books of the Trust. To change the commercial bank or account
designated to receive redemption proceeds, a written request must be sent to an
investor's financial institution at its principal office. Such requests must be
signed by each shareholder, with each signature guaranteed by a U.S. commercial
bank or trust company or by a member firm of a national securities exchange.
Guarantees must be signed by an authorized signatory and "Signature Guaranteed"
must appear with the signature. An investor's financial institution may request
further documentation from corporations, executors, administrators, trustees or
guardians, and will accept other suitable verification arrangements from foreign
investors, such as consular verification.
The Trust may suspend the right of redemption or postpone the
date of payment for more than seven days for shares during any period when (a)
trading on the New York Stock Exchange is restricted by applicable rules and
regulations of the Securities and Exchange Commission ("SEC"); (b) the Exchange
is closed for other than customary weekend and holiday closings; (c) the SEC has
by order permitted such suspension; or (d) an emergency exists as determined by
the SEC.
There is no sales load charged on shares acquired through the
reinvestment of dividends or distributions on such shares.
Automatic investment programs such as the monthly savings
program ("Program") described in the Prospectus offered by the Fund permit an
investor to use "dollar cost averaging" in making investments. Under this
Program, an agreed upon fixed dollar amount is invested in Fund shares at
predetermined intervals. This may help investors to reduce their average cost
per share because the Program results in more shares being purchased during
periods of lower share prices and fewer shares during periods of higher share
prices. In order to be effective, dollar cost averaging should usually be
followed on a sustained, consistent basis. Investors should be aware, however,
that dollar cost averaging results in purchases of shares regardless of their
price on the day of investment or market trends and does not ensure a profit,
protect against losses in a declining market, or prevent a loss if an investor
ultimately redeems his shares at a price which is lower than their purchase
price. An investor may want to consider his financial ability to continue
purchases through periods of low
-7-
<PAGE> 115
price levels. From time to time, in advertisements, sales literature,
communications to shareholders and other materials ("Materials"), the Trust may
illustrate the effects of dollar cost averaging through use of or comparison to
an index such as the S&P 500.
OFFERING PRICE PER RETAIL SHARE OF THE FUNDS
- --------------------------------------------
An illustration of the computation of the offering price per
Retail share of the Fund, based upon the estimated value of its net assets and
number of shares outstanding on its commencement date, is as follows:
<TABLE>
<CAPTION>
TABLE
<S> <C>
Net Assets of Retail Shares.............................................................................$10,000,000
Outstanding Retail Shares.................................................................................1,000,000
Net Asset Value Per Share....................................................................................$10.00
($10,000,000 / 1,000,000)
Sales Charge, 3.75% of offering
price (3.90% of net asset value
per share)...................................................................................................$.39
Offering to Public...........................................................................................$10.39
</TABLE>
* Amounts are estimated as the Fund has not commenced operations.
EXCHANGE PRIVILEGE
- ------------------
Investors may exchange all or part of their Retail shares as
described in the Prospectus. Upon the exchange of Retail shares of one Fund for
Retail shares of another Fund, any rights an Investor may have had for a reduced
or eliminated sales load in connection with the purchase of Retail shares of the
first Fund shall apply as well to Retail shares of the other Fund. The exchange
privilege may be modified or terminated at any time upon 60 days' notice to
shareholders.
By use of the exchange privilege, the Investor authorizes the
Trust's Transfer Agent or his financial institution to act on telephonic or
written instructions from any person representing himself or herself to be the
shareholder and believed by the Transfer Agent or the financial institution to
be genuine. The Investor or his financial institution must notify the Transfer
Agent of his prior ownership of Retail shares and account number. The Transfer
Agent's records of such instructions are binding.
-8-
<PAGE> 116
DESCRIPTION OF SHARES
---------------------
The Trust is a Massachusetts business trust. The Trust's
Declaration of Trust authorizes the Board of Trustees to issue an unlimited
number of shares of beneficial interest and to classify or reclassify any
unissued shares of the Trust into one or more additional classes or series by
setting or changing in any one or more respects their respective preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption. Pursuant to
such authority, the Board of Trustees has authorized the issuance of 42 classes
or series of shares. Two of these classes or series, which represent interests
in the Core Equity Fund (Class W and Class W - Special Series 1) are described
in this Statement of Additional Information and the related Prospectus.
Shares have no preemptive rights and only such conversion or
exchange rights as the Board of Trustees may grant in its discretion. When
issued for payment as described in the Prospectus, the Trust's shares will be
fully paid and non-assessable. In the event of a liquidation or dissolution of
the Trust or an individual Fund, shareholders of the Fund are entitled to
receive the assets available for distribution belonging to that Fund, and a
proportionate distribution, based upon the relative asset values of the
respective Funds, of any general assets of the Trust not belonging to any
particular Fund which are available for distribution.
Rule 18f-2 under the 1940 Act provides that any matter
required by the 1940 Act, applicable state law, or otherwise, to be submitted to
the holders of the outstanding voting securities of an investment company such
as the Trust shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each
investment fund affected by such matter. Rule 18f-2 further provides that an
investment fund is affected by a matter unless the interests of each fund in the
matter are substantially identical or the matter does not affect any interest of
the fund. Under the Rule, the approval of an investment advisory agreement or
any change in a fundamental investment policy would be effectively acted upon
with respect to an investment fund only if approved by a majority of the
outstanding shares of such fund. However, the Rule also provides that the
ratification of the appointment of independent public accountants, the approval
of principal underwriting contracts, and the election of trustees may be
effectively acted upon by shareholders of the Trust voting together in the
aggregate without regard to a particular fund. In addition, shareholders of each
class in a particular investment fund have equal voting rights except that only
Retail shares of an investment fund will be entitled to vote on matters
submitted to a vote of shareholders (if any) relating to shareholder servicing
fees that are allocable to such shares.
-9-
<PAGE> 117
Although the following types of transactions are normally
subject to shareholder approval, the Board of Trustees may, under certain
limited circumstances, (a) sell and convey the assets of an investment fund to
another management investment company for consideration which may include
securities issued by the purchaser and, in connection therewith, to cause all
outstanding shares of such fund involved to be redeemed at a price which is
equal to their net asset value and which may be paid in cash or by distribution
of the securities or other consideration received from the sale and conveyance;
(b) sell and convert an investment fund's assets into money and, in connection
therewith, to cause all outstanding shares of such fund involved to be redeemed
at their net asset value; or (c) combine the assets belonging to an investment
fund with the assets belonging to another investment fund of the Trust, if the
Board of Trustees reasonably determines that such combination will not have a
material adverse effect on shareholders of any fund participating in such
combination, and, in connection therewith, to cause all outstanding shares of
any fund to be redeemed at their net asset value or converted into shares of
another class of the Trust shares at net asset value. In the event that shares
are redeemed in cash at their net asset value, a shareholder may receive in
payment for such shares an amount that is more or less than his original
investment due to changes in the market prices of the fund's securities. The
exercise of such authority by the Board of Trustees will be subject to the
provisions of the 1940 Act, and the Board of Trustees will not take any action
described in this paragraph unless the proposed action has been disclosed in
writing to the Fund's shareholders at least 30 days prior thereto.
ADDITIONAL INFORMATION CONCERNING TAXES
---------------------------------------
The following summarizes certain additional tax considerations
generally affecting the Trust and its shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Trust or its shareholders or possible legislative changes, and
the discussion here and in the Prospectus is not intended as a substitute for
careful tax planning. Potential investors should consult their tax advisers with
specific reference to their own tax situation.
Each Fund of the Trust will be treated as a separate corporate
entity under the Code and intends to qualify as a regulated investment company.
In order to qualify for tax treatment as a regulated investment company under
the Code, each Fund must satisfy, in addition to the distribution requirement
described in the Prospectus, certain requirements with respect to the source of
its income during a taxable year. At least 90% of the gross income of each Fund
must be derived from dividends, interest, payments with respect to securities
loans, gains from the
-10-
<PAGE> 118
sale or other disposition of stocks, securities or foreign currencies, and other
income (including but not limited to gains from options, futures, or forward
contracts) derived with respect to the Fund's business of investing in such
stock, securities or currencies. The Treasury Department may by regulation
exclude from qualifying income foreign currency gains which are not directly
related to the Fund's principal business of investing in stock or securities, or
options and futures with respect to stock or securities. Any income derived by a
Fund from a partnership or trust is treated as derived with respect to the
Fund's business of investing in stock, securities or currencies only to the
extent that such income is attributable to items of income which would have been
qualifying income if realized by the Fund in the same manner as by the
partnership or trust.
Another requirement for qualification as a regulated
investment company under the Code is that less than 30% of a Fund's gross income
for a taxable year must be derived from gains realized on the sale or other
disposition of the following investments held for less than three months: (1)
stock and securities (as defined in Section 2(a)(36) of the 1940 Act; (2)
options, futures and forward contracts other than those on foreign currencies;
and (3) foreign currencies (and options, futures and forward contracts on
foreign currencies) that are not directly related to a Fund's principal business
of investing in stock and securities (and options and futures with respect to
stocks and securities). Interest (including original issue discount and, with
respect to taxable debt securities and non taxable debt securities acquired
after April 30, 1993, accrued market discount) received by a Fund upon maturity
or disposition of a security held for less than three months will not be treated
as gross income derived from the sale or other disposition of such security
within the meaning of this requirement. However, any other income which is
attributable to realized market appreciation will be treated as gross income
from the sale or other disposition of securities for this purpose.
Some investments held by a Fund may be subject to special
rules which govern the federal income tax treatment of certain transactions
denominated in terms of a currency other than the U.S. dollar or determined by
reference to the value of one or more currencies other than the U.S. dollar. The
types of transactions covered by the special rules include the following: (1)
the acquisition of, or becoming the obligor under, a bond or other debt
instrument (including, to the extent provided in Treasury regulations, preferred
stock); (2) the accruing of certain trade receivables and payables; and (3) the
entering into or acquisition of any forward contract, futures contract, option
and similar financial instrument. The disposition of a currency other than the
U.S. dollar by a U.S. taxpayer is also treated as a transaction subject to the
special currency rules. With respect to transactions covered by the special
rules, foreign currency gain or loss is calculated separately from any gain or
loss on the
-11-
<PAGE> 119
underlying transaction and is normally taxable as ordinary gain or loss. The
Treasury Department has issued regulations under which certain transactions
subject to the special currency rules that are part of a "section 988 hedging
transaction" are not subject to the mark-to-market or loss deferral rules under
the Code. Gain or loss attributable to the foreign currency component of
transactions engaged in by a Fund which are not subject to the special currency
rules (such as foreign equity investments other than certain preferred stocks)
will be treated as capital gain or loss and will not be segregated from the gain
or loss on the underlying transaction.
The Trust will designate any distribution of long-term capital
gains of a Fund as a capital gain dividend in a written notice mailed to
shareholders within 60 days after the close of the Trust's taxable year.
Shareholders should note that, upon the sale or exchange of Fund shares, if the
shareholder has not held such shares for at least six months, any loss on the
sale or exchange of those shares will be treated as long-term capital loss to
the extent of the capital gain dividends received with respect to the shares.
A 4% non-deductible excise tax is imposed on regulated
investment companies that fail to currently distribute an amount equal to
specified percentages of their ordinary taxable income and capital gain net
income (excess of capital gains over capital losses). Each Fund intends to make
sufficient distributions or deemed distributions of its ordinary taxable income
and capital gain net income each calendar year to avoid liability for this
excise tax.
If for any taxable year a Fund does not qualify for federal
tax treatment as a regulated investment company, all of such Fund's taxable
income will be subject to federal income tax at regular corporate rates without
any deduction for distributions to its shareholders. In such event, dividend
distributions (including amounts derived from interest on Municipal Bonds) would
be taxable as ordinary income to the Fund's shareholders to the extent of the
Fund's current and accumulated earnings and profits, and would be eligible for
the dividends received deduction for corporations.
Each Fund may be required in certain cases to withhold and
remit to the U.S. Treasury 31% of taxable dividends or gross proceeds realized
upon sale paid to shareholders who have failed to provide a correct tax
identification number in the manner required, or who are subject to withholding
by the Internal Revenue Service for failure to properly include on their return
payments of taxable interest or dividends, or who have failed to certify to the
Fund that they are not subject to backup withholding when required to do so or
that they are "exempt recipients".
-12-
<PAGE> 120
TRUSTEES AND OFFICERS
---------------------
The Trustees and officers of the Trust, their addresses,
principal occupations during the past five years, and other affiliations are as
follows:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
POSITION WITH DURING PAST 5 YEARS
NAME AND ADDRESS THE TRUST AND OTHER AFFILIATIONS
- ---------------- --------- ----------------------
<S> <C> <C>
Robert D. Neary* Chairman of the Retired Co-Chairman of
32980 Creekside Drive Board and Ernst & Young, April
Pepper Pike, OH 44124 Trustee 1984-September 1993;
Age 63 Director, Cold Metal
Products, Inc., since
March 1994; Director,
Zurn Industries,
Inc., (plumbing
products and
engineering and
construction
services) since June
1995.
Leigh Carter* Trustee Retired President and
13901 Shaker Blvd., #6B Chief Operating Officer,
Cleveland, OH 44120 B.F. Goodrich Company,
Age 71 August 1986 to September
1990; Director, Adams
Express Company
(closed-end
investment company),
since April 1982;
Director, Acromed
Corporation;
Director, Lamson &
Sessions Co.
(producer of
electrical supplies
for construction,
consumer power and
communications
industry), since
April 1991; Director,
Petroleum & Resources
Corp., since April
1987; Director,
Morrison Products
(manufacturer of
blower fans and air
moving equipment),
since April 1983.
</TABLE>
-13-
<PAGE> 121
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
POSITION WITH DURING PAST 5 YEARS
NAME AND ADDRESS THE TRUST AND OTHER AFFILIATIONS
- ---------------- --------- ----------------------
<S> <C> <C>
John F. Durkott Trustee President and Chief
8600 Allisonville Road Operating Officer,
Indianapolis, IN 46250 Kittle's Home
Age 52 Furnishings Center,
Inc., since January
1982; partner,
Kittles Bloomington
Property Company,
since January 1981;
partner, KK&D
(Affiliated Real
Estate Companies of
Kittle's Home
Furnishings Center),
since January 1989.
Richard W. Furst, Dean Trustee Professor of Finance and
600 Autumn Lane Dean, Carol Martin
Lexington, KY 40502 Gatton College of
Age 58 Business and Economics,
University of
Kentucky, since 1981;
Director, The Seed
Corporation
(restaurant group),
since 1990; Director,
Foam Design, Inc.
(manufacturer of
industrial and
commercial foam
products), since
1993; Director,
Studio Plus Hotels,
Inc., since 1994.
Gerald L. Gherlein Trustee Executive Vice-President
3679 Greenwood Drive and General Counsel,
Pepper Pike, OH 44124 Eaton Corporation, since
Age 59 1991 (global
manufacturing); Trustee,
Cleveland Initiative for
Education; Trustee,
Meridia Health System;
Trustee, WVIZ
Educational Television.
</TABLE>
-14-
<PAGE> 122
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
POSITION WITH DURING PAST 5 YEARS
NAME AND ADDRESS THE TRUST AND OTHER AFFILIATIONS
- ---------------- --------- ----------------------
<S> <C> <C>
J. William Pullen Trustee President and Chief
Whayne Supply Company Executive Officer,
1400 Cecil Avenue Whayne Supply Co.
P.O. Box 35900 (engine and heavy
Louisville, KY 40232-5900 equipment distribution),
Age 58 since 1986; President
and Chief Executive
Officer, American
Contractors Rentals &
Sales (rental subsidiary
of Whayne Supply Co.),
since 1988.
Richard B. Tullis Trustee Chairman Emeritus,
5150 Three Village Drive Harris Corporation
Lyndhurst, OH 44124 (electronic communi-
Age 83 cation and information
processing equipment),
since October 1985;
Director, NACCO
Materials Handling
Group, Inc. (manu-
facturer of industrial
fork lift trucks), since
1984; Director, Hamilton
Beach/Proctor-Silex,
Inc. (manufacturer of
household appliances),
since 1990; Director,
Waste-Quip, Inc. (waste
handling equipment),
since 1989.
Herbert R. Martens, Jr. President Chairman and Chief
c/o NatCity Investments Executive Officer,
1965 E. Sixth Street NatCity Investments,
Cleveland, OH 44114 Inc., since July 1995
Age 45 (investment banking);
President and Chief
Executive Officer,
Raffensperger, Hughes
& Co., from 1993
until 1995
(broker-dealer);
President, Reserve
Capital Group, from
1990 until 1993.
</TABLE>
-15-
<PAGE> 123
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
POSITION WITH DURING PAST 5 YEARS
NAME AND ADDRESS THE TRUST AND OTHER AFFILIATIONS
- ---------------- --------- ----------------------
<S> <C> <C>
W. Bruce McConnel, III Secretary Partner of law firm
Philadelphia National Drinker Biddle & Reath
Bank Building LLP, Philadelphia
1345 Chestnut Street Pennsylvania.
Suite 1100
Philadelphia, PA 19107
Age 54
Neal J. Andrews Treasurer Vice President and
PFPC, Inc. Director of Investment
400 Bellevue Parkway Accounting, PFPC, Inc.,
Wilmington, DE 19809 since 1992, prior
Age 31 thereto, Senior Auditor,
Price Waterhouse, LLP
</TABLE>
- --------------------
* Messrs. Neary and Carter are considered by the Trust to be
"interested persons" of the Trust as defined in the 1940 Act.
W. Bruce McConnel, III, Esq., Secretary of the Trust, is a
partner of the law firm of Drinker Biddle & Reath LLP, which receives fees as
counsel to the Trust. Neal J. Andrews, Treasurer of the Trust, is employed by
PFPC, Inc., which receives fees as Administrator to the Trust.
Each trustee receives an annual fee of $7,500 plus $2,500 for
each Board meeting attended and reimbursement of expenses incurred in attending
meetings. The Chairman of the Board is entitled to receive an additional $2,500
per annum for services in such capacity. For the year ended May 31, 1997, the
Trust's trustees and officers as a group received aggregate fees of $125,000.
The trustees and officers of the Trust own less than 1% of the shares of the
Trust.
The following table summarizes the compensation for each of
the Trustees of the Trust for the fiscal year ended May 31, 1997:
-16-
<PAGE> 124
<TABLE>
<CAPTION>
Pension or
Retirement
Benefits Estimated
Aggregate Accrued Approval Total
Compensation as Part of Benefits Compensation
Name of from the the Trust's Upon from the
Person, Position Trust Expenses Retirement Trust
---------------- ------------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
Robert D. Neary, $18,750 $0 $0 $18,750
Chairman, President
and Trustee
Thomas R. Benua, $17,500 $0 $0 $17,500
Jr., Trustee*
Leigh Carter, $17,500 $0 $0 $17,500
Trustee
John F. Durkott, $17,500 $0 $0 $17,500
Trustee
Richard W. Furst, $17,500 $0 $0 $17,500
Trustee
J. William Pullen, $17,500 $0 $0 $17,500
Trustee
Richard B. Tullis, $18,750 $0 $0 $18,750
Trustee
</TABLE>
SHAREHOLDER AND TRUSTEE LIABILITY
- ---------------------------------
Under Massachusetts law, shareholders of a business trust may,
under certain circumstances, be held personally liable as partners for the
obligations of the trust. However, the Trust's Declaration of Trust provides
that shareholders shall not be subject to any personal liability for the acts or
obligations of the Trust, and that every note, bond, contract, order, or other
undertaking made by the Trust shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Declaration of Trust
provides for indemnification out of the trust property of any shareholder held
personally liable solely by reason of his being or having been a shareholder and
not because of his acts or omissions or some other reason. The Declaration of
Trust also provides that the Trust shall, upon request, assume the defense of
any claim made against any shareholder for any act or obligation of the Trust,
and shall satisfy any judgment thereon. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet its obligations.
- ------------
* Mr. Benua resigned as trustee as of July 17, 1997.
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<PAGE> 125
The Declaration of Trust states further that no trustee,
officer, or agent of the Trust shall be personally liable for or on account of
any contract, debt, tort, claim, damage, judgment or decree arising out of or
connected with the administration or preservation of the trust estate or the
conduct of any business of the Trust; nor shall any trustee be personally liable
to any person for any action or failure to act except by reason of his own bad
faith, willful misfeasance, gross negligence, or reckless disregard of his
duties as trustee. The Declaration of Trust also provides that all persons
having any claim against the trustees or the Trust shall look solely to the
trust property for payment. With the exceptions stated, the Declaration of Trust
provides that a trustee is entitled to be indemnified against all liabilities
and expense, reasonably incurred by him in connection with the defense or
disposition of any proceeding in which he may be involved or with which he may
be threatened by reason of his being or having been a trustee, and that the
trustees, have the power, but not the duty, to indemnify officers and employees
of the Trust unless any such person would not be entitled to indemnification had
he been a trustee.
ADVISORY, ADMINISTRATION, DISTRIBUTION, CUSTODIAN
SERVICES AND TRANSFER AGENCY AGREEMENTS
-------------------------------------------------
ADVISORY AGREEMENT
- ------------------
As described in the Prospectus, National Asset Management
Corporation ("NAM") serves as investment adviser to the Core Equity Fund. The
adviser is an affiliate of National City Corporation, a bank holding company
with $51 billion in assets, and headquarters in Cleveland, Ohio and nearly 900
branch offices in four states. Through its subsidiaries, National City
Corporation has been managing investments for individuals, pension and
profit-sharing plans and other institutional investors for over 75 years and
currently manages over $38 billion in assets. From time to time, the adviser may
voluntarily waive fees or reimburse the Trust for expenses.
The Advisory Agreement provides that the adviser shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Trust in connection with the performance of the Advisory Agreement, except a
loss resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of the adviser in the performance of its
duties or from its reckless disregard of its duties and obligations thereunder.
In addition, the adviser has undertaken in the Advisory Agreement to maintain
its policy and practice of conducting its Trust Department independently of its
Commercial Department.
-18-
<PAGE> 126
The Advisory Agreement relating to the Fund was approved by
its sole shareholder prior to the Fund's commencement of investment operations.
Unless sooner terminated, the Advisory Agreement will continue in effect with
respect to the Fund until September 30, 1997 and from year to year thereafter,
subject to annual approval by the Trust's Board of Trustees, or by a vote of a
majority of the outstanding shares of the Fund (as defined in the Fund's
Prospectus) and a majority of the trustees who are not parties to the Agreement
or interested persons (as defined in the 1940 Act) of any party by votes cast in
person at a meeting called for such purpose. The Advisory Agreement may be
terminated by the Trust or the adviser on 60 days written notice, and will
terminate immediately in the event of its assignment.
AUTHORITY TO ACT AS INVESTMENT ADVISER
- --------------------------------------
Banking laws and regulations, including the Glass-Steagall Act
as presently interpreted by the Board of Governors of the Federal Reserve
System, (a) prohibit a bank holding company registered under the Federal Bank
Holding Company Act of 1956 or any affiliate thereof from sponsoring,
organizing, or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a bank holding company or affiliate from acting as investment adviser, transfer
agent, or custodian to such an investment company. The adviser believes that it
may perform the services for the Fund contemplated by its Advisory Agreement
with the Trust as described in such agreement without violation of applicable
banking laws or regulations. However, there are no controlling judicial
precedents and future changes in legal requirements relating to the permissible
activities of banks and their affiliates, as well as future interpretations of
present requirements, could prevent the adviser from continuing to perform
services for the Trust. If the adviser were prohibited from providing services
to the Fund, the Board of Trustees would consider selecting another qualified
firm. Any new investment advisory agreement would be subject to shareholder
approval.
Should future legislative, judicial, or administrative action
prohibit or restrict the proposed activities of the adviser, or its affiliated
and correspondent banks in connection with shareholder purchases of Fund shares,
the adviser and its affiliated and correspondent banks might be required to
alter materially or discontinue the services offered by them to shareholders. It
is not anticipated, however, that any resulting change in the Trust's method of
operations would affect its net asset value per share or result in financial
losses to any shareholder.
If current restrictions preventing a bank or its affiliates
from legally sponsoring, organizing, controlling, or distributing shares of an
investment company were relaxed, the
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<PAGE> 127
adviser, or an affiliate of the adviser, would consider the possibility of
offering to perform additional services for the Trust. Legislation modifying
such restrictions has been proposed in past sessions in Congress. It is not
possible, of course, to predict whether or in what form such legislation might
be enacted or the terms upon which the adviser, or such an affiliate, might
offer to provide such services.
ADMINISTRATION AND ACCOUNTING SERVICE AGREEMENT
- -----------------------------------------------
PFPC serves as the administrator and accounting agent to the
Trust. The services provided as administrator and accounting agent and current
fees are described in the Prospectus.
DISTRIBUTION PLAN AND RELATED AGREEMENT
- ---------------------------------------
The Distributor acts as distributor of the Fund's shares
pursuant to its Distribution Agreement with the Trust as described in the
Prospectus. Shares are sold on a continuous basis.
Pursuant to Rule 12b-1 of the 1940 Act, the Trust has adopted
a Distribution Plan (the "Plan") which permits the Trust to bear certain
expenses in connection with the distribution of its shares. As required by Rule
12b-1, the Trust's 12b-1 Plan and related distribution agreement have been
approved, and are subject to annual approval by, a majority of the Trust's Board
of Trustees, and by a majority of the trustees who are not interested persons of
the Trust and have no direct or indirect interest in the operation of the Plan
or any agreement relating to the Plan, by vote cast in person at a meeting
called for the purpose of voting on the Plan and related agreement. In
compliance with the Rule, the trustees requested and evaluated information they
thought necessary to an informed determination of whether the Plan and related
agreement should be implemented, and concluded, in the exercise of reasonable
business judgment and in light of their fiduciary duties, that there is a
reasonable likelihood that the Plan and related agreement will benefit the Trust
and its shareholders.
Rule 12b-1 also requires that persons authorized to direct the
disposition of monies payable by a fund (in the Trust's case, the Distributor)
provide for the trustees' review of quarterly reports on the amounts expended
and the purposes for the expenditures.
Any change in the Plan that would materially increase the
distribution expenses of the Fund requires approval by its shareholders, but
otherwise, the Plan may be amended by the trustees, including a majority of the
disinterested trustees who do not have any direct or indirect financial interest
in the Plan or related agreement. The Plan and related agreement may be
terminated as to the Fund by a vote of the Trust's disinterested trustees or by
vote of the shareholders of the Fund, on not more
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<PAGE> 128
than 60 days written notice. The selection and nomination of disinterested
trustees has been committed to the discretion of such disinterested trustees as
required by the Rule.
The Trust's Plan provides that each Fund will compensate the
Distributor for distribution expenses in an amount not to exceed .10% of the
Fund's average net assets. Distribution expenses payable by the Distributor
pursuant to the Plan include direct and indirect costs and expenses incurred in
connection with advertising and marketing a Fund's shares, and direct and
indirect costs and expenses of preparing, printing and distributing its
prospectuses to other than current shareholders. The Plan provides that the
Trust will pay the Distributor an annual base fee of $1,250,000 plus incentive
fees based upon asset growth payable monthly and accrued daily by all of the
Trust's investment funds with respect to which the Distributor is distributing
shares.
The Plan has been approved, and will continue in effect for
successive one year periods provided that such continuance is specifically
approved by (1) the vote of a majority of the trustees who are not parties to
the Plan or interested persons of any such party and who have no direct or
indirect financial interest in the Plan and (2) the vote of a majority of the
entire Board of Trustees.
CUSTODIAN SERVICES AND TRANSFER AGENCY AGREEMENTS
- -------------------------------------------------
National City Bank serves as the Trust's custodian with
respect to the Fund. Under its Custodian Services Agreement, National City Bank
has agreed to: (i) maintain a separate account or accounts in the name of the
Fund; (ii) hold and disburse portfolio securities on account of the Fund; (iii)
collect and make disbursements of money on behalf of the Fund; (iv) collect and
receive all income and other payments and distributions on account of the Fund's
portfolio securities; (v) respond to correspondence by security brokers and
others relating to its duties; and (vi) make periodic reports to the Board of
Trustees concerning the Fund's operations. National City Bank is authorized to
select one or more banks or trust companies to serve as sub-custodian on behalf
of the Fund, provided that it shall remain responsible for the performance of
all of its duties under the Custodian Services Agreement and shall hold the Fund
harmless from the acts and omissions of any bank or trust company serving as
sub-custodian. The Fund reimburses National City Bank for its direct and
indirect costs and expenses incurred in rendering custodial services, except
that the costs and expenses borne by the Fund in any year may not exceed $.225
for each $1,000 of average gross assets of the Fund.
State Street Bank and Trust Company (the "Transfer Agent")
serves as the Trust's transfer agent and dividend disbursing agent with respect
to the Fund. Under its Transfer Agency Agreement, it has agreed to: (i) issue
and redeem shares of
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<PAGE> 129
the Fund; (ii) transmit all communications by the Fund to its shareholders of
record, including reports to shareholders, dividend and distribution notices and
proxy materials for meetings of shareholders; (iii) respond to correspondence by
security brokers and others relating to its duties; (iv) maintain shareholder
accounts; and (v) make periodic reports to the Board of Trustees concerning the
Fund's operations. The Transfer Agent sends each shareholder of record a
statement (not less frequently than quarterly) showing the total number of
shares owned as of the last business day of the month (as well as the dividends
paid during the current month and year), and provides each shareholder of record
with a daily transaction report for each day on which a transaction occurs in
the shareholder's account with the Fund.
SHAREHOLDER SERVICES PLAN
-------------------------
As stated in the Prospectus, the Trust has implemented the
Services Plan with respect to Retail shares in the Fund. Pursuant to the
Services Plan, the Trust may enter into agreements with financial institutions
pertaining to the provision of administrative services to their customers who
are the beneficial owners of Retail shares in consideration for the payment of
up to .25% (on an annualized basis) of the net asset value of such shares. Such
services may include: (i) aggregating and processing purchase and redemption
requests from customers; (ii) providing customers with a service that invests
the assets of their accounts in Retail shares; (iii) processing dividend
payments from the Funds; (iv) providing information periodically to customers
showing their position in Retail shares; (v) arranging for bank wires; (vi)
responding to customer inquiries relating to the services performed with respect
to Retail shares beneficially owned by customers; (vii) forwarding shareholder
communications; and (viii) other similar services requested by the Trust.
Agreements between the Trust and financial institutions will be terminable at
any time by the Trust without penalty.
PORTFOLIO TRANSACTIONS
----------------------
Pursuant to its Advisory Agreement with the Trust, NAM is
responsible for making decisions with respect to and placing orders for all
purchases and sales of portfolio securities for the Fund. The adviser purchases
portfolio securities either directly from the issuer or from an underwriter or
dealer making a market in the securities involved. Purchases from an underwriter
of portfolio securities include a commission or concession paid by the issuer to
the underwriter and purchases from dealers serving as market makers may include
the spread between the bid and asked price. Transactions on stock exchanges
involve the payment of negotiated brokerage commissions. There is generally no
stated commission in
-22-
<PAGE> 130
the case of securities traded in the over-the-counter market, but the price
includes an undisclosed commission or mark-up.
While the adviser generally seeks competitive spreads or
commissions, it may not necessarily allocate each transaction to the underwriter
or dealer charging the lowest spread or commission available on the transaction.
Allocation of transactions, including their frequency, to various dealers is
determined by its best judgment and in a manner deemed fair and reasonable to
shareholders. The primary consideration is prompt execution of orders in an
effective manner at the most favorable price. Subject to this consideration,
dealers who provide supplemental investment research to the adviser may receive
orders for transactions by the Fund. Information so received is in addition to
and not in lieu of services required to be performed by the adviser and does not
reduce the fees payable to the adviser by the Fund. Such information may be
useful to the adviser in serving both the Trust and other clients, and,
similarly, supplemental information obtained by the placement of business of
other clients may be useful to the adviser in carrying out its obligations to
the Trust.
Portfolio securities will not be purchased from or sold to the
Fund's adviser, the Distributor, or any "affiliated person" (as such term is
defined under the 1940 Act) of any of them acting as principal, except to the
extent permitted by the SEC. In addition, the Fund will not give preference to
its adviser's correspondents with respect to such transactions, securities,
savings deposits, repurchase agreements and reverse repurchase agreements.
Investment decisions for the Fund are made independently from
those for the other Funds and for other investment companies and accounts
advised or managed by the adviser. Such other Funds, investment companies and
accounts may also invest in the same securities as such Fund. When a purchase or
sale of the same security is made at substantially the same time on behalf of
the Fund and another investment company or account, the transaction will be
averaged as to price, and available investments allocated as to amount, in a
manner which the adviser believes to be equitable to the Fund and such other
investment company or account. In some instances, this investment procedure may
adversely affect the price paid or received by the Fund or the size of the
position obtained or sold by the Fund. To the extent permitted by law, the
adviser may aggregate the securities to be sold or purchased for the Fund with
those to be sold or purchased for other investment companies or accounts in
order to obtain best execution.
-23-
<PAGE> 131
AUDITORS
--------
Ernst & Young LLP, independent auditors, with offices at Two
Commerce Square, 2001 Market Street, Suite 4000, Philadelphia, Pennsylvania
19103, serve as independent auditors of the Trust.
COUNSEL
-------
Drinker Biddle & Reath LLP (of which Mr. McConnel, Secretary
of the Trust, is a partner), with offices at 1345 Chestnut Street, Philadelphia,
Pennsylvania 19107, are counsel to the Trust and will pass upon certain legal
matters for the Trust.
PERFORMANCE INFORMATION
-----------------------
The Fund computes its "average annual total return" by
determining the average annual compounded rate of return during specified
periods that would equate the initial amount invested to the ending redeemable
value of such investment by dividing the ending redeemable value of a
hypothetical $1,000 initial payment by $1,000 and raising the quotient to a
power equal to one divided by the number of years (or fractional portion
thereof) covered by the computation and subtracting one from the result. This
calculation can be expressed as follows:
ERV 1/n
T = [(-----) - 1]
P
Where: T = average annual total return
ERV = ending redeemable value at the end of the
period covered by the computation of a
hypothetical $1,000 payment made at the
beginning of the period
P = hypothetical initial payment of $1,000
n = period covered by the computation, expressed
in terms of years
The Fund computes its aggregate total returns by determining
the aggregate rates of return during specified periods that likewise equate the
initial amount invested to the ending redeemable value of such investment. The
formula for calculating aggregate total return is as follows:
-24-
<PAGE> 132
ERV
T = (---) - 1
P
The calculations of average annual total return and aggregate
total return assume the reinvestment of all dividends and capital gain
distributions on the reinvestment dates during the period and include all
recurring fees charged to all shareholder accounts, assuming an account size
equal to the Fund's mean (or median) account size for any fees that vary with
the size of the account. The maximum sales load and other charges deducted from
payments are deducted from the initial $1,000 payment (variable "P" in the
formula). The ending redeemable value (variable "ERV" in the formula) is
determined by assuming complete redemption of the hypothetical investment and
the deduction of all nonrecurring charges at the end of the measuring period
covered by the computation.
The Fund may also from time to time include in Materials a
total return figure that is not calculated according to the formulas set forth
above in order to compare more accurately the Fund's performance with other
measures of investment return. For example, in comparing a Fund's total return
with data published by Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc. or Weisenberger Investment Company Service, or with the
performance of an index, the Fund may calculate its aggregate total return for
the period of time specified in the advertisement or communication by assuming
the investment of $10,000 in shares and assuming the reinvestment of each
dividend or other distribution at net asset value on the reinvestment date.
Percentage increases are determined by subtracting the initial value of the
investment from the ending value and by dividing the remainder by the beginning
value. The Fund does not, for these purposes, deduct from the initial value
invested any amount representing sales charges. The Fund will, however, disclose
the maximum sales charge and will also disclose that the performance data do not
reflect sales charges and that inclusion of sale charges would reduce the
performance quoted.
The Fund may also from time to time include discussions or
illustrations of the effects of compounding in Materials. "Compounding" refers
to the fact that, if dividends or other distributions on the Fund investment are
reinvested by being paid in additional Fund shares, any future income or capital
appreciation of the Fund would increase the value, not only of the original Fund
investment, but also of the additional Fund shares received through
reinvestment. As a result, the value of the Fund investment would increase more
quickly than if dividends or other distributions had been paid in cash.
In addition, the Fund may also include in Materials
discussions and/or illustrations of the potential investment goals of a
prospective investor, investment management strategies,
-25-
<PAGE> 133
techniques, policies or investment suitability of the Fund, high-quality
investments, economic conditions, the relationship between sectors of the
economy and the economy as a whole, various securities markets, the effects of
inflation and historical performance of various asset classes, including but not
limited to, stocks, bonds and Treasury securities. From time to time, Materials
may summarize the substance of information contained in shareholder reports
(including the investment composition of the Fund), as well as the views of the
adviser as to current market, economic, trade and interest rate trends,
legislative, regulatory and monetary developments, investment strategies and
related matters believed to be of relevance to the Fund. The Fund may also
include in Materials charts, graphs or drawings which compare the investment
objective, return potential, relative stability and/or growth possibilities of
the Fund and/or other mutual funds, or illustrate the potential risks and
rewards of investment in various investment vehicles, including but not limited
to, stocks, bonds, Treasury securities and shares of the Fund and/or other
mutual funds. Materials may include a discussion of certain attributes or
benefits to be derived by an investment in the Fund and/or other mutual funds
(such as value investing, market timing, dollar cost averaging, asset
allocation, constant ratio transfer, automatic accounting rebalancing, the
advantages and disadvantages of investing in tax-deferred and taxable
investments), shareholder profiles and hypothetical investor scenarios, timely
information on financial management, tax and retirement planning and investment
alternatives to certificates of deposit and other financial instruments. Such
Materials may include symbols, headlines or other material which highlight or
summarize the information discussed in more detail therein.
MISCELLANEOUS
-------------
The Fund bears all costs in connection with its organization,
including the fees and expenses of registering and qualifying its shares for
distribution under federal and state securities regulations. All organization
expenses are being amortized on the straight-line method over a period of five
years from the date of commencement of operations.
As used in the Prospectus, "assets belonging to the Fund"
means the consideration received by the Trust upon the issuance of shares in
that particular Fund, together with all income, earnings, profits, and proceeds
derived from the investment thereof, including any proceeds from the sale of
such investments, any funds or payments derived from any reinvestment of such
proceeds, and a portion of any general assets of the Trust not belonging to a
particular Fund. In determining the Fund's net asset value, assets belonging to
the Fund are charged with the liabilities in respect of that Fund.
-26-
<PAGE> 134
APPENDIX A
----------
DESCRIPTION OF RATINGS
COMMERCIAL PAPER RATINGS
- ------------------------
A S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market. The following summarizes the highest rating category used by S&P for
commercial paper:
"A-1" - Issue's degree of safety regarding timely payment
is strong. Those issues determined to possess extremely strong
safety characteristics are denoted "A-1+."
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the highest rating
category used by Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are
considered to have a superior capacity for repayment of short-term promissory
obligations. Principal repayment capacity will normally be evidenced by the
following characteristics: leading market positions in well established
industries; high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protection; broad
margins in earning coverage of fixed financial charges and high internal cash
generation; and well established access to a range of financial markets and
assured sources of alternate liquidity.
The following summarizes the highest rating category used by
Duff & Phelps for commercial paper:
"Duff 1+" - Debt possesses highest certainty of timely
payment. Short-term liquidity, including internal operating
factors and/or access to alternative sources of funds, is
outstanding, and safety is just below risk-free U.S. Treasury
short-term obligations.
"Duff 1" - Debt possesses very high certainty of timely
payment. Liquidity factors are excellent and supported by good
fundamental protection factors. Risk factors are minor.
"Duff 1-" - Debt possesses high certainty of timely
payment. Liquidity factors are strong and supported by
good fundamental protection factors. Risk factors are very small.
A-1
<PAGE> 135
The following summarizes the highest rating category used by
Fitch for short-term notes, municipal notes, variable rate demand instruments
and commercial paper:
"F-1+" - Instruments assigned this rating are regarded as
having the strongest degree of assurance for timely payment.
"F-1" - Instruments assigned this rating reflect an assurance
of timely payment only slightly less in degree than issues
rated 'F-1+."
IBCA uses the following highest rating category for short term
notes including commercial paper:
"A1+" - These issues display the very highest quality
borrowing characteristics and are of undoubted or prime
creditworthiness.
"A1" - These issues display very strong borrowing
characteristics.
A-2
<PAGE> 136
ARMADA FUNDS
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 1, 1997
SMALL CAP GROWTH FUND
This Statement of Additional Information is not a prospectus but should be read
in conjunction with the current Prospectus for the above Fund of Armada Funds
(the "Trust"), dated August 1, 1997 (the "Prospectus"). A copy of the Prospectus
may be obtained by calling or writing the Trust at 1-800-622-FUND (3863), Oaks,
Pennsylvania 19456.
<PAGE> 137
TABLE OF CONTENTS
Page
----
STATEMENT OF ADDITIONAL INFORMATION...................................... 1
INVESTMENT OBJECTIVES AND POLICIES....................................... 1
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION........................... 8
DESCRIPTION OF SHARES................................................... 10
ADDITIONAL INFORMATION CONCERNING TAXES.................................. 11
TRUSTEES AND OFFICERS.................................................... 14
ADVISORY, ADMINISTRATION, DISTRIBUTION, CUSTODIAN
SERVICES AND TRANSFER AGENCY AGREEMENTS ................................ 19
SHAREHOLDER SERVICES PLAN................................................ 23
PORTFOLIO TRANSACTIONS................................................... 23
AUDITORS................................................................. 25
COUNSEL.................................................................. 25
PERFORMANCE INFORMATION.................................................. 25
MISCELLANEOUS............................................................ 27
APPENDIX A...............................................................A-1
APPENDIX B...............................................................B-1
<PAGE> 138
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
This Statement of Additional Information should be read in
conjunction with the Prospectus of Armada Funds (the "Trust") that describes the
Small Cap Growth Fund. The information contained in this Statement of Additional
Information expands upon matters discussed in the Prospectus. No investment in
shares of the Fund should be made without first reading the Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
----------------------------------
ADDITIONAL INFORMATION ON FUND MANAGEMENT
Further information on the adviser's or sub-adviser's investment
management strategies, techniques, policies and related matters may be included
from time to time in advertisements, sales literature, communications to
shareholders and other materials. See also, "Performance Information" below.
Attached to this Statement of Additional Information is Appendix A
which contains descriptions of the rating symbols used by S&P, Fitch, Duff, IBCA
and Moody's for securities which may be held by the Fund.
AMERICAN DEPOSITORY RECEIPTS ("ADRS")
The Fund may invest its assets in ADRs, which are receipts issued by
an American bank or trust company evidencing ownership of underlying securities
issued by a foreign issuer. ADRs may be listed on a national securities exchange
or may trade in the over-the-counter market. ADR prices are denominated in
United States dollars. The securities underlying an ADR will normally be
denominated in a foreign currency. The underlying securities may be subject to
foreign government taxes which could reduce the yield on such securities.
Investments in foreign securities involve certain inherent risks, such as
political or economic instability of the issuer or the country of issue and the
difficulty of predicting international trade patterns; the possible imposition
of foreign withholding taxes on interest income payable on such instruments; the
possible establishment of exchange controls; and the possible seizure or
nationalization of foreign deposits or the adoption of other foreign branches of
U.S. banks. As with any foreign security, the issuers of securities underlying
ADRs may be subject to less stringent reserve requirements and to different
accounting, auditing, reporting and recordkeeping standards than those
applicable to domestic issuers, and securities of foreign issuers may be less
liquid and their prices more volatile than those of comparable domestic issuers.
1
<PAGE> 139
WARRANTS
Warrants enable the owner to subscribe to and purchase a specified
number of shares of the issuing corporation at a specified price during a
specified period of time. The prices of warrants do not necessarily correlate
with the prices of the underlying securities. The purchase of warrants involves
the risk that the purchaser could lose the purchase value of the warrant if the
right to subscribe to additional shares is not exercised prior to the warrant's
expiration. Also, the purchase of warrants involves the risk that the effective
price paid for the warrant added to the subscription price of the related
security may exceed the value of the subscribed security's market price such as
when there is no movement in the level of the underlying security.
CONVERTIBLE SECURITIES
Convertible securities entitle the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the securities
mature or are redeemed, converted or exchanged. Prior to conversion, convertible
securities have characteristics similar to ordinary debt securities in that they
normally provide a stable stream of income with generally higher yields than
those of common stock of the same or similar issuers. Convertible securities
rank senior to common stock in a corporation's capital structure and therefore
generally entail less risk than the corporation's common stock. The value of the
convertibility feature depends in large measure upon the degree to which the
convertible security sells above its value as a fixed income security.
In selecting convertible securities, the sub-adviser will consider,
among other factors, the creditworthiness of the issuers of the securities; the
interest or dividend income generated by the securities; the potential for
capital appreciation of the securities and the underlying common stocks; the
prices of the securities relative to other comparable securities and to the
underlying common stocks; whether the securities are entitled to the benefits of
sinking funds or other protective conditions; diversification of the Fund's
portfolio as to issuers; and the ratings of the securities. Since credit rating
agencies may fail to timely change the credit ratings of securities to reflect
subsequent events, the sub-adviser will consider whether such issuers will have
sufficient cash flow and profits to meet required principal and interest
payments. The Fund may retain a portfolio security whose rating has been changed
if the sub-adviser deems that retention of such security is warranted.
2
<PAGE> 140
VARIABLE AND FLOATING RATE OBLIGATIONS
The Fund may purchase variable and floating rate obligations
(including variable amount master demand notes) which are unsecured instruments
that permit the indebtedness thereunder to vary and provide for periodic
adjustments in the interest rate. Because variable and floating rate obligations
are direct lending arrangements between the Fund and the issuer, they are not
normally traded although certain variable and floating rate obligations, such as
Student Loan Marketing Association variable rate obligations, may have a more
active secondary market because they are issued or guaranteed by the U.S.
Government or its agencies or instrumentalities. Even though there may be no
active secondary market in such instruments, the Fund may demand payment of
principal and accrued interest at a time specified in the instrument or may
resell them to a third party. Such obligations may be backed by bank letters of
credit or guarantees issued by banks, other financial institutions or the U.S.
Government, its agencies or instrumentalities. The quality of any letter of
credit or guarantee will be rated high quality or, if unrated, will be
determined to be of comparable quality by the sub-adviser. In the event an
issuer of a variable or floating rate obligation defaulted on its payment
obligation, the Fund might be unable to dispose of the instrument because of the
absence of a secondary market and could, for this or other reasons, suffer a
loss to the extent of the default.
SHORT TERM OBLIGATIONS
The Fund may invest in various short term obligations including those
described below.
Investments include commercial paper and other short term promissory
notes issued by corporations (including variable and floating rate instruments).
Bank obligations include bankers' acceptances, negotiable
certificates of deposit, and non-negotiable demand and time deposits issued for
a definite period of time and earning a specified return by a U.S. bank (which
is a member of the Federal Reserve System), a foreign branch of a U.S. bank, or
a foreign bank. Bank obligations also include U.S. dollar denominated bankers'
acceptances, certificates of deposit and time deposits issued by foreign
branches of U.S. banks or foreign banks. Investment in bank obligations is
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase. The Fund may also make interest bearing
savings deposits in commercial and savings banks not in excess of 5% of its
total assets. Investment in non-negotiable time deposits is limited to no more
than 5% of a Fund's total assets at the time of purchase.
3
<PAGE> 141
The Fund may also make limited investments ( not more than 5% of its
net assets) in Guaranteed Investment Contracts ("GICs") issued by U.S. insurance
companies. When investing in GICs, the Fund makes cash contributions to a
deposit fund or an insurance company's general account. The insurance company
then credits to the Fund monthly a guaranteed minimum interest which is based on
an index. The insurance company may assess periodic charges against a GIC for
expense and service costs allocable to it, and the charges will be deducted from
the value of the deposit fund. The Fund will purchase a GIC only when its
advisers or sub-adviser have determined, under guidelines established by the
Board of Trustees, that the GIC presents minimal credit risks to the Fund and is
of comparable quality to instruments that are rated high quality by one or more
rating agencies.
REPURCHASE AGREEMENTS
Securities held by the Fund may be subject to repurchase agreements.
Under the terms of a repurchase agreement, the Fund purchases securities from
financial institutions such as banks and broker-dealers which the Fund's
advisers or sub-adviser deem creditworthy under guidelines approved by the Board
of Trustees, subject to the seller's agreement to repurchase such securities at
a mutually agreed-upon date and price. The repurchase price generally equals the
price paid by the Fund plus interest negotiated on the basis of current short
term rates, which may be more or less than the rate on the underlying portfolio
securities. The seller under a repurchase agreement will be required to maintain
the value of collateral held pursuant to the agreement at not less than the
repurchase price (including accrued interest). If the seller were to default on
its repurchase obligation or become insolvent, the Fund holding such obligation
would suffer a loss to the extent that the proceeds from a sale of the
underlying portfolio securities were less than the repurchase price under the
agreement, or to the extent that the disposition of such securities by the Fund
were delayed pending court action. Although there is no controlling legal
precedent confirming that a Fund would be entitled, as against a claim by such
seller or its receiver or trustee in bankruptcy, to retain the underlying
securities, the Board of Trustees of the Trust believes that, under the regular
procedures normally in effect for custody of a Fund's securities subject to
repurchase agreements and under Federal laws, a court of competent jurisdiction
would rule in favor of the Trust if presented with the question. Securities
subject to repurchase agreements will be held by the Trust's custodian or
another qualified custodian or in the Federal Reserve/Treasury book-entry
system. Repurchase agreements are considered to be loans by a Fund under the
1940 Act.
REVERSE REPURCHASE AGREEMENTS
4
<PAGE> 142
The Fund may borrow funds for temporary purposes by entering into
reverse repurchase agreements in accordance with its investment restrictions.
Pursuant to such agreements, the Fund would sell portfolio securities to
financial institutions such as banks and broker-dealers, and agree to repurchase
them at a mutually agreed-upon date and price. The Fund intends to enter into
reverse repurchase agreements only to avoid otherwise selling securities during
unfavorable market conditions to meet redemptions. At the time the Fund enters
into a reverse repurchase agreement, it will place in a segregated custodial
account assets such as U.S. Government securities or other liquid, high grade
debt securities consistent with the Fund's investment restrictions having a
value equal to the repurchase price (including accrued interest), and will
subsequently monitor the account to ensure that such equivalent value is
maintained. Reverse repurchase agreements involve the risk that the market value
of the securities sold by a Fund may decline below the price at which it is
obligated to repurchase the securities. Reverse repurchase agreements are
considered to be borrowings by the Fund under the Investment Company Act of
1940.
U.S. GOVERNMENT OBLIGATIONS
The Fund may purchase obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. Some of these obligations are
supported by the full faith and credit of the U.S. Treasury, such as obligations
issued by the Government National Mortgage Association. Others, such as those of
the Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the U.S. Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; and still others, such
as those of the Student Loan Marketing Association, are supported only by the
credit of the agency or instrumentality issuing the obligation. No assurance can
be given that the U.S. Government would provide financial support to U.S.
Government-sponsored agencies or instrumentalities if it is not obligated to do
so by law. The Fund will invest in the obligations of such agencies or
instrumentalities only when the adviser or sub-adviser believes that the credit
risk with respect thereto is minimal.
FUTURES CONTRACTS AND RELATED OPTIONS
The Fund may purchase and sell futures contracts on particular
securities, financial instruments and stock indexes and may purchase and sell
call and put options on futures contracts. For a detailed description of futures
contracts and related options, see Appendix B to this Statement of Additional
Information.
5
<PAGE> 143
SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund currently intends to limit its investments in securities
issued by other investment companies so that, as determined immediately after a
purchase of such securities is made: (i) not more than 5% of the value of the
Fund's total assets will be invested in the securities of any one investment
company; (ii) not more than 10% of the value of its total assets will be
invested in the aggregate in securities of investment companies as a group; and
(iii) not more than 3% of the outstanding voting stock of any one investment
company will be owned by the Fund or by the Trust as a whole.
PORTFOLIO TURNOVER
The Fund may engage in short term trading and may sell securities
which have been held for periods ranging from several months to less than a day.
Portfolio turnover will tend to rise during periods of economic turbulence and
decline during periods of stable growth. The Fund's annual portfolio turnover is
not expected to exceed 100% under normal market conditions. The portfolio
turnover rate for the Fund is calculated by dividing the lesser of purchases or
sales of portfolio securities for the year by the monthly average value of the
portfolio securities. The calculation excludes U.S. Government securities and
all securities whose maturities at the time of acquisition were one year or
less. Portfolio turnover may vary greatly from year to year as well as within a
particular year, and may also be affected by cash requirements for redemptions
of shares and by requirements which enable the Fund to receive certain favorable
tax treatment. Portfolio turnover will not be a limiting factor in making fund
decisions.
ADDITIONAL INVESTMENT LIMITATIONS
In addition to the investment limitations disclosed in the
Prospectus, the Fund is subject to the following investment limitations which
may not be changed without approval of the holders of a majority of the
outstanding shares of the Fund (as defined under "Description of Shares" below).
The Fund may not:
1. Purchase or sell real estate, except that it may purchase
securities of issuers which deal in real estate and may purchase securities
which are secured by interests in real estate.
2. Invest in commodities, except that as consistent with its
investment objective and policies the Fund may: 1) purchase and sell options,
forward contracts, futures contracts, including without limitation those
relating to
6
<PAGE> 144
indices; 2) purchase and sell options on futures contracts or indices; 3)
purchase publicly traded securities of companies engaging in whole or in part in
such activities.
3. Act as an underwriter of securities within the meaning of the
Securities Act of 1933 except insofar as it might be deemed to be an underwriter
upon the disposition of portfolio securities acquired within the limitation on
purchases of illiquid securities and except to the extent that the purchase of
obligations directly from the issuer thereof in accordance with its investment
objective, policies and limitations may be deemed to be underwriting.
In addition to the above fundamental limitations, the Fund is subject
to the following non-fundamental limitations, which may be changed without a
shareholder vote:
The Fund may not:
1. Acquire any other investment company or investment company
security except in connection with a merger, consolidation, reorganization or
acquisition of assets or where otherwise permitted under the 1940 Act.
2. Write or sell put options, call options, straddles, spreads, or
any combination thereof, except as consistent with the Fund's investment
objective and policies, for transactions in options on securities or indices of
securities, futures contracts and options on futures contracts and in similar
investments.
3. Purchase securities on margin, make short sales of securities or
maintain a short position, except that (a) this investment limitation shall not
apply to its transactions in futures contracts and related options, options on
securities or indices of securities and similar instruments, and (b) it may
obtain short-term credit as may be necessary for the clearance of purchases and
sales of portfolio securities.
4. Purchase securities of companies for the purpose of exercising
control.
5. Invest more than 15% of its net assets in illiquid securities.
The Fund does not intend to purchase securities while its outstanding
borrowings are in excess of 5% of its assets. Securities held in escrow or
separate accounts in connection with its investment practices are not deemed to
be pledged for purposes of this limitation.
7
<PAGE> 145
The Fund reserves the right to engage in securities lending, although
it does not presently have the intent of doing so.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
----------------------------------------------
Shares in the Trust are sold on a continuous basis by SEI Investments
Distribution Co. (the "Distributor"), which has agreed to use appropriate
efforts to solicit all purchase orders. The issuance of shares is recorded on
the books of the Trust. To change the commercial bank or account designated to
receive redemption proceeds, a written request must be sent to an investor's
financial institution at its principal office. Such requests must be signed by
each shareholder, with each signature guaranteed by a U.S. commercial bank or
trust company or by a member firm of a national securities exchange. Guarantees
must be signed by an authorized signatory and "Signature Guaranteed" must appear
with the signature. An investor's financial institution may request further
documentation from corporations, executors, administrators, trustees or
guardians, and will accept other suitable verification arrangements from foreign
investors, such as consular verification.
The Trust may suspend the right of redemption or postpone the date of
payment for more than seven days for shares during any period when (a) trading
on the New York Stock Exchange is restricted by applicable rules and regulations
of the Securities and Exchange Commission ("SEC"); (b) the Exchange is closed
for other than customary weekend and holiday closings; (c) the SEC has by order
permitted such suspension; or (d) an emergency exists as determined by the SEC.
There is no sales load charged on shares acquired through the
reinvestment of dividends or distributions on such shares.
Automatic investment programs such as the monthly savings program
("Program") described in the Prospectus offered by the Fund permit an investor
to use "dollar cost averaging" in making investments. Under this Program, an
agreed upon fixed dollar amount is invested in Fund shares at predetermined
intervals. This may help investors to reduce their average cost per share
because the Program results in more shares being purchased during periods of
lower share prices and fewer shares during periods of higher share prices. In
order to be effective, dollar cost averaging should usually be followed on a
sustained, consistent basis. Investors should be aware, however, that dollar
cost averaging results in purchases of shares regardless of their price on the
day of investment or market trends and does not ensure a profit, protect against
losses in a declining market, or prevent a loss if an investor ultimately
redeems his shares at a price which is lower than their purchase price. An
8
<PAGE> 146
investor may want to consider his financial ability to continue purchases
through periods of low price levels. From time to time, in advertisements, sales
literature, communications to shareholders and other materials ("Materials"),
the Trust may illustrate the effects of dollar cost averaging through use of or
comparison to an index such as the Standard & Poor's 500 Composite Stock Price
Index.
OFFERING PRICE PER RETAIL SHARE OF THE FUNDS
An illustration of the computation of the offering price per Retail
share of the Fund, based upon the estimated value of its net assets and number
of shares outstanding on its commencement date, is as follows:
<TABLE>
<CAPTION>
TABLE
-----
<S> <C>
Net Assets of Retail Shares............................. $10,000,000
Outstanding Retail Shares............................... 1,000,000
Net Asset Value Per Share............................... $ 10.00
($10,000,000 / 1,000,000)
Sales Charge, 3.75% of offering
price (3.90% of net asset value
per share)............................................ $ .39
Offering to Public...................................... $ 10.39
<FN>
* Amounts are estimated as the Fund has not commenced operations.
</TABLE>
EXCHANGE PRIVILEGE
Investors may exchange all or part of their Retail shares as
described in the Prospectus. Upon the exchange of Retail shares of one Fund for
Retail shares of another Fund, any rights an Investor may have had for a reduced
or eliminated sales load in connection with the purchase of Retail shares of the
first Fund shall apply as well to Retail shares of the other Fund. The exchange
privilege may be modified or terminated at any time upon 60 days' notice to
shareholders.
By use of the exchange privilege, the Investor authorizes the Trust's
Transfer Agent or his financial institution to act on telephonic or written
instructions from any person representing himself or herself to be the
shareholder and believed by the Transfer Agent or the financial institution to
be genuine. The Investor or his financial institution must notify the Transfer
Agent of his prior ownership of Retail shares and
9
<PAGE> 147
account number. The Transfer Agent's records of such
instructions are binding.
DESCRIPTION OF SHARES
---------------------
The Trust is a Massachusetts business trust. The Trust's Declaration
of Trust authorizes the Board of Trustees to issue an unlimited number of shares
of beneficial interest and to classify or reclassify any unissued shares of the
Trust into one or more additional classes or series by setting or changing in
any one or more respects their respective preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption. Pursuant to such
authority, the Board of Trustees has authorized the issuance of 42 classes or
series of shares. Two of these classes or series, which represent interests in
the Small Cap Growth Fund (Class X and Class X - Special Series 1) are described
in this Statement of Additional Information and the related Prospectus.
Shares have no preemptive rights and only such conversion or exchange
rights as the Board of Trustees may grant in its discretion. When issued for
payment as described in the Prospectus, the Trust's shares will be fully paid
and non-assessable. In the event of a liquidation or dissolution of the Trust or
an individual Fund, shareholders of the Fund are entitled to receive the assets
available for distribution belonging to that Fund, and a proportionate
distribution, based upon the relative asset values of the respective Funds, of
any general assets of the Trust not belonging to any particular Fund which are
available for distribution.
Rule 18f-2 under the 1940 Act provides that any matter required by
the 1940 Act, applicable state law, or otherwise, to be submitted to the holders
of the outstanding voting securities of an investment company such as the Trust
shall not be deemed to have been effectively acted upon unless approved by the
holders of a majority of the outstanding shares of each investment fund affected
by such matter. Rule 18f-2 further provides that an investment fund is affected
by a matter unless the interests of each fund in the matter are substantially
identical or the matter does not affect any interest of the fund. Under the
Rule, the approval of an investment advisory agreement or any change in a
fundamental investment policy would be effectively acted upon with respect to an
investment fund only if approved by a majority of the outstanding shares of such
fund. However, the Rule also provides that the ratification of the appointment
of independent public accountants, the approval of principal underwriting
contracts, and the election of trustees may be effectively acted upon by
shareholders of the Trust voting together in the aggregate without regard to a
particular fund. In addition,
10
<PAGE> 148
shareholders of each class in a particular investment fund have equal voting
rights except that only Retail shares of an investment fund will be entitled to
vote on matters submitted to a vote of shareholders (if any) relating to
shareholder servicing fees that are allocable to such shares.
Although the following types of transactions are normally subject to
shareholder approval, the Board of Trustees may, under certain limited
circumstances, (a) sell and convey the assets of an investment fund to another
management investment company for consideration which may include securities
issued by the purchaser and, in connection therewith, to cause all outstanding
shares of such fund involved to be redeemed at a price which is equal to their
net asset value and which may be paid in cash or by distribution of the
securities or other consideration received from the sale and conveyance; (b)
sell and convert an investment fund's assets into money and, in connection
therewith, to cause all outstanding shares of such fund involved to be redeemed
at their net asset value; or (c) combine the assets belonging to an investment
fund with the assets belonging to another investment fund of the Trust, if the
Board of Trustees reasonably determines that such combination will not have a
material adverse effect on shareholders of any fund participating in such
combination, and, in connection therewith, to cause all outstanding shares of
any fund to be redeemed at their net asset value or converted into shares of
another class of the Trust shares at net asset value. In the event that shares
are redeemed in cash at their net asset value, a shareholder may receive in
payment for such shares an amount that is more or less than his original
investment due to changes in the market prices of the fund's securities.
ADDITIONAL INFORMATION CONCERNING TAXES
---------------------------------------
The following summarizes certain additional tax considerations
generally affecting the Trust and its shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Trust or its shareholders or possible legislative changes, and
the discussion here and in the Prospectus is not intended as a substitute for
careful tax planning. Potential investors should consult their tax advisers with
specific reference to their own tax situation.
Each Fund of the Trust will be treated as a separate corporate entity
under the Code and intends to qualify as a regulated investment company. In
order to qualify for tax treatment as a regulated investment company under the
Code, each Fund must satisfy, in addition to the distribution requirement
described in the Prospectus, certain requirements with respect to the source of
its income during a taxable year. At least 90% of
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<PAGE> 149
the gross income of each Fund must be derived from dividends, interest, payments
with respect to securities loans, gains from the sale or other disposition of
stocks, securities or foreign currencies, and other income (including but not
limited to gains from options, futures, or forward contracts) derived with
respect to the Fund's business of investing in such stock, securities or
currencies. The Treasury Department may by regulation exclude from qualifying
income foreign currency gains which are not directly related to the Fund's
principal business of investing in stock or securities, or options and futures
with respect to stock or securities. Any income derived by a Fund from a
partnership or trust is treated as derived with respect to the Fund's business
of investing in stock, securities or currencies only to the extent that such
income is attributable to items of income which would have been qualifying
income if realized by the Fund in the same manner as by the partnership or
trust.
Another requirement for qualification as a regulated investment
company under the Code is that less than 30% of a Fund's gross income for a
taxable year must be derived from gains realized on the sale or other
disposition of the following investments held for less than three months: (1)
stock and securities (as defined in Section 2(a)(36) of the 1940 Act; (2)
options, futures and forward contracts other than those on foreign currencies;
and (3) foreign currencies (and options, futures and forward contracts on
foreign currencies) that are not directly related to a Fund's principal business
of investing in stock and securities (and options and futures with respect to
stocks and securities). Interest (including original issue discount and, with
respect to taxable debt securities and non taxable debt securities acquired
after April 30, 1993, accrued market discount) received by a Fund upon maturity
or disposition of a security held for less than three months will not be treated
as gross income derived from the sale or other disposition of such security
within the meaning of this requirement. However, any other income which is
attributable to realized market appreciation will be treated as gross income
from the sale or other disposition of securities for this purpose.
Some investments held by a Fund may be subject to special rules which
govern the federal income tax treatment of certain transactions denominated in
terms of a currency other than the U.S. dollar or determined by reference to the
value of one or more currencies other than the U.S. dollar. The types of
transactions covered by the special rules include the following: (1) the
acquisition of, or becoming the obligor under, a bond or other debt instrument
(including, to the extent provided in Treasury regulations, preferred stock);
(2) the accruing of certain trade receivables and payables; and (3) the entering
into or acquisition of any forward contract, futures contract, option and
similar financial instrument. The disposition of a currency other than the U.S.
dollar by a U.S. taxpayer is also treated as
12
<PAGE> 150
a transaction subject to the special currency rules. With respect to
transactions covered by the special rules, foreign currency gain or loss is
calculated separately from any gain or loss on the underlying transaction and is
normally taxable as ordinary gain or loss. The Treasury Department has issued
regulations under which certain transactions subject to the special currency
rules that are part of a "section 988 hedging transaction" are not subject to
the mark-to-market or loss deferral rules under the Code. Gain or loss
attributable to the foreign currency component of transactions engaged in by a
Fund which are not subject to the special currency rules (such as foreign equity
investments other than certain preferred stocks) will be treated as capital gain
or loss and will not be segregated from the gain or loss on the underlying
transaction.
The Trust will designate any distribution of long-term capital gains
of a Fund as a capital gain dividend in a written notice mailed to shareholders
within 60 days after the close of the Trust's taxable year. Shareholders should
note that, upon the sale or exchange of Fund shares, if the shareholder has not
held such shares for at least six months, any loss on the sale or exchange of
those shares will be treated as long-term capital loss to the extent of the
capital gain dividends received with respect to the shares.
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute an amount equal to specified
percentages of their ordinary taxable income and capital gain net income (excess
of capital gains over capital losses). Each Fund intends to make sufficient
distributions or deemed distributions of its ordinary taxable income and capital
gain net income each calendar year to avoid liability for this excise tax.
If for any taxable year a Fund does not qualify for federal tax
treatment as a regulated investment company, all of such Fund's taxable income
will be subject to federal income tax at regular corporate rates without any
deduction for distributions to its shareholders. In such event, dividend
distributions (including amounts derived from interest on Municipal Bonds) would
be taxable as ordinary income to the Fund's shareholders to the extent of the
Fund's current and accumulated earnings and profits, and would be eligible for
the dividends received deduction for corporations.
Each Fund may be required in certain cases to withhold and remit to
the U.S. Treasury 31% of taxable dividends or gross proceeds realized upon sale
paid to shareholders who have failed to provide a correct tax identification
number in the manner required, or who are subject to withholding by the Internal
Revenue Service for failure to properly include on their return payments of
taxable interest or dividends, or who have failed to
13
<PAGE> 151
certify to the Fund that they are not subject to backup withholding when
required to do so or that they are "exempt recipients".
TRUSTEES AND OFFICERS
---------------------
The Trustees and officers of the Trust, their addresses, principal
occupations during the past five years, and other affiliations are as follows:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
POSITION WITH DURING PAST 5 YEARS
NAME AND ADDRESS THE TRUST AND OTHER AFFILIATIONS
- ---------------- --------- ----------------------
<S> <C> <C>
Robert D. Neary* Chairman of the Retired Co-Chairman of
32980 Creekside Drive Board and Ernst & Young, April
Pepper Pike, OH 44124 Trustee 1984-September 1993;
Age 63 Director, Cold Metal
Products, Inc., since March
1994; Director, Zurn
Industries, Inc., (plumbing
products and engineering and
construction services) since
June 1995.
Leigh Carter* Trustee Retired President and
13901 Shaker Blvd., #6B Chief Operating Officer,
Cleveland, OH 44120 B.F. Goodrich Company,
Age 71 August 1986 to September
1990; Director, Adams
Express Company (closed-end
investment company), since
April 1982; Director,
Acromed Corporation;
Director, Lamson & Sessions
Co. (producer of electrical
supplies for construction,
consumer power and
communications industry),
since April 1991; Director,
Petroleum & Resources Corp.,
since April 1987; Director,
Morrison Products
(manufacturer of blower fans
and air moving equipment),
since April 1983.
</TABLE>
14
<PAGE> 152
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
POSITION WITH DURING PAST 5 YEARS
NAME AND ADDRESS THE TRUST AND OTHER AFFILIATIONS
- ---------------- --------- ----------------------
<S> <C> <C>
John F. Durkott Trustee President and Chief
8600 Allisonville Road Operating Officer,
Indianapolis, IN 46250 Kittle's Home
Age 52 Furnishings Center,
Inc., since January 1982;
partner, Kittles Bloomington
Property Company, since
January 1981; partner, KK&D
(Affiliated Real Estate
Companies of Kittle's Home
Furnishings Center), since
January 1989.
Richard W. Furst, Dean Trustee Professor of Finance and
600 Autumn Lane Dean, Carol Martin
Lexington, KY 40502 Gatton College of
Age 58 Business and Economics,
University of Kentucky,
since 1981; Director, The
Seed Corporation (restaurant
group), since 1990;
Director, Foam Design, Inc.
(manufacturer of industrial
and commercial foam
products), since 1993;
Director, Studio Plus
Hotels, Inc., since 1994.
Gerald L. Gherlein Trustee Executive Vice-President
3679 Greenwood Drive and General Counsel,
Pepper Pike, OH 44124 Eaton Corporation, since
Age 59 1991 (global manufacturing);
Trustee, Cleveland
Initiative for Education;
Trustee, Meridia Health
System; Trustee, WVIZ
Educational Television.
</TABLE>
15
<PAGE> 153
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
POSITION WITH DURING PAST 5 YEARS
NAME AND ADDRESS THE TRUST AND OTHER AFFILIATIONS
- ---------------- --------- ----------------------
<S> <C> <C>
J. William Pullen Trustee President and Chief
Whayne Supply Company Executive Officer,
1400 Cecil Avenue Whayne Supply Co.
P.O. Box 35900 (engine and heavy
Louisville, KY 40232-5900 equipment distribution),
Age 58 since 1986; President
and Chief Executive Officer,
American Contractors Rentals
& Sales (rental subsidiary
of Whayne Supply Co.), since
1988.
Richard B. Tullis Trustee Chairman Emeritus,
5150 Three Village Drive Harris Corporation
Lyndhurst, OH 44124 (electronic communication
Age 83 and information processing
equipment), since October
1985; Director, NACCO
Materials Handling Group,
Inc. (manufacturer of
industrial fork lift
trucks), since 1984;
Director, Hamilton
Beach/Proctor-Silex, Inc.
(manufacturer of household
appliances), since 1990;
Director, Waste-Quip, Inc.
(waste handling equipment),
since 1989.
Herbert R. Martens, Jr. President Chairman and Chief
c/o NatCity Investments Executive Officer,
1965 E. Sixth Street NatCity Investments,
Cleveland, OH 44114 Inc., since July 1995
Age 45 (investment banking);
President and Chief
Executive Officer,
Raffensperger, Hughes & Co.,
from 1993 until 1995
(broker-dealer); President,
Reserve Capital Group, from
1990 until 1993.
</TABLE>
16
<PAGE> 154
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
POSITION WITH DURING PAST 5 YEARS
NAME AND ADDRESS THE TRUST AND OTHER AFFILIATIONS
- ---------------- --------- ----------------------
<S> <C> <C>
W. Bruce McConnel, III Secretary Partner of law firm
Philadelphia National Drinker Biddle & Reath
Bank Building LLP, Philadelphia
1345 Chestnut Street Pennsylvania.
Suite 1100
Philadelphia, PA 19107
Age 54
Neal J. Andrews Treasurer Vice President and
PFPC, Inc. Director of Investment
400 Bellevue Parkway Accounting, PFPC, Inc.,
Wilmington, DE 19809 since 1992, prior
Age 31 thereto, Senior Auditor,
Price Waterhouse, LLP
<FN>
- --------------------
* Mr. Carter is considered by the Trust to be an "interested
person" of the Trust as defined in the 1940 Act.
</TABLE>
W. Bruce McConnel, III, Esq., Secretary of the Trust, is a partner
of the law firm of Drinker Biddle & Reath LLP, which receives fees as counsel to
the Trust. Neal J. Andrews, Treasurer of the Trust, is employed by PFPC, Inc.,
which receives fees as Administrator to the Trust.
Each trustee receives an annual fee of $7,500 plus $2,500 for each
Board meeting attended and reimbursement of expenses incurred in attending
meetings. The Chairman of the Board is entitled to receive an additional $2,500
per annum for services in such capacity. For the year ended May 31, 1997, the
Trust's trustees and officers as a group received aggregate fees of $125,000.
The trustees and officers of the Trust own less than 1% of the shares of the
Trust.
The following table summarizes the compensation for each of the
Trustees of the Trust for the fiscal year ended May 31, 1997:
<TABLE>
<CAPTION>
Pension or
Retirement
Benefits Accrued Total
Aggregate as Part of Estimated Compensation
Name of Compensation the Trust's Approval Benefits from the
Person, Position from the Trust Expenses Upon Retirement Trust
---------------- -------------- -------- --------------- -----
<S> <C> <C> <C> <C>
Robert D. Neary, Chairman, $18,750 $0 $0 $18,750
President and Trustee
</TABLE>
17
<PAGE> 155
<TABLE>
<S> <C> <C> <C> <C>
Thomas R. Benua, Jr., $17,500 $0 $0 $17,500
Trustee*
Leigh Carter, Trustee $17,500 $0 $0 $17,500
John F. Durkott, Trustee $17,500 $0 $0 $17,500
Richard W. Furst, Trustee $17,500 $0 $0 $17,500
J. William Pullen, Trustee $17,500 $0 $0 $17,500
Richard B. Tullis, Trustee $18,750 $0 $0 $18,750
</TABLE>
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders of a business trust may,
under certain circumstances, be held personally liable as partners for the
obligations of the trust. However, the Trust's Declaration of Trust provides
that shareholders shall not be subject to any personal liability for the acts or
obligations of the Trust, and that every note, bond, contract, order, or other
undertaking made by the Trust shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Declaration of Trust
provides for indemnification out of the trust property of any shareholder held
personally liable solely by reason of his being or having been a shareholder and
not because of his acts or omissions or some other reason. The Declaration of
Trust also provides that the Trust shall, upon request, assume the defense of
any claim made against any shareholder for any act or obligation of the Trust,
and shall satisfy any judgment thereon. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet its obligations.
The Declaration of Trust states further that no trustee, officer,
or agent of the Trust shall be personally liable for or on account of any
contract, debt, tort, claim, damage, judgment or decree arising out of or
connected with the administration or preservation of the trust estate or the
conduct of any business of the Trust; nor shall any trustee be personally liable
to any person for any action or failure to act except by reason of his own bad
faith, willful misfeasance, gross negligence, or reckless disregard of his
duties as trustee. The Declaration of Trust also provides that all persons
having any claim against the trustees or the Trust shall look solely to the
trust property for payment. With the exceptions stated, the Declaration of Trust
provides that a trustee is entitled to be indemnified against all liabilities
and expense, reasonably incurred by him in connection with the defense or
disposition of
- --------
* Mr. Benua resigned as trustee as of July 17, 1997.
18
<PAGE> 156
any proceeding in which he may be involved or with which he may be threatened by
reason of his being or having been a trustee, and that the trustees, have the
power, but not the duty, to indemnify officers and employees of the Trust unless
any such person would not be entitled to indemnification had he been a trustee.
ADVISORY, ADMINISTRATION, DISTRIBUTION, CUSTODIAN
SERVICES AND TRANSFER AGENCY AGREEMENTS
---------------------------------------
ADVISORY AGREEMENT
As described in the Prospectus, National City serves as investment
adviser to the Small Cap Growth Fund. The adviser is an affiliate of National
City Corporation, a bank holding company with $51 billion in assets, and
headquarters in Cleveland, Ohio and nearly 900 branch offices in four states.
Through its subsidiaries, National City Corporation has been managing
investments for individuals, pension and profit-sharing plans and other
institutional investors for over 75 years and currently manages over $38 billion
in assets. From time to time, the adviser may voluntarily waive fees or
reimburse the Trust for expenses.
The Advisory Agreement provides that the adviser shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Trust in connection with the performance of the Advisory Agreement, except a
loss resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of the adviser in the performance of its
duties or from its reckless disregard of its duties and obligations thereunder.
In addition, the adviser has undertaken in the Advisory Agreement to maintain
its policy and practice of conducting its Trust Department independently of its
Commercial Department.
The Advisory Agreement relating to the Fund was approved by its
sole shareholder prior to the Fund's commencement of investment operations.
Unless sooner terminated, the Advisory Agreement will continue in effect with
respect to the Fund until September 30, 1997 and from year to year thereafter,
subject to annual approval by the Trust's Board of Trustees, or by a vote of a
majority of the outstanding shares of the Fund (as defined in the Fund's
Prospectus) and a majority of the trustees who are not parties to the Agreement
or interested persons (as defined in the 1940 Act) of any party by votes cast in
person at a meeting called for such purpose. The Advisory Agreement may be
terminated by the Trust or the adviser on 60 days written notice, and will
terminate immediately in the event of its assignment.
19
<PAGE> 157
Wellington Management Company, LLP (the "sub-advisor"), with
principal offices at 75 State Street, Boston, Massachusetts 02109,serves as
sub-adviser to the Fund. The sub-adviser is a professional investment
counselling firm that provides investment services to investment companies and
other entities.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations, including the Glass-Steagall Act as
presently interpreted by the Board of Governors of the Federal Reserve System,
(a) prohibit a bank holding company registered under the Federal Bank Holding
Company Act of 1956 or any affiliate thereof from sponsoring, organizing, or
controlling a registered, open-end investment company continuously engaged in
the issuance of its shares, but (b) do not prohibit such a bank holding company
or affiliate from acting as investment adviser, transfer agent, or custodian to
such an investment company. The adviser believes that it may perform the
services for the Fund contemplated by its Advisory Agreement with the Trust as
described in such agreement without violation of applicable banking laws or
regulations. However, there are no controlling judicial precedents and future
changes in legal requirements relating to the permissible activities of banks
and their affiliates, as well as future interpretations of present requirements,
could prevent the adviser from continuing to perform services for the Trust. If
the adviser were prohibited from providing services to the Fund, the Board of
Trustees would consider selecting another qualified firm. Any new investment
advisory agreement would be subject to shareholder approval.
Should future legislative, judicial, or administrative action
prohibit or restrict the proposed activities of the adviser, or its affiliated
and correspondent banks in connection with shareholder purchases of Fund shares,
the adviser and its affiliated and correspondent banks might be required to
alter materially or discontinue the services offered by them to shareholders. It
is not anticipated, however, that any resulting change in the Trust's method of
operations would affect its net asset value per share or result in financial
losses to any shareholder.
If current restrictions preventing a bank or its affiliates from
legally sponsoring, organizing, controlling, or distributing shares of an
investment company were relaxed, the adviser, or an affiliate of the adviser,
would consider the possibility of offering to perform additional services for
the Trust. Legislation modifying such restrictions has been proposed in past
sessions in Congress. It is not possible, of course, to predict whether or in
what form such legislation might be enacted or the terms upon which the adviser,
or such an affiliate, might offer to provide such services.
20
<PAGE> 158
ADMINISTRATION AND ACCOUNTING SERVICE AGREEMENT
PFPC serves as the administrator and accounting agent to the Trust.
The services provided as administrator and accounting agent and current fees are
described in the Prospectus.
DISTRIBUTION PLAN AND RELATED AGREEMENT
The Distributor acts as distributor of the Fund's shares pursuant
to its Distribution Agreement with the Trust as described in the Prospectus.
Shares are sold on a continuous basis.
Pursuant to Rule 12b-1 of the 1940 Act, the Trust has adopted a
Distribution Plan (the "Plan") which permits the Trust to bear certain expenses
in connection with the distribution of its shares. As required by Rule 12b-1,
the Trust's 12b-1 Plan and related distribution agreement have been approved,
and are subject to annual approval by, a majority of the Trust's Board of
Trustees, and by a majority of the trustees who are not interested persons of
the Trust and have no direct or indirect interest in the operation of the Plan
or any agreement relating to the Plan, by vote cast in person at a meeting
called for the purpose of voting on the Plan and related agreement. In
compliance with the Rule, the trustees requested and evaluated information they
thought necessary to an informed determination of whether the Plan and related
agreement should be implemented, and concluded, in the exercise of reasonable
business judgment and in light of their fiduciary duties, that there is a
reasonable likelihood that the Plan and related agreement will benefit the Trust
and its shareholders.
Rule 12b-1 also requires that persons authorized to direct the
disposition of monies payable by a fund (in the Trust's case, the Distributor)
provide for the trustees' review of quarterly reports on the amounts expended
and the purposes for the expenditures.
Any change in the Plan that would materially increase the
distribution expenses of the Fund requires approval by its shareholders, but
otherwise, the Plan may be amended by the trustees, including a majority of the
disinterested trustees who do not have any direct or indirect financial interest
in the Plan or related agreement. The Plan and related agreement may be
terminated as to the Fund by a vote of the Trust's disinterested trustees or by
vote of the shareholders of the Fund, on not more than 60 days written notice.
The selection and nomination of disinterested trustees has been committed to the
discretion of such disinterested trustees as required by the Rule.
21
<PAGE> 159
The Trust's Plan provides that each Fund will compensate the
Distributor for distribution expenses in an amount not to exceed .10% of the
Fund's average net assets. Distribution expenses payable by the Distributor
pursuant to the Plan include direct and indirect costs and expenses incurred in
connection with advertising and marketing a Fund's shares, and direct and
indirect costs and expenses of preparing, printing and distributing its
prospectuses to other than current shareholders. The Plan provides that the
Trust will pay the Distributor an annual base fee of $1,250,000 plus incentive
fees based upon asset growth payable monthly and accrued daily by all of the
Trust's investment funds with respect to which the Distributor is distributing
shares.
The Plan has been approved, and will continue in effect for
successive one year periods, provided that such continuance is specifically
approved by (1) the vote of a majority of the trustees who are not parties to
the Plan or interested persons of any such party and who have no direct or
indirect financial interest in the Plan and (2) the vote of a majority of the
entire Board of Trustees.
CUSTODIAN SERVICES AND TRANSFER AGENCY AGREEMENTS
National City Bank serves as the Trust's custodian with respect to
the Fund. Under its Custodian Services Agreement, National City Bank has agreed
to: (i) maintain a separate account or accounts in the name of the Fund; (ii)
hold and disburse portfolio securities on account of the Fund; (iii) collect and
make disbursements of money on behalf of the Fund; (iv) collect and receive all
income and other payments and distributions on account of the Fund's portfolio
securities; (v) respond to correspondence by security brokers and others
relating to its duties; and (vi) make periodic reports to the Board of Trustees
concerning the Fund's operations. National City Bank is authorized to select one
or more banks or trust companies to serve as sub-custodian on behalf of the
Fund, provided that it shall remain responsible for the performance of all of
its duties under the Custodian Services Agreement and shall hold the Fund
harmless from the acts and omissions of any bank or trust company serving as
sub-custodian. The Fund reimburses National City Bank for its direct and
indirect costs and expenses incurred in rendering custodial services, except
that the costs and expenses borne by the Fund in any year may not exceed $.225
for each $1,000 of average gross assets of the Fund.
State Street Bank and Trust Company (the "Transfer Agent") serves
as the Trust's transfer agent and dividend disbursing agent with respect to the
Fund. Under its Transfer Agency Agreement, it has agreed to: (i) issue and
redeem shares of the Fund; (ii) transmit all communications by the Fund to its
shareholders of record, including reports to shareholders,
22
<PAGE> 160
dividend and distribution notices and proxy materials for meetings of
shareholders; (iii) respond to correspondence by security brokers and others
relating to its duties; (iv) maintain shareholder accounts; and (v) make
periodic reports to the Board of Trustees concerning the Fund's operations. The
Transfer Agent sends each shareholder of record a statement (not less frequently
than quarterly) showing the total number of shares owned as of the last business
day of the month (as well as the dividends paid during the current month and
year), and provides each shareholder of record with a daily transaction report
for each day on which a transaction occurs in the shareholder's account with the
Fund.
SHAREHOLDER SERVICES PLAN
-------------------------
As stated in the Prospectus, the Trust has implemented the Services
Plan with respect to Retail shares in the Fund. Pursuant to the Services Plan,
the Trust may enter into agreements with financial institutions pertaining to
the provision of administrative services to their customers who are the
beneficial owners of Retail shares in consideration for the payment of up to
.25% (on an annualized basis) of the net asset value of such shares. Such
services may include: (i) aggregating and processing purchase and redemption
requests from customers; (ii) providing customers with a service that invests
the assets of their accounts in Retail shares; (iii) processing dividend
payments from the Funds; (iv) providing information periodically to customers
showing their position in Retail shares; (v) arranging for bank wires; (vi)
responding to customer inquiries relating to the services performed with respect
to Retail shares beneficially owned by customers; (vii) forwarding shareholder
communications; and (viii) other similar services requested by the Trust.
Agreements between the Trust and financial institutions will be terminable at
any time by the Trust without penalty.
PORTFOLIO TRANSACTIONS
----------------------
Pursuant to the Advisory Agreement with the Trust, and the
sub-advisory agreement with the adviser, Wellington Management Company LLP and
National City Bank are responsible for making decisions with respect to and
placing orders for all purchases and sales of portfolio securities for the Fund.
The sub-adviser purchases portfolio securities either directly from the issuer
or from an underwriter or dealer making a market in the securities involved.
Purchases from an underwriter of portfolio securities include a commission or
concession paid by the issuer to the underwriter and purchases from dealers
serving as market makers may include the spread between the bid and asked price.
Transactions on stock exchanges involve the payment of negotiated brokerage
commissions. There is generally no stated
23
<PAGE> 161
commission in the case of securities traded in the over-the-counter market, but
the price includes an undisclosed commission or mark-up.
While the sub-adviser generally seeks competitive spreads or
commissions, it may not necessarily allocate each transaction to the underwriter
or dealer charging the lowest spread or commission available on the transaction.
Allocation of transactions, including their frequency, to various dealers is
determined by its best judgment and in a manner deemed fair and reasonable to
shareholders. The primary consideration is prompt execution of orders in an
effective manner at the most favorable price. Subject to this consideration,
dealers who provide supplemental investment research to the sub-adviser may
receive orders for transactions by the Fund. Information so received is in
addition to and not in lieu of services required to be performed by the
sub-adviser and does not reduce the fees payable to the sub-adviser or adviser
by the Fund. Such information may be useful to the adviser and sub-adviser in
serving both the Trust and other clients, and, similarly, supplemental
information obtained by the placement of business of other clients may be useful
to the adviser and sub-adviser in carrying out its obligations to the Trust.
Portfolio securities will not be purchased from or sold to the
Fund's adviser or sub-adviser, the Distributor, or any "affiliated person" (as
such term is defined under the 1940 Act) of any of them acting as principal,
except to the extent permitted by the SEC. In addition, the Fund will not give
preference to its adviser's or sub-adviser's correspondents with respect to such
transactions, securities, savings deposits, repurchase agreements and reverse
repurchase agreements.
Investment decisions for the Fund are made independently from those
for the other Funds and for other investment companies and accounts advised or
managed by the adviser or sub-adviser. Such other Funds, investment companies
and accounts may also invest in the same securities as such Fund. When a
purchase or sale of the same security is made at substantially the same time on
behalf of the Fund and another investment company or account, the transaction
will be averaged as to price, and available investments allocated as to amount,
in a manner which the adviser or sub-adviser believes to be equitable to the
Fund and such other investment company or account. In some instances, this
investment procedure may adversely affect the price paid or received by the Fund
or the size of the position obtained or sold by the Fund. To the extent
permitted by law, the adviser and sub-adviser may aggregate the securities to be
sold or purchased for the Fund with those to be sold or purchased for other
investment companies or accounts in order to obtain best execution.
24
<PAGE> 162
AUDITORS
--------
Ernst & Young LLP, independent auditors, with offices at Two
Commerce Square, 2001 Market Street, Suite 4000, Philadelphia, Pennsylvania
19103, serve as independent auditors of the Trust.
COUNSEL
-------
Drinker Biddle & Reath LLP (of which Mr. McConnel, Secretary of the
Trust, is a partner), with offices at 1345 Chestnut Street, Philadelphia,
Pennsylvania 19107, are counsel to the Trust and will pass upon certain legal
matters for the Trust.
PERFORMANCE INFORMATION
-----------------------
The Fund computes its "average annual total return" by determining
the average annual compounded rate of return during specified periods that would
equate the initial amount invested to the ending redeemable value of such
investment by dividing the ending redeemable value of a hypothetical $1,000
initial payment by $1,000 and raising the quotient to a power equal to one
divided by the number of years (or fractional portion thereof) covered by the
computation and subtracting one from the result. This calculation can be
expressed as follows:
ERV 1/n
T = [(-----) - 1]
P
Where: T = average annual total return
ERV = ending redeemable value at the end of the
period covered by the computation of a
hypothetical $1,000 payment made at the
beginning of the period
P = hypothetical initial payment of $1,000
n = period covered by the computation, expressed
in terms of years
The Fund computes its aggregate total returns by determining the
aggregate rates of return during specified periods that likewise equate the
initial amount invested to the ending redeemable value of such investment. The
formula for calculating aggregate total return is as follows:
25
<PAGE> 163
ERV
T = (---) - 1
P
The calculations of average annual total return and aggregate total
return assume the reinvestment of all dividends and capital gain distributions
on the reinvestment dates during the period and include all recurring fees
charged to all shareholder accounts, assuming an account size equal to the
Fund's mean (or median) account size for any fees that vary with the size of the
account. The maximum sales load and other charges deducted from payments are
deducted from the initial $1,000 payment (variable "P" in the formula). The
ending redeemable value (variable "ERV" in the formula) is determined by
assuming complete redemption of the hypothetical investment and the deduction of
all nonrecurring charges at the end of the measuring period covered by the
computation.
The Fund may also from time to time include in Materials a total
return figure that is not calculated according to the formulas set forth above
in order to compare more accurately the Fund's performance with other measures
of investment return. For example, in comparing a Fund's total return with data
published by Lipper Analytical Services, Inc., CDA Investment Technologies, Inc.
or Weisenberger Investment Company Service, or with the performance of an index,
the Fund may calculate its aggregate total return for the period of time
specified in the advertisement or communication by assuming the investment of
$10,000 in shares and assuming the reinvestment of each dividend or other
distribution at net asset value on the reinvestment date. Percentage increases
are determined by subtracting the initial value of the investment from the
ending value and by dividing the remainder by the beginning value. The Fund does
not, for these purposes, deduct from the initial value invested any amount
representing sales charges. The Fund will, however, disclose the maximum sales
charge and will also disclose that the performance data do not reflect sales
charges and that inclusion of sale charges would reduce the performance quoted.
The Fund may also from time to time include discussions or
illustrations of the effects of compounding in Materials. "Compounding" refers
to the fact that, if dividends or other distributions on the Fund investment are
reinvested by being paid in additional Fund shares, any future income or capital
appreciation of the Fund would increase the value, not only of the original Fund
investment, but also of the additional Fund shares received through
reinvestment. As a result, the value of the Fund investment would increase more
quickly than if dividends or other distributions had been paid in cash.
In addition, the Fund may also include in Materials discussions
and/or illustrations of the potential investment
26
<PAGE> 164
goals of a prospective investor, investment management strategies, techniques,
policies or investment suitability of the Fund, high-quality investments,
economic conditions, the relationship between sectors of the economy and the
economy as a whole, various securities markets, the effects of inflation and
historical performance of various asset classes, including but not limited to,
stocks, bonds and Treasury securities. From time to time, Materials may
summarize the substance of information contained in shareholder reports
(including the investment composition of the Fund), as well as the views of the
adviser as to current market, economic, trade and interest rate trends,
legislative, regulatory and monetary developments, investment strategies and
related matters believed to be of relevance to the Fund. The Fund may also
include in Materials charts, graphs or drawings which compare the investment
objective, return potential, relative stability and/or growth possibilities of
the Fund and/or other mutual funds, or illustrate the potential risks and
rewards of investment in various investment vehicles, including but not limited
to, stocks, bonds, Treasury securities and shares of the Fund and/or other
mutual funds. Materials may include a discussion of certain attributes or
benefits to be derived by an investment in the Fund and/or other mutual funds
(such as value investing, market timing, dollar cost averaging, asset
allocation, constant ratio transfer, automatic accounting rebalancing, the
advantages and disadvantages of investing in tax-deferred and taxable
investments), shareholder profiles and hypothetical investor scenarios, timely
information on financial management, tax and retirement planning and investment
alternatives to certificates of deposit and other financial instruments. Such
Materials may include symbols, headlines or other material which highlight or
summarize the information discussed in more detail therein.
MISCELLANEOUS
-------------
The Fund bears all costs in connection with its organization,
including the fees and expenses of registering and qualifying its shares for
distribution under federal and state securities regulations. All organization
expenses are being amortized on the straight-line method over a period of five
years from the date of commencement of operations.
As used in the Prospectus, "assets belonging to the Fund" means the
consideration received by the Trust upon the issuance of shares in that
particular Fund, together with all income, earnings, profits, and proceeds
derived from the investment thereof, including any proceeds from the sale of
such investments, any funds or payments derived from any reinvestment of such
proceeds, and a portion of any general assets of the Trust not belonging to a
particular Fund. In determining the
27
<PAGE> 165
Fund's net asset value, assets belonging to the Fund are charged with the
liabilities in respect of that Fund.
28
<PAGE> 166
APPENDIX A
----------
DESCRIPTION OF RATINGS
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment
of the likelihood of timely payment of debt considered short-term in the
relevant market. The following summarizes the highest rating category used by
Standard and Poor's for commercial paper:
"A-1" - Issue's degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted "A-1+."
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the highest rating
category used by Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are
considered to have a superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment capacity will normally be evidenced by the
following characteristics: leading market positions in well established
industries; high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protection; broad
margins in earning coverage of fixed financial charges and high internal cash
generation; and well established access to a range of financial markets and
assured sources of alternate liquidity.
Duff & Phelps employs three designations, "D-1+," "D-1" and "D-1-,"
within the highest rating category. The following summarizes the highest rating
category used by Duff & Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
A-1
<PAGE> 167
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
Fitch short-term ratings apply to debt obligations that are payable
on demand or have original maturities of generally up to three years. The
following summarizes the highest rating category used by Fitch for short-term
obligations such as short-term notes, municipal notes, variable rate demand
instruments and commercial paper:
"F-1+" - Securities possess exceptionally strong credit quality.
Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
highest rating category used by IBCA for short-term notes including commercial
paper:
"A1+" - Obligations which posses a particularly strong credit
feature are supported by the highest capacity for timely repayment.
"A1" - Obligations are supported by the highest capacity for timely
repayment.
A-2
<PAGE> 168
APPENDIX B
As stated in the Prospectus, the Small Cap Growth Fund (the "Fund")
may enter into certain futures transactions and options for hedging purposes.
Such transactions are described in this Appendix.
I. Index Futures Contracts
-----------------------
GENERAL. A stock index assigns relative values to the stocks
included in the index and the index fluctuates with changes in the market values
of the stocks included. Some stock index futures contracts are based on broad
market indexes, such as the Standard & Poor's Ratings Group 500 or the New York
Stock Exchange Composite Index. In contrast, certain exchanges offer futures
contracts on narrower market indexes or indexes based on an industry or market
segment, such as oil and gas stocks.
Futures contracts are traded on organized exchanges regulated by
the Commodity Futures Trading Commission. Transactions on such exchanges are
cleared through a clearing corporation, which guarantees the performance of the
parties to each contract.
The Fund may sell index futures contracts in order to offset a
decrease in market value of its portfolio securities that might otherwise result
from a market decline. The Fund may do so either to hedge the value of its Fund
as a whole, or to protect against declines, occurring prior to sales of
securities, in the value of the securities to be sold. Conversely, the Fund will
purchase index futures contracts in anticipation of purchases of securities. A
long futures position may be terminated without a corresponding purchase of
securities.
In addition, the Fund may utilize index futures contracts in
anticipation of changes in the composition of its Fund holdings. For example, in
the event that the Fund expects to narrow the range of industry groups
represented in its holdings it may, prior to making purchases of the actual
securities, establish a long futures position based on a more restricted index,
such as an index comprised of securities of a particular industry group. The
Fund may also sell futures contracts in connection with this strategy, in order
to protect against the possibility that the value of the securities to be sold
as part of the restructuring of the Fund will decline prior to the time of sale.
B-1
<PAGE> 169
II. Margin Payments
---------------
Unlike purchases or sales of portfolio securities, no price is paid
or received by the Fund upon the purchase or sale of a futures contract.
Initially, the Fund will be required to deposit with the broker or in a
segregated account with the Custodian an amount of cash or cash equivalents,
known as initial margin, based on the value of the contract. The nature of
initial margin in futures transactions is different from that of margin in
security transactions in that futures contract margin does not involve the
borrowing of funds by the customer to finance the transactions. Rather, the
initial margin is in the nature of a performance bond or good faith deposit on
the contract which is returned to the Fund upon termination of the futures
contract assuming all contractual obligations have been satisfied. Subsequent
payments, called variation margin, to and from the broker, will be made on a
daily basis as the price of the underlying instruments fluctuates making the
long and short positions in the futures contract more or less valuable, a
process known as marking-to-the-market. For example, when a particular Fund has
purchased a futures contract and the price of the contract has risen in response
to a rise in the underlying instruments, that position will have increased in
value and the Fund will be entitled to receive from the broker a variation
margin payment equal to that increase in value. Conversely, where the Fund has
purchased a futures contract and the price of the future contract has declined
in response to a decrease in the underlying instruments, the position would be
less valuable and the Fund would be required to make a variation margin payment
to the broker. At any time prior to expiration of the futures contract, the
adviser may elect to close the position by taking an opposite position, subject
to the availability of a secondary market, which will operate to terminate the
Fund's position in the futures contract. A final determination of variation
margin is then made, additional cash is required to be paid by or released to
the Fund, and the Fund realizes a loss or gain.
III. Risks of Transactions in Futures Contracts
------------------------------------------
There are several risks in connection with the use of futures by
the Fund as a hedging device. One risk arises because of the imperfect
correlation between movements in the price of the futures and movements in the
price of the instruments which are the subject of the hedge. The price of the
future may move more than or less than the price of the instruments being
hedged. If the price of the futures moves less than the price of the instruments
which are the subject of the hedge, the hedge will not be fully effective but,
if the price of the instruments being hedged has moved in an unfavorable
direction, the Fund would be in a better position than if it had not hedged at
all. If the price of the instruments being hedged has moved in a favorable
direction, this advantage will be partially offset by the loss on
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the futures. If the price of the futures moves more than the price of the hedged
instruments, the Fund involved will experience either a loss or gain on the
futures which will not be completely offset by movements in the price of the
instruments which are the subject of the hedge. To compensate for the imperfect
correlation of movements in the price of instruments being hedged and movements
in the price of futures contracts, the Fund may buy or sell futures contracts in
a greater dollar amount than the dollar amount of instruments being hedged if
the volatility over a particular time period of the prices of such instruments
has been greater than the volatility over such time period of the futures, or if
otherwise deemed to be appropriate by the adviser. Conversely, the Fund may buy
or sell fewer futures contracts if the volatility over a particular time period
of the prices of the instruments being hedged is less than the volatility over
such time period of the futures contract being used, or if otherwise deemed to
be appropriate by the adviser. It is also possible that, where the Fund has sold
futures to hedge its Fund against a decline in the market, the market may
advance and the value of instruments held in the Fund may decline. If this
occurred, the Fund would lose money on the futures and also experience a decline
in value in its portfolio securities.
When futures are purchased to hedge against a possible increase in
the price of securities before the Fund is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes not to invest its cash at that time because
of concern as to possible further market decline or for other reasons, the Fund
will realize a loss on the futures contract that is not offset by a reduction in
the price of the instruments that were to be purchased.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
instruments being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced thus producing distortions. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price
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distortions. Due to the possibility of price distortion in the futures market,
and because of the imperfect correlation between the movements in the cash
market and movements in the price of futures, a correct forecast of general
market trends or interest rate movements by the adviser may still not result in
a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board
of trade which provides a secondary market for such futures. Although the Fund
intends to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, the Fund will continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the futures
contract can be terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price of
the securities will in fact correlate with the price movements in the futures
contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary
market in a futures contract may be adversely affected by "daily price
fluctuation limits" established by commodity exchanges which limit the amount of
fluctuation in a futures contract price during a single trading day. Once the
daily limit has been reached in the contract, no trades may be entered into at a
price beyond the limit, thus preventing the liquidation of open futures
positions. The trading of futures contracts is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal activity, which could at times make it difficult or
impossible to liquidate existing positions or to recover excess variation margin
payments.
Successful use of futures by the Fund is also subject to the
advisers ability to predict correctly movements in the direction of the market.
For example, if the Fund has hedged against the possibility of a decline in the
market adversely affecting securities held by it and securities prices increase
instead, the Fund will lose part or all of the benefit to the increased value of
its securities which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Fund has insufficient
cash, it may have to sell securities to meet daily variation margin
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requirements. Such sales of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. The Fund may have to sell
securities at a time when it may be disadvantageous to do so.
IV. Options on Futures Contracts
----------------------------
The Fund may purchase and write options on the futures contracts
described above. A futures option gives the holder, in return for the premium
paid, the right to buy (call) from or sell (put) to the writer of the option a
futures contract at a specified price at any time during the period of the
option. Upon exercise, the writer of the option is obligated to pay the
difference between the cash value of the futures contract and the exercise
price. Like the buyer or seller of a futures contract, the holder, or writer, of
an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing an option of the same series,
at which time the person entering into the closing transaction will realize a
gain or loss. The Fund will be required to deposit initial margin and variation
margin with respect to put and call options on futures contracts written by it
pursuant to brokers' requirements similar to those described above. Net option
premiums received will be included as initial margin deposits.
Investments in futures options involve some of the same
considerations that are involved in connection with investments in futures
contracts (for example, the existence of a liquid secondary market). In
addition, the purchase or sale of an option also entails the risk that changes
in the value of the underlying futures contract will not correspond to changes
in the value of the option purchased. Depending on the pricing of the option
compared to either the futures contract upon which it is based, or upon the
price of the securities being hedged, an option may or may not be less risky
than ownership of the futures contract or such securities. In general, the
market prices of options can be expected to be more volatile than the market
prices on the underlying futures contract. Compared to the purchase or sale of
futures contracts, however, the purchase of call or put options on futures
contracts may frequently involve less potential risk to the Fund because the
maximum amount at risk is the premium paid for the options (plus transaction
costs). The writing of an option on a futures contract involves risks similar to
those risks relating to the sale of futures contracts.
V. Other Matters
-------------
Accounting for futures contracts will be in accordance with
generally accepted accounting principles.
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ARMADA FUNDS
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 1, 1997
INTERNATIONAL EQUITY FUND
This Statement of Additional Information is not a prospectus but should be read
in conjunction with the current Prospectus for the above Fund of Armada Funds
(the "Trust"), dated August 1, 1997 (the "Prospectus"). A copy of the Prospectus
may be obtained by calling or writing the Trust at 1-800-622-FUND (3863), Oaks,
Pennsylvania 19456.
<PAGE> 174
TABLE OF CONTENTS
Page
----
STATEMENT OF ADDITIONAL INFORMATION..................................... 1
INVESTMENT OBJECTIVES AND POLICIES...................................... 1
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.......................... 10
DESCRIPTION OF SHARES................................................... 12
ADDITIONAL INFORMATION CONCERNING TAXES................................. 14
TRUSTEES AND OFFICERS................................................... 16
ADVISORY, ADMINISTRATION, DISTRIBUTION, CUSTODIAN
SERVICES AND TRANSFER AGENCY AGREEMENTS............................. 22
SHAREHOLDER SERVICES PLAN............................................... 26
PORTFOLIO TRANSACTIONS.................................................. 26
AUDITORS................................................................ 27
COUNSEL................................................................. 28
PERFORMANCE INFORMATION................................................. 28
MISCELLANEOUS........................................................... 30
APPENDIX A............................................................. A-1
APPENDIX B............................................................. B-1
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STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
This Statement of Additional Information should be read in
conjunction with the Prospectus of Armada Funds (the "Trust") that describes the
International Equity Fund. The information contained in this Statement of
Additional Information expands upon matters discussed in the Prospectus. No
investment in shares of the Fund should be made without first reading the
Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
----------------------------------
ADDITIONAL INFORMATION ON FUND MANAGEMENT
Further information on the adviser's investment management
strategies, techniques, policies and related matters may be included from time
to time in advertisements, sales literature, communications to shareholders and
other materials. See also, "Performance Information" below.
Attached to this Statement of Additional Information is Appendix A
which contains descriptions of the rating symbols used by S&P, Fitch, Duff, IBCA
and Moody's for securities which may be held by the Fund.
FOREIGN SECURITIES
Unanticipated political or social developments may affect the value
of the Fund's investments in emerging market countries and the availability to
the Fund of additional investments in those countries. The small size and
relatively unseasoned nature of the securities markets in certain of such
countries and the limited volume of trading in securities in those countries may
make the Fund's investments in such countries illiquid and more volatile than
investments in Japan or most Western European countries, and the Fund may be
required to establish special custodial or other arrangements before making
certain investments in those countries. There may be little financial or
accounting information available with respect to issuers located in certain of
such countries, and it may be difficult as a result to assess the value or
prospects of an investment in such issuers.
Investors should understand that the expense ratio of the Fund can
be expected to be higher than those Funds investing primarily in domestic
securities. The costs attributable to investing abroad are usually higher for
several reasons, such as the higher cost of investment research, higher cost of
custody of foreign securities, higher commissions paid on comparable
transactions on foreign markets and additional costs arising from delays in
settlements of transactions involving foreign securities.
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FOREIGN CURRENCY EXCHANGE CONTRACTS
In order to protect against a possible loss on investments
resulting from a decline or appreciation in the value of a particular foreign
currency against the U.S. dollar or another foreign currency or for other
reasons, the Fund is authorized to enter into forward currency exchange
contracts. These contracts involve an obligation to purchase or sell a specified
currency at a future date at a price set at the time of the contract. Forward
currency contracts do not eliminate fluctuations in the values of portfolio
securities but rather allow the Fund to establish a rate of exchange for a
future point in time.
When entering into a contract for the purchase or sale of a
security, the Fund may enter into a forward foreign currency exchange contract
for the amount of the purchase or sale price to protect against variations,
between the date the security is purchased or sold and the date on which payment
is made or received, in the value of the foreign currency relative to the U.S.
dollar or other foreign currency.
When the adviser anticipates that a particular foreign currency may
decline substantially relative to the U.S. dollar or other leading currencies,
in order to reduce risk, the Fund may enter into a forward contract to sell, for
a fixed amount, the amount of foreign currency approximating the value of some
or all of the Fund's securities denominated in such foreign currency. Similarly,
when the obligations held by the Fund create a short position in a foreign
currency, the Fund may enter into a forward contract to buy, for a fixed amount,
an amount of foreign currency approximating the short position. With respect to
any forward foreign currency contract, it will not generally be possible to
match precisely the amount covered by that contract and the value of the
securities involved due to the changes in the values of such securities
resulting from market movements between the date the forward contract is entered
into and the date it matures. In addition, while forward contracts may offer
protection from losses resulting from declines or appreciation in the value of a
particular foreign currency, they also limit potential gains which might result
from changes in the value of such currency. The Fund will also incur costs in
connection with forward foreign currency exchange contracts and conversions of
foreign currencies and U.S. dollars.
A separate account consisting of cash or liquid securities equal to
the amount of the Fund's assets that could be required to consummate forward
contracts will be established with the Fund's custodian except to the extent the
contracts are otherwise "covered." For the purpose of determining the adequacy
of the securities in the account, the deposited securities will be valued at
market or fair value. If the market or fair value of such securities declines,
additional cash or liquid securities will
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be placed in the account daily so that the value of the account will equal the
amount of such commitments by the Fund. A forward contract to sell a foreign
currency is "covered" if the Fund owns the currency (or securities denominated
in the currency) underlying the contract, or holds a forward contract (or call
option) permitting the Fund to buy the same currency at a price no higher than
the Fund's price to sell the currency. A forward contract to buy a foreign
currency is "covered" if the Fund holds a forward contract (or call option)
permitting the Fund to sell the same currency at a price as high as or higher
than the Fund's price to buy the currency.
AMERICAN DEPOSITORY RECEIPTS ("ADRS"), EUROPEAN DEPOSITORY RECEIPTS
("EDRS") AND GLOBAL DEPOSITORY RECEIPTS ("GDRS")
The Fund may invest its assets in ADRs, which are receipts issued
by an American bank or trust company evidencing ownership of underlying
securities issued by a foreign issuer, in EDRs, which are receipts issued by
European financial institutions evidencing ownership of underlying securities
issued by a foreign issuer, or GDRs, which are receipts structured similarly to
EDRs and are marketed globally. ADRs may be listed on a national securities
exchange or may trade in the over-the-counter market. ADR prices are denominated
in United States dollars while EDR and GDR prices are generally denominated in
foreign currencies. The securities underlying an ADR, EDR or GDR will also
normally be denominated in a foreign currency. The underlying securities may be
subject to foreign government taxes which could reduce the yield on such
securities. As discussed above under "Foreign Securities" investments in foreign
securities involve certain inherent risks, such as political or economic
instability of the issuer or the country of issue and the difficulty of
predicting international trade patterns: the possible imposition of foreign
withholding taxes on interest income payable on such instruments; the possible
establishment of exchange controls; the possible seizure or nationalization of
foreign deposits or the adoption of other foreign branches of U.S. banks; may be
subject to less stringent reserve requirements and to different accounting,
auditing, reporting and recordkeeping standards than those applicable to
domestic issuers, and securities of foreign issuers may be less liquid and their
prices more volatile than those of comparable domestic issuers.
WARRANTS
Warrants enable the owner to subscribe to and purchase a specified
number of shares of the issuing corporation at a specified price during a
specified period of time. The prices of warrants do not necessarily correlate
with the prices of the underlying securities. The purchase of warrants involves
the risk that the purchaser could lose the purchase value of the warrant if the
right to subscribe to additional shares is not exercised prior
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to the warrant's expiration. Also, the purchase of warrants involves the risk
that the effective price paid for the warrant added to the subscription price of
the related security may exceed the value of the subscribed security's market
price such as when there is no movement in the level of the underlying security.
CONVERTIBLE SECURITIES
Convertible securities entitle the holder to receive interest paid
or accrued on debt or the dividend paid on preferred stock until the securities
mature or are redeemed, converted or exchanged. Prior to conversion, convertible
securities have characteristics similar to ordinary debt securities in that they
normally provide a stable stream of income with generally higher yields than
those of common stock of the same or similar issuers. Convertible securities
rank senior to common stock in a corporation's capital structure and therefore
generally entail less risk than the corporation's common stock. The value of the
convertibility feature depends in large measure upon the degree to which the
convertible security sells above its value as a fixed income security.
In selecting convertible securities, the adviser will consider,
among other factors, the creditworthiness of the issuers of the securities; the
interest or dividend income generated by the securities; the potential for
capital appreciation of the securities and the underlying common stocks; the
prices of the securities relative to other comparable securities and to the
underlying common stocks; whether the securities are entitled to the benefits of
sinking funds or other protective conditions; diversification of the Fund's
portfolio as to issuers; and the ratings of the securities. Since credit rating
agencies may fail to timely change the credit ratings of securities to reflect
subsequent events, the adviser will consider whether such issuers will have
sufficient cash flow and profits to meet required principal and interest
payments. The Fund may retain a portfolio security whose rating has been changed
if the adviser deems that retention of such security is warranted.
WHEN-ISSUED SECURITIES
The Fund may purchase or sell securities on a "when-issued" basis
(i.e., for delivery beyond the normal settlement date at a stated price and
yield). When the Fund agrees to purchase when-issued securities, the custodian
sets aside cash or liquid portfolio securities equal to the amount of the
commitment in a separate account. Normally, the custodian will set aside
portfolio securities to satisfy a purchase commitment, and in such a case the
Fund may be required subsequently to place additional assets in the separate
account in order to ensure that the value of the account remains equal to the
amount of the Fund's commitment, marked to market daily. It is likely that the
Fund's net assets will
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fluctuate to a greater degree when it sets aside portfolio securities to cover
such purchase commitments than when it sets aside cash. Because the Fund will
set aside cash or liquid assets to satisfy its purchase commitments in the
manner described, the Fund's liquidity and ability to manage its funds might be
affected in the event its commitments to purchase when-issued securities ever
exceeded 25% of the value of its total assets.
When the Fund engages in when-issued transactions, it relies on the
seller to consummate the trade. Failure of the seller to do so may result in the
Fund's incurring a loss or missing an opportunity to obtain a price considered
to be advantageous.
VARIABLE AND FLOATING RATE OBLIGATIONS
The Fund may purchase variable and floating rate obligations
(including variable amount master demand notes) which are unsecured instruments
that permit the indebtedness thereunder to vary and provide for periodic
adjustments in the interest rate. Because variable and floating rate obligations
are direct lending arrangements between the Fund and the issuer, they are not
normally traded. Even though there may be no active secondary market in such
instruments, the Fund may demand payment of principal and accrued interest at a
time specified in the instrument or may resell them to a third party. Such
obligations may be backed by bank letters of credit or guarantees issued by
banks, other financial institutions or a foreign government, its agencies or
instrumentalities. The quality of any letter of credit or guarantee will be
rated high quality or, if unrated, will be determined to be of comparable
quality by the adviser. In the event an issuer of a variable or floating rate
obligation defaulted on its payment obligation, the Fund might be unable to
dispose of the instrument because of the absence of a secondary market and
could, for this or other reasons, suffer a loss to the extent of the default.
SHORT TERM OBLIGATIONS
The Fund may invest in various short term obligations including
those described below.
Investments include commercial paper and other short term
promissory notes issued by corporations (including variable and floating rate
instruments). In addition, the Fund may invest in Canadian Commercial Paper
("CCP"), which is commercial paper issued by a Canadian corporation or a
Canadian counterpart of a U.S. corporation, and in Europaper, which is U.S.
dollar denominated commercial paper of a foreign issuer. The Fund may also
acquire zero coupon obligations, which have greater price volatility than coupon
obligations and which will not result in the payment of interest until maturity.
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Bank obligations include bankers' acceptances, negotiable
certificates of deposit, and non-negotiable demand and time deposits issued for
a definite period of time and earning a specified return by a foreign bank or a
foreign branch of a U.S. bank which is a member of the Federal Reserve System.
Bank obligations also include U.S. dollar denominated bankers' acceptances,
certificates of deposit and time deposits issued by foreign branches of U.S.
banks or foreign banks. Investment in bank obligations is limited to the
obligations of financial institutions having more than $1 billion in total
assets at the time of purchase. The Fund may also make interest bearing savings
deposits in commercial and savings banks not in excess of 5% of its total
assets. Investment in non-negotiable time deposits is limited to no more than 5%
of the Fund's total assets at the time of purchase.
FUTURES CONTRACTS AND RELATED OPTIONS
The Fund may purchase and sell futures contracts and may purchase
and sell call and put options on futures contracts. For a detailed description
of futures contracts and related options, see Appendix B to this Statement of
Additional Information.
"COVERED CALL" OPTIONS
The Fund may write covered call options. Such options may relate to
particular securities, stock indices, financial instruments, or foreign
currencies and may or may not be listed on a domestic or foreign securities
exchange or issued by the Options Clearing Corporation. Options trading is a
highly specialized activity which entails greater than ordinary investment risk.
Options on particular securities may be more volatile than the underlying
instruments, and therefore, on a percentage basis, an investment in options may
be subject to greater fluctuation than an investment in the underlying
instruments themselves.
The Fund will write call options only if they are "covered." The
option is "covered" if the Fund owns the security underlying the call or has an
absolute and immediate right to acquire that security without additional cash
consideration (or, if additional cash consideration is required, liquid assets
of equal value are held in a segregated account by its custodian) upon
conversion or exchange of other securities held by it. For a call option on an
index, the option is covered if the Fund maintains with its custodian a
portfolio of securities substantially replicating the movement of the index, or
liquid assets equal to the contract value. A call option is also covered if the
Fund holds a call on the same security or index as the call written where the
exercise price of the call held is (i) equal to or less than the exercise price
of the call written, or (ii) greater than the exercise price of the call written
provided the difference is
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maintained by the Fund in liquid assets in a segregated account with its
custodian.
The Fund's obligation to sell a security subject to a covered call
option written by it may be terminated prior to the expiration date of the
option by the Fund's execution of a closing purchase transaction, which is
effected by purchasing on an exchange an option of the same series (i.e., same
underlying security, exercise price and expiration date) as the option
previously written. Such a purchase does not result in the ownership of an
option. A closing purchase transaction will ordinarily be effected to realize a
profit on an outstanding option, to prevent an underlying security from being
called, to permit the sale of the underlying security or to permit the writing
of a new option containing different terms on such underlying security. The cost
of such a liquidation purchase plus transaction costs may be greater than the
premium received upon the original option, in which event the Fund will have
incurred a loss in the transaction. There is no assurance that a liquid
secondary market will exist for any particular option. An option writer, unable
to effect a closing purchase transaction, will not be able to sell the
underlying security until the option expires or the optioned security is
delivered upon exercise with the result that the writer in such circumstances
will be subject to the risk of market decline or appreciation in the security
during such period.
When the Fund writes an option, an amount equal to the net premium
(the premium less the commission) received by the Fund is included in the
liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of this deferred credit will be subsequently
marked-to-market to reflect the current value of the option written. The current
value of the traded option is the last sale price or, in the absence of a sale,
the current bid price. If an option written by the Fund expires on the
stipulated expiration date or if the Fund enters into a closing purchase
transaction, it will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold) and the
deferred credit related to such option will be eliminated. If an option written
by the Fund is exercised, the proceeds of the sale will be increased by the net
premium originally received and the Fund will realize a gain or loss.
There are several risks associated with transactions in certain
options. For example, there are significant differences between the securities
and options markets that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its objectives. In addition,
a liquid secondary market for particular options, whether traded
over-the-counter or on a securities exchange may be absent for reasons which
include the following: there may be insufficient trading interest in certain
options; restrictions may be imposed by an exchange on
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opening transactions or closing transactions or both; trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options or underlying securities or currencies; unusual or unforeseen
circumstances may interrupt normal operations on an exchange; the facilities of
an exchange or the Options Clearing Corporation may not at all times be adequate
to handle current trading value; or one or more exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that exchange (or in that class or series of options)
would cease to exist, although outstanding options that had been issued by the
Options Clearing Corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
FOREIGN GOVERNMENT OBLIGATIONS
The Fund may purchase debt obligations issued or guaranteed by
governments (including states, provinces or municipalities) of countries other
than the United States, or by their agencies, authorities or instrumentalities.
The percentage of assets invested in securities of a particular country or
denominated in a particular currency will vary in accordance with the adviser's
assessment of gross domestic product in relation to aggregate debt, current
account surplus or deficit, the trend of the current account, reserves available
to defend the currency, and the monetary and fiscal policies of the government.
SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund currently intends to limit its investments in securities
issued by other investment companies so that, as determined immediately after a
purchase of such securities is made: (i) not more than 5% of the value of the
Fund's total assets will be invested in the securities of any one investment
company; (ii) not more than 10% of the value of its total assets will be
invested in the aggregate in securities of investment companies as a group; and
(iii) not more than 3% of the outstanding voting stock of any one investment
company will be owned by the Fund or by the Trust as a whole.
PORTFOLIO TURNOVER
The Fund may engage in short term trading and may sell securities
which have been held for periods ranging from several months to less than a day.
Portfolio turnover will tend to rise during periods of economic turbulence and
decline during periods of stable growth. The Fund's annual portfolio turnover is
not expected to exceed 50% under normal market conditions. The portfolio
turnover rate for the Fund is calculated by dividing the lesser of purchases or
sales of portfolio securities for the year
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by the monthly average value of the portfolio securities. The calculation
excludes U.S. government securities and all securities whose maturities at the
time of acquisition were one year or less. Portfolio turnover may vary greatly
from year to year as well as within a particular year, and may also be affected
by cash requirements for redemptions of shares and by requirements which enable
the Fund to receive certain favorable tax treatment. Portfolio turnover will not
be a limiting factor in making fund decisions.
ADDITIONAL INVESTMENT LIMITATIONS
In addition to the investment limitations disclosed in the
Prospectus, the Fund is subject to the following investment limitations which
may not be changed without approval of the holders of a majority of the
outstanding shares of the Fund (as defined under "Description of Shares" below).
The Fund may not:
1. Purchase or sell real estate, except that it may purchase
securities of issuers which deal in real estate and may purchase securities
which are secured by interests in real estate.
2. Invest in commodities, except that as consistent with its
investment objective and policies the Fund may: 1) purchase and sell options,
forward contracts, futures contracts, including without limitation those
relating to indices; 2) purchase and sell options on futures contracts or
indices; 3) purchase publicly traded securities of companies engaging in whole
or in part in such activities.
3. Act as an underwriter of securities within the meaning of the
Securities Act of 1933 except insofar as it might be deemed to be an underwriter
upon the disposition of portfolio securities acquired within the limitation on
purchases of illiquid securities and except to the extent that the purchase of
obligations directly from the issuer thereof in accordance with its investment
objective, policies and limitations may be deemed to be underwriting.
In addition to the above fundamental limitations, the Fund is
subject to the following non-fundamental limitations, which may be changed
without a shareholder vote:
The Fund may not:
1. Acquire any other investment company or investment company
security except in connection with a merger, consolidation, reorganization or
acquisition of assets or where otherwise permitted under the 1940 Act.
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2. Write or sell put options, call options, straddles, spreads, or
any combination thereof, except as consistent with the Fund's investment
objective and policies, for transactions in options on securities or indices of
securities, futures contracts and options on futures contracts and in similar
investments.
3. Purchase securities on margin, make short sales of securities
or maintain a short position, except that (a) this investment limitation shall
not apply to its transactions in futures contracts and related options, options
on securities or indices of securities and similar instruments, and (b) it may
obtain short-term credit as may be necessary for the clearance of purchases and
sales of portfolio securities.
4. Purchase securities of companies for the purpose of exercising
control.
5. Invest more than 15% of its net assets in illiquid securities.
The Fund does not intend to purchase securities while its
outstanding borrowings are in excess of 5% of its assets. Securities held in
escrow or separate accounts in connection with its investment practices are not
deemed to be pledged for purposes of this limitation.
The Fund reserves the right to engage in securities lending,
although it does not presently have the intent of doing so.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
----------------------------------------------
Shares in the Trust are sold on a continuous basis by SEI
Investments Distribution Co. (the "Distributor"), which has agreed to use
appropriate efforts to solicit all purchase orders. The issuance of shares is
recorded on the books of the Trust. To change the commercial bank or account
designated to receive redemption proceeds, a written request must be sent to an
investor's financial institution at its principal office. Such requests must be
signed by each shareholder, with each signature guaranteed by a U.S. commercial
bank or trust company or by a member firm of a national securities exchange.
Guarantees must be signed by an authorized signatory and "Signature Guaranteed"
must appear with the signature. An investor's financial institution may request
further documentation from corporations, executors, administrators, trustees or
guardians, and will accept other suitable verification arrangements from foreign
investors, such as consular verification.
The Trust may suspend the right of redemption or postpone the date
of payment for more than seven days for shares during any
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<PAGE> 185
period when (a) trading on the New York Stock Exchange is restricted by
applicable rules and regulations of the Securities and Exchange Commission
("SEC"); (b) the Exchange is closed for other than customary weekend and holiday
closings; (c) the SEC has by order permitted such suspension; or (d) an
emergency exists as determined by the SEC.
There is no sales load charged on shares acquired through the
reinvestment of dividends or distributions on such shares.
Automatic investment programs such as the monthly savings program
("Program") described in the Prospectus offered by the Fund permit an investor
to use "dollar cost averaging" in making investments. Under this Program, an
agreed upon fixed dollar amount is invested in Fund shares at predetermined
intervals. This may help investors to reduce their average cost per share
because the Program results in more shares being purchased during periods of
lower share prices and fewer shares during periods of higher share prices. In
order to be effective, dollar cost averaging should usually be followed on a
sustained, consistent basis. Investors should be aware, however, that dollar
cost averaging results in purchases of shares regardless of their price on the
day of investment or market trends and does not ensure a profit, protect against
losses in a declining market, or prevent a loss if an investor ultimately
redeems his shares at a price which is lower than their purchase price. An
investor may want to consider his financial ability to continue purchases
through periods of low price levels. From time to time, in advertisements, sales
literature, communications to shareholders and other materials ("Materials"),
the Trust may illustrate the effects of dollar cost averaging through use of or
comparison to an index such as the Morgan Stanley Capital International Europe,
Australia, Far East (Free) Index.
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<PAGE> 186
OFFERING PRICE PER RETAIL SHARE OF THE FUNDS
An illustration of the computation of the offering price per Retail
share of the Fund, based upon the estimated value of its net assets and number
of shares outstanding on its commencement date, is as follows:
<TABLE>
<CAPTION>
TABLE
-----
<S> <C>
Net Assets of Retail Shares.......................... $10,000,000
Outstanding Retail Shares............................ 1,000,000
Net Asset Value Per Share............................ $ 10.00
($10,000,000 / 1,000,000)
Sales Charge, 3.75% of offering price
(3.90% of net asset value per share)............... $ .39
Offering to Public................................... $ 10.39
<FN>
*Amounts are estimated as the Fund has not commenced operations.
</TABLE>
EXCHANGE PRIVILEGE
Investors may exchange all or part of their Retail shares as
described in the Prospectus. Upon the exchange of Retail shares of one Fund for
Retail shares of another Fund, any rights an Investor may have had for a reduced
or eliminated sales load in connection with the purchase of Retail shares of the
first Fund shall apply as well to Retail shares of the other Fund. The exchange
privilege may be modified or terminated at any time upon 60 days' notice to
shareholders.
By use of the exchange privilege, the Investor authorizes the
Trust's Transfer Agent or his financial institution to act on telephonic or
written instructions from any person representing himself or herself to be the
shareholder and believed by the Transfer Agent or the financial institution to
be genuine. The Investor or his financial institution must notify the Transfer
Agent of his prior ownership of Retail shares and account number. The Transfer
Agent's records of such instructions are binding.
DESCRIPTION OF SHARES
---------------------
The Trust is a Massachusetts business trust. The Trust's
Declaration of Trust authorizes the Board of Trustees to issue an unlimited
number of shares of beneficial interest and to classify or reclassify any
unissued shares of the Trust into one or more additional classes or series by
setting or changing in any one or more respects their respective preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends,
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<PAGE> 187
qualifications, and terms and conditions of redemption. Pursuant to such
authority, the Board of Trustees has authorized the issuance of 42 classes or
series of shares. Two of these classes or series, which represent interests in
the International Equity Fund (Class U and Class U - Special Series 1) are
described in this Statement of Additional Information and the related
Prospectus.
Shares have no preemptive rights and only such conversion or
exchange rights as the Board of Trustees may grant in its discretion. When
issued for payment as described in the Prospectus, the Trust's shares will be
fully paid and non-assessable. In the event of a liquidation or dissolution of
the Trust or an individual Fund, shareholders of the Fund are entitled to
receive the assets available for distribution belonging to that Fund, and a
proportionate distribution, based upon the relative asset values of the
respective Funds, of any general assets of the Trust not belonging to any
particular Fund which are available for distribution.
Rule 18f-2 under the 1940 Act provides that any matter required by
the 1940 Act, applicable state law, or otherwise, to be submitted to the holders
of the outstanding voting securities of an investment company such as the Trust
shall not be deemed to have been effectively acted upon unless approved by the
holders of a majority of the outstanding shares of each investment fund affected
by such matter. Rule 18f-2 further provides that an investment fund is affected
by a matter unless the interests of each fund in the matter are substantially
identical or the matter does not affect any interest of the fund. Under the
Rule, the approval of an investment advisory agreement or any change in a
fundamental investment policy would be effectively acted upon with respect to an
investment fund only if approved by a majority of the outstanding shares of such
fund. However, the Rule also provides that the ratification of the appointment
of independent public accountants, the approval of principal underwriting
contracts, and the election of trustees may be effectively acted upon by
shareholders of the Trust voting together in the aggregate without regard to a
particular fund. In addition, shareholders of each class in a particular
investment fund have equal voting rights except that only Retail shares of an
investment fund will be entitled to vote on matters submitted to a vote of
shareholders (if any) relating to shareholder servicing fees that are allocable
to such shares.
Although the following types of transactions are normally subject
to shareholder approval, the Board of Trustees may, under certain limited
circumstances, (a) sell and convey the assets of an investment fund to another
management investment company for consideration which may include securities
issued by the purchaser and, in connection therewith, to cause all outstanding
shares of such fund involved to be redeemed at a price which is equal to their
net asset value and which may be paid in cash or by
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<PAGE> 188
distribution of the securities or other consideration received from the sale and
conveyance; (b) sell and convert an investment fund's assets into money and, in
connection therewith, to cause all outstanding shares of such fund involved to
be redeemed at their net asset value; or (c) combine the assets belonging to an
investment fund with the assets belonging to another investment fund of the
Trust, if the Board of Trustees reasonably determines that such combination will
not have a material adverse effect on shareholders of any fund participating in
such combination, and, in connection therewith, to cause all outstanding shares
of any fund to be redeemed at their net asset value or converted into shares of
another class of the Trust shares at net asset value. In the event that shares
are redeemed in cash at their net asset value, a shareholder may receive in
payment for such shares an amount that is more or less than his original
investment due to changes in the market prices of the fund's securities. The
exercise of such authority by the Board of Trustees will be subject to the
provisions of the 1940 Act, and the Board of Trustees will not take any action
described in this paragraph unless the proposed action has been disclosed in
writing to the Fund's shareholders at least 30 days prior thereto.
ADDITIONAL INFORMATION CONCERNING TAXES
---------------------------------------
The following summarizes certain additional tax considerations
generally affecting the Trust and its shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Trust or its shareholders or possible legislative changes, and
the discussion here and in the Prospectus is not intended as a substitute for
careful tax planning. Potential investors should consult their tax advisers with
specific reference to their own tax situation.
Each Fund of the Trust will be treated as a separate corporate
entity under the Code and intends to qualify as a regulated investment company.
In order to qualify for tax treatment as a regulated investment company under
the Code, each Fund must satisfy, in addition to the distribution requirement
described in the Prospectus, certain requirements with respect to the source of
its income during a taxable year. At least 90% of the gross income of each Fund
must be derived from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stocks, securities or foreign
currencies, and other income (including but not limited to gains from options,
futures, or forward contracts) derived with respect to the Fund's business of
investing in such stock, securities or currencies. The Treasury Department may
by regulation exclude from qualifying income foreign currency gains which are
not directly related to the Fund's principal business of investing in stock or
securities, or options and futures with respect to stock or
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<PAGE> 189
securities. Any income derived by a Fund from a partnership or trust is treated
as derived with respect to the Fund's business of investing in stock, securities
or currencies only to the extent that such income is attributable to items of
income which would have been qualifying income if realized by the Fund in the
same manner as by the partnership or trust.
Another requirement for qualification as a regulated investment
company under the Code is that less than 30% of a Fund's gross income for a
taxable year must be derived from gains realized on the sale or other
disposition of the following investments held for less than three months: (1)
stock and securities (as defined in Section 2(a)(36) of the 1940 Act; (2)
options, futures and forward contracts other than those on foreign currencies;
and (3) foreign currencies (and options, futures and forward contracts on
foreign currencies) that are not directly related to a Fund's principal business
of investing in stock and securities (and options and futures with respect to
stocks and securities). Interest (including original issue discount and, with
respect to taxable debt securities and non taxable debt securities acquired
after April 30, 1993, accrued market discount) received by a Fund upon maturity
or disposition of a security held for less than three months will not be treated
as gross income derived from the sale or other disposition of such security
within the meaning of this requirement. However, any other income which is
attributable to realized market appreciation will be treated as gross income
from the sale or other disposition of securities for this purpose.
Some investments held by a Fund may be subject to special rules
which govern the federal income tax treatment of certain transactions
denominated in terms of a currency other than the U.S. dollar or determined by
reference to the value of one or more currencies other than the U.S. dollar. The
types of transactions covered by the special rules include the following: (1)
the acquisition of, or becoming the obligor under, a bond or other debt
instrument (including, to the extent provided in Treasury regulations, preferred
stock); (2) the accruing of certain trade receivables and payables; and (3) the
entering into or acquisition of any forward contract, futures contract, option
and similar financial instrument. The disposition of a currency other than the
U.S. dollar by a U.S. taxpayer is also treated as a transaction subject to the
special currency rules. With respect to transactions covered by the special
rules, foreign currency gain or loss is calculated separately from any gain or
loss on the underlying transaction and is normally taxable as ordinary gain or
loss. The Treasury Department has issued regulations under which certain
transactions subject to the special currency rules that are part of a "section
988 hedging transaction" are not subject to the mark-to-market or loss deferral
rules under the Code. Gain or loss attributable to the foreign currency
component of transactions engaged in by a Fund which are not subject to the
special currency rules (such as foreign equity investments other than certain
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<PAGE> 190
preferred stocks) will be treated as capital gain or loss and will not be
segregated from the gain or loss on the underlying transaction.
The Trust will designate any distribution of long-term capital
gains of a Fund as a capital gain dividend in a written notice mailed to
shareholders within 60 days after the close of the Trust's taxable year.
Shareholders should note that, upon the sale or exchange of Fund shares, if the
shareholder has not held such shares for at least six months, any loss on the
sale or exchange of those shares will be treated as long-term capital loss to
the extent of the capital gain dividends received with respect to the shares.
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute an amount equal to specified
percentages of their ordinary taxable income and capital gain net income (excess
of capital gains over capital losses). Each Fund intends to make sufficient
distributions or deemed distributions of its ordinary taxable income and capital
gain net income each calendar year to avoid liability for this excise tax.
If for any taxable year a Fund does not qualify for federal tax
treatment as a regulated investment company, all of such Fund's taxable income
will be subject to federal income tax at regular corporate rates without any
deduction for distributions to its shareholders. In such event, dividend
distributions (including amounts derived from interest on Municipal Bonds) would
be taxable as ordinary income to the Fund's shareholders to the extent of the
Fund's current and accumulated earnings and profits, and would be eligible for
the dividends received deduction for corporations.
Each Fund may be required in certain cases to withhold and remit to
the U.S. Treasury 31% of taxable dividends or gross proceeds realized upon sale
paid to shareholders who have failed to provide a correct tax identification
number in the manner required, or who are subject to withholding by the Internal
Revenue Service for failure to properly include on their return payments of
taxable interest or dividends, or who have failed to certify to the Fund that
they are not subject to backup withholding when required to do so or that they
are "exempt recipients".
TRUSTEES AND OFFICERS
---------------------
The Trustees and officers of the Trust, their addresses, principal
occupations during the past five years, and other affiliations are as follows:
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<PAGE> 191
PRINCIPAL OCCUPATION
POSITION WITH DURING PAST 5 YEARS
NAME AND ADDRESS THE TRUST AND OTHER AFFILIATIONS
- ---------------- --------- ----------------------
Robert D. Neary* Chairman of the Retired Co-Chairman of
32980 Creekside Drive Board and Ernst & Young, April
Pepper Pike, OH 44124 Trustee 1984-September 1993;
Age 63 Director, Cold Metal
Products, Inc., since March
1994; Director, Zurn
Industries, Inc., (plumbing
products and engineering and
construction services) since
June 1995.
Leigh Carter* Trustee Retired President and
13901 Shaker Blvd., #6B Chief Operating Officer,
Cleveland, OH 44120 B.F. Goodrich Company,
Age 71 August 1986 to September
1990; Director, Adams
Express Company (closed-end
investment company), since
April 1982; Director,
Acromed Corporation;
Director, Lamson & Sessions
Co. (producer of electrical
supplies for construction,
consumer power and
communications industry),
since April 1991; Director,
Petroleum & Resources Corp.,
since April 1987; Director,
Morrison Products
(manufacturer of blower fans
and air moving equipment),
since April 1983.
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<PAGE> 192
PRINCIPAL OCCUPATION
POSITION WITH DURING PAST 5 YEARS
NAME AND ADDRESS THE TRUST AND OTHER AFFILIATIONS
- ---------------- --------- ----------------------
John F. Durkott Trustee President and Chief
8600 Allisonville Road Operating Officer,
Indianapolis, IN 46250 Kittle's Home
Age 52 Furnishings Center,
Inc., since January 1982;
partner, Kittles Bloomington
Property Company, since
January 1981; partner, KK&D
(Affiliated Real Estate
Companies of Kittle's Home
Furnishings Center), since
January 1989.
Richard W. Furst, Dean Trustee Professor of Finance and
600 Autumn Lane Dean, Carol Martin Gatton
Lexington, KY 40502 College of Business and
Age 58 and Economics, University
of Kentucky, since 1981;
Director, The Seed
Corporation (restaurant
group), since 1990;
Director, Foam Design, Inc.
(manufacturer of industrial
and commercial foam
products), since 1993;
Director, Studio Plus
Hotels, Inc., since 1994.
Gerald L. Gherlein Trustee Executive Vice-President
3679 Greenwood Drive and General Counsel,
Pepper Pike, OH 44124 Eaton Corporation, since
Age 59 1991 (global manufacturing);
Trustee, Cleveland
Initiative for Education;
Trustee, Meridia Health
System; Trustee, WVIZ
Educational Television.
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<PAGE> 193
PRINCIPAL OCCUPATION
POSITION WITH DURING PAST 5 YEARS
NAME AND ADDRESS THE TRUST AND OTHER AFFILIATIONS
- ---------------- --------- ----------------------
J. William Pullen Trustee President and Chief
Whayne Supply Company Executive Officer,
1400 Cecil Avenue Whayne Supply Co.
P.O. Box 35900 (engine and heavy
Louisville, KY 40232-5900 equipment distribution),
Age 58 since 1986; President
and Chief Executive
Officer, American
Contractors Rentals &
Sales (rental subsidiary
of Whayne Supply Co.),
since 1988.
Richard B. Tullis Trustee Chairman Emeritus,
5150 Three Village Drive Harris Corporation
Lyndhurst, OH 44124 (electronic communi-
Age 83 cation and information
processing equipment),
since October 1985;
Director, NACCO
Materials Handling
Group, Inc. (manu-
facturer of industrial
fork lift trucks), since
1984; Director, Hamilton
Beach/Proctor-Silex,
Inc. (manufacturer of
household appliances),
since 1990; Director,
Waste-Quip, Inc. (waste
handling equipment),
since 1989.
Herbert R. Martens, Jr. President Chairman and Chief
c/o NatCity Investments Executive Officer,
1965 E. Sixth Street NatCity Investments,
Cleveland, OH 44114 Inc., since July 1995
Age 45 (investment banking);
President and Chief
Executive Officer,
Raffensperger, Hughes &
Co., from 1993 until 1995
(broker-dealer); President,
Reserve Capital Group, from
1990 until 1993.
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<PAGE> 194
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
POSITION WITH DURING PAST 5 YEARS
NAME AND ADDRESS THE TRUST AND OTHER AFFILIATIONS
- ---------------- --------- ----------------------
<S> <C> <C>
W. Bruce McConnel, III Secretary Partner of law firm
Philadelphia National Drinker Biddle & Reath
Bank Building LLP, Philadelphia
1345 Chestnut Street Pennsylvania.
Suite 1100
Philadelphia, PA 19107
Age 54
Neal J. Andrews Treasurer Vice President and
PFPC, Inc. Director of Investment
400 Bellevue Parkway Accounting, PFPC, Inc.,
Wilmington, DE 19809 since 1992, prior
Age 31 thereto, Senior Auditor,
Price Waterhouse, LLP
</TABLE>
- --------------------
* Messrs. Neary and Carter are considered by the Trust to be
"interested persons" of the Trust as defined in the 1940 Act.
W. Bruce McConnel, III, Esq., Secretary of the Trust, is a partner
of the law firm of Drinker Biddle & Reath LLP, which receives fees as counsel
to the Trust. Neal J. Andrews, Treasurer of the Trust, is employed by PFPC,
Inc., which receives fees as Administrator to the Trust.
Each trustee receives an annual fee of $7,500 plus $2,500 for each
Board meeting attended and reimbursement of expenses incurred in attending
meetings. The Chairman of the Board is entitled to receive an additional $2,500
per annum for services in such capacity. For the year ended May 31, 1997, the
Trust's trustees and officers as a group received aggregate fees of $69,875.
The trustees and officers of the Trust own less than 1% of the shares of the
Trust.
The following table summarizes the compensation for each of the
Trustees of the Trust for the fiscal year ended May 31, 1997:
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT
BENEFITS ACCRUED TOTAL
AGGREGATE AS PART OF ESTIMATED COMPENSATION
NAME OF COMPENSATION THE TRUST'S APPROVAL BENEFITS FROM THE
PERSON, POSITION FROM THE TRUST EXPENSES UPON RETIREMENT TRUST
---------------- -------------- -------- --------------- -----
<S> <C> <C> <C> <C>
Robert D. Neary, Chairman, $18,750 $0 $0 $18,750
President and Trustee
</TABLE>
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<PAGE> 195
<TABLE>
<S> <C> <C> <C> <C>
Thomas R. Benua, Jr., $17,500 $0 $0 $17,500
Trustee
Leigh Carter, Trustee $17,500 $0 $0 $17,500
John F. Durkott, Trustee $17,500 $0 $0 $17,500
Richard W. Furst, Trustee $17,500 $0 $0 $17,500
J. William Pullen, Trustee $17,500 $0 $0 $17,500
Richard B. Tullis, Trustee $18,750 $0 $0 $18,750
</TABLE>
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders of a business trust may,
under certain circumstances, be held personally liable as partners for the
obligations of the trust. However, the Trust's Declaration of Trust provides
that shareholders shall not be subject to any personal liability for the acts
or obligations of the Trust, and that every note, bond, contract, order, or
other undertaking made by the Trust shall contain a provision to the effect
that the shareholders are not personally liable thereunder. The Declaration of
Trust provides for indemnification out of the trust property of any shareholder
held personally liable solely by reason of his being or having been a
shareholder and not because of his acts or omissions or some other reason. The
Declaration of Trust also provides that the Trust shall, upon request, assume
the defense of any claim made against any shareholder for any act or obligation
of the Trust, and shall satisfy any judgment thereon. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations.
The Declaration of Trust states further that no trustee, officer,
or agent of the Trust shall be personally liable for or on account of any
contract, debt, tort, claim, damage, judgment or decree arising out of or
connected with the administration or preservation of the trust estate or the
conduct of any business of the Trust; nor shall any trustee be personally
liable to any person for any action or failure to act except by reason of his
own bad faith, willful misfeasance, gross negligence, or reckless disregard of
his duties as trustee. The Declaration of Trust also provides that all persons
having any claim against the trustees or the Trust shall look solely to the
trust property for payment. With the exceptions stated, the Declaration of
Trust provides that a trustee is entitled to be indemnified against all
liabilities and expense, reasonably incurred by him in connection with the
defense or disposition of any proceeding in which he may be involved or with
____________________
* Mr. Benua resigned as trustee as of July 17, 1997.
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<PAGE> 196
which he may be threatened by reason of his being or having been a trustee, and
that the trustees, have the power, but not the duty, to indemnify officers and
employees of the Trust unless any such person would not be entitled to
indemnification had he been a trustee.
ADVISORY, ADMINISTRATION, DISTRIBUTION, CUSTODIAN
SERVICES AND TRANSFER AGENCY AGREEMENTS
---------------------------------------
ADVISORY AGREEMENT
As described in the Prospectus, National City serves as investment
adviser to the International Equity Fund. The adviser is an affiliate of
National City Corporation, a bank holding company with $51 billion in assets,
and headquarters in Cleveland, Ohio and nearly 900 branch offices in three
states. Through its subsidiaries, National City Corporation has been managing
investments for individuals, pension and profit-sharing plans and other
institutional investors for over 75 years and currently manages over $38
billion in assets. From time to time, the adviser may voluntarily waive fees or
reimburse the Trust for expenses.
The Advisory Agreement provides that the adviser shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Trust in connection with the performance of the Advisory Agreement, except
a loss resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of the adviser in the performance of its
duties or from reckless disregard by it of its duties and obligations
thereunder. In addition, the adviser has undertaken in the Advisory Agreement
to maintain its policy and practice of conducting its Trust Department
independently of its Commercial Department.
The Advisory Agreement relating to the Fund was approved by its
sole shareholder prior to the Fund's commencement of investment operations.
Unless sooner terminated, the Advisory Agreement will continue in effect with
respect to the Fund until September 30, 1997 and from year to year thereafter,
subject to annual approval by the Trust's Board of Trustees, or by a vote of a
majority of the outstanding shares of the Fund (as defined in the Fund's
Prospectus) and a majority of the trustees who are not parties to the Agreement
or interested persons (as defined in the 1940 Act) of any party by votes cast
in person at a meeting called for such purpose. The Advisory Agreement may be
terminated by the Trust or the adviser on 60 days written notice, and will
terminate immediately in the event of its assignment.
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<PAGE> 197
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations, including the Glass-Steagall Act as
presently interpreted by the Board of Governors of the Federal Reserve System,
(a) prohibit a bank holding company registered under the Federal Bank Holding
Company Act of 1956 or any affiliate thereof from sponsoring, organizing, or
controlling a registered, open-end investment company continuously engaged in
the issuance of its shares, but (b) do not prohibit such a bank holding company
or affiliate from acting as investment adviser, transfer agent, or custodian to
such an investment company. The adviser believes that it may perform the
services for the Fund contemplated by its Advisory Agreement with the Trust as
described in such agreement without violation of applicable banking laws or
regulations. However, there are no controlling judicial precedents and future
changes in legal requirements relating to the permissible activities of banks
and their affiliates, as well as future interpretations of present
requirements, could prevent the adviser from continuing to perform services for
the Trust. If the adviser were prohibited from providing services to the Fund,
the Board of Trustees would consider selecting another qualified firm. Any new
investment advisory agreement would be subject to shareholder approval.
Should future legislative, judicial, or administrative action
prohibit or restrict the proposed activities of the adviser, or its affiliated
and correspondent banks in connection with shareholder purchases of Fund
shares, the adviser and its affiliated and correspondent banks might be
required to alter materially or discontinue the services offered by them to
shareholders. It is not anticipated, however, that any resulting change in the
Trust's method of operations would affect its net asset value per share or
result in financial losses to any shareholder.
If current restrictions preventing a bank or its affiliates from
legally sponsoring, organizing, controlling, or distributing shares of an
investment company were relaxed, the adviser, or an affiliate of the adviser,
would consider the possibility of offering to perform additional services for
the Trust. Legislation modifying such restrictions has been proposed in past
sessions in Congress. It is not possible, of course, to predict whether or in
what form such legislation might be enacted or the terms upon which the
adviser, or such an affiliate, might offer to provide such services.
ADMINISTRATION AND ACCOUNTING SERVICE AGREEMENT
PFPC serves as the administrator and accounting agent to the
Trust. The services provided as administrator and accounting agent and current
fees are described in the Prospectus.
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<PAGE> 198
DISTRIBUTION PLAN AND RELATED AGREEMENT
The Distributor acts as distributor of the Fund's shares pursuant
to its Distribution Agreement with the Trust as described in the Prospectus.
Shares are sold on a continuous basis.
Pursuant to Rule 12b-1 of the 1940 Act, the Trust has adopted a
Distribution Plan (the "Plan") which permits the Trust to bear certain expenses
in connection with the distribution of its shares. As required by Rule 12b-1,
the Trust's 12b-1 Plan and related distribution agreement have been approved,
and are subject to annual approval by, a majority of the Trust's Board of
Trustees, and by a majority of the trustees who are not interested persons of
the Trust and have no direct or indirect interest in the operation of the Plan
or any agreement relating to the Plan, by vote cast in person at a meeting
called for the purpose of voting on the Plan and related agreement. In
compliance with the Rule, the trustees requested and evaluated information they
thought necessary to an informed determination of whether the Plan and related
agreement should be implemented, and concluded, in the exercise of reasonable
business judgment and in light of their fiduciary duties, that there is a
reasonable likelihood that the Plan and related agreement will benefit the
Trust and its shareholders.
Rule 12b-1 also requires that persons authorized to direct the
disposition of monies payable by a fund (in the Trust's case, the Distributor)
provide for the trustees' review of quarterly reports on the amounts expended
and the purposes for the expenditures.
Any change in the Plan that would materially increase the
distribution expenses of the Fund requires approval by its shareholders, but
otherwise, the Plan may be amended by the trustees, including a majority of the
disinterested trustees who do not have any direct or indirect financial
interest in the Plan or related agreement. The Plan and related agreement may
be terminated as to the Fund by a vote of the Trust's disinterested trustees or
by vote of the shareholders of the Fund, on not more than 60 days written
notice. The selection and nomination of disinterested trustees has been
committed to the discretion of such disinterested trustees as required by the
Rule.
The Trust's Plan provides that each Fund will compensate the
Distributor for distribution expenses in an amount not to exceed .10% of the
Fund's average net assets. Distribution expenses payable by the Distributor
pursuant to the Plan include direct and indirect costs and expenses incurred in
connection with advertising and marketing a Fund's shares, and direct and
indirect costs and expenses of preparing, printing and distributing its
prospectuses to other than current shareholders. The Plan provides that the
Trust will pay the Distributor an annual base fee of $1,250,000 plus incentive
fees based upon asset growth payable
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<PAGE> 199
monthly and accrued daily by all of the Trust's investment funds with respect
to which the Distributor is distributing shares.
The Plan has been approved, and will continue in effect for
successive one year periods provided that such continuance is specifically
approved by (1) the vote of a majority of the trustees who are not parties to
the Plan or interested persons of any such party and who have no direct or
indirect financial interest in the Plan and (2) the vote of a majority of the
entire Board of Trustees.
CUSTODIAN SERVICES AND TRANSFER AGENCY AGREEMENTS
National City Bank serves as the Trust's custodian with respect to
the Fund. Under its Custodian Services Agreement, National City Bank has agreed
to: (i) maintain a separate account or accounts in the name of the Fund; (ii)
hold and disburse portfolio securities on account of the Fund; (iii) collect
and make disbursements of money on behalf of the Fund; (iv) collect and receive
all income and other payments and distributions on account of the Fund's
portfolio securities; (v) respond to correspondence by security brokers and
others relating to its duties; and (vi) make periodic reports to the Board of
Trustees concerning the Fund's operations. National City Bank is authorized to
select one or more banks or trust companies to serve as sub-custodian on behalf
of the Fund, provided that it shall remain responsible for the performance of
all of its duties under the Custodian Services Agreement and shall hold the
Fund harmless from the acts and omissions of any bank or trust company serving
as sub-custodian. The Fund reimburses National City Bank for its direct and
indirect costs and expenses incurred in rendering custodial services, except
that the costs and expenses borne by the Fund in any year may not exceed $.225
for each $1,000 of average gross assets of the Fund.
State Street Bank and Trust Company (the "Transfer Agent") serves
as the Trust's transfer agent and dividend disbursing agent with respect to the
Fund. Under its Transfer Agency Agreement, it has agreed to: (i) issue and
redeem shares of the Fund; (ii) transmit all communications by the Fund to its
shareholders of record, including reports to shareholders, dividend and
distribution notices and proxy materials for meetings of shareholders; (iii)
respond to correspondence by security brokers and others relating to its
duties; (iv) maintain shareholder accounts; and (v) make periodic reports to
the Board of Trustees concerning the Fund's operations. The Transfer Agent
sends each shareholder of record a statement (not less frequently than
quarterly) showing the total number of shares owned as of the last business day
of the month (as well as the dividends paid during the current month and year),
and provides each shareholder of record with a daily transaction report for
each day on which a transaction occurs in the shareholder's account with the
Fund.
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SHAREHOLDER SERVICES PLAN
-------------------------
As stated in the Prospectus, the Trust has implemented the
Services Plan with respect to Retail shares in the Fund. Pursuant to the
Services Plan, the Trust may enter into agreements with financial institutions
pertaining to the provision of administrative services to their customers who
are the beneficial owners of Retail shares in consideration for the payment of
up to .25% (on an annualized basis) of the net asset value of such shares. Such
services may include: (i) aggregating and processing purchase and redemption
requests from customers; (ii) providing customers with a service that invests
the assets of their accounts in Retail shares; (iii) processing dividend
payments from the Funds; (iv) providing information periodically to customers
showing their position in Retail shares; (v) arranging for bank wires; (vi)
responding to customer inquiries relating to the services performed with
respect to Retail shares beneficially owned by customers; (vii) forwarding
shareholder communications; and (viii) other similar services requested by the
Trust. Agreements between the Trust and financial institutions will be
terminable at any time by the Trust without penalty.
PORTFOLIO TRANSACTIONS
----------------------
Pursuant to its Advisory Agreement with the Trust, National City
is responsible for making decisions with respect to and placing orders for all
purchases and sales of portfolio securities for the Fund. The adviser purchases
portfolio securities either directly from the issuer or from an underwriter or
dealer making a market in the securities involved. Purchases from an
underwriter of portfolio securities include a commission or concession paid by
the issuer to the underwriter and purchases from dealers serving as market
makers may include the spread between the bid and asked price. Transactions on
stock exchanges involve the payment of negotiated brokerage commissions. There
is generally no stated commission in the case of securities traded in the
over-the-counter market, but an undisclosed portion of the price represents
compensation to the dealer.
While the adviser generally seeks competitive spreads or
commissions, it may not necessarily allocate each transaction to the
underwriter or dealer charging the lowest spread or commission available on the
transaction. Allocation of transactions, including their frequency, to various
dealers is determined by its best judgment and in a manner deemed fair and
reasonable to shareholders. The primary consideration is prompt execution of
orders in an effective manner at the most favorable price. Subject to this
consideration, dealers who provide supplemental investment research to the
adviser may receive orders for transactions by the Fund. Information so
received is in addition to and not in lieu of services required to be performed
by the adviser and does not
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reduce the fees payable to the adviser by the Fund. Such information may be
useful to the adviser in serving both the Trust and other clients, and,
similarly, supplemental information obtained by the placement of business of
other clients may be useful to the adviser in carrying out its obligations to
the Trust.
Portfolio securities will not be purchased from or sold to the
Fund's adviser, the Distributor, or any "affiliated person" (as such term is
defined under the 1940 Act) of any of them acting as principal, except to the
extent permitted by the SEC. In addition, the Fund will not give preference to
its adviser's correspondents with respect to such transactions, securities,
savings deposits, repurchase agreements and reverse repurchase agreements.
While serving as adviser to the Fund, National City has agreed to
maintain its policy and practice of conducting its Trust Department
independently of its Commercial Department. In making investment
recommendations for the Trust, Trust Department personnel will not inquire or
take into consideration whether the issuer of securities proposed for purchase
or sale for the Trust's account are customers of the Commercial Department. In
dealing with commercial customers, the Commercial Department will not inquire
or take into consideration whether securities of those customers are held by
the Trust.
Investment decisions for the Fund are made independently from
those for the other Funds and for other investment companies and accounts
advised or managed by the adviser. Such other Funds, investment companies and
accounts may also invest in the same securities as such Fund. When a purchase
or sale of the same security is made at substantially the same time on behalf
of the Fund and another investment company or account, the transaction will be
averaged as to price, and available investments allocated as to amount, in a
manner which the adviser believes to be equitable to the Fund and such other
investment company or account. In some instances, this investment procedure may
adversely affect the price paid or received by the Fund or the size of the
position obtained or sold by the Fund. To the extent permitted by law, the
adviser may aggregate the securities to be sold or purchased for the Fund with
those to be sold or purchased for other investment companies or accounts in
order to obtain best execution.
AUDITORS
--------
Ernst & Young LLP, independent auditors, with offices at Two
Commerce Square, 2001 Market Street, Suite 4000, Philadelphia, Pennsylvania
19103, serve as independent auditors of the Trust.
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<PAGE> 202
COUNSEL
-------
Drinker Biddle & Reath LLP (of which Mr. McConnel, Secretary of
the Trust, is a partner), with offices at 1345 Chestnut Street, Philadelphia,
Pennsylvania 19107, are counsel to the Trust and will pass upon certain legal
matters for the Trust.
PERFORMANCE INFORMATION
-----------------------
The Fund computes its "average annual total return" by determining
the average annual compounded rate of return during specified periods that
would equate the initial amount invested to the ending redeemable value of such
investment by dividing the ending redeemable value of a hypothetical $1,000
initial payment by $1,000 and raising the quotient to a power equal to one
divided by the number of years (or fractional portion thereof) covered by the
computation and subtracting one from the result. This calculation can be
expressed as follows:
ERV 1/n
T = [(-----) - 1]
P
Where: T = average annual total return
ERV = ending redeemable value at the end of the
period covered by the computation of a
hypothetical $1,000 payment made at the
beginning of the period
P = hypothetical initial payment of $1,000
n = period covered by the computation, expressed
in terms of years
The Fund computes its aggregate total returns by determining the
aggregate rates of return during specified periods that likewise equate the
initial amount invested to the ending redeemable value of such investment. The
formula for calculating aggregate total return is as follows:
ERV
T = (---) - 1
P
The calculations of average annual total return and aggregate
total return assume the reinvestment of all dividends and capital gain
distributions on the reinvestment dates during the period and include all
recurring fees charged to all shareholder accounts, assuming an account size
equal to the Fund's mean (or
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<PAGE> 203
median) account size for any fees that vary with the size of the account. The
maximum sales load and other charges deducted from payments are deducted from
the initial $1,000 payment (variable "P" in the formula). The ending redeemable
value (variable "ERV" in the formula) is determined by assuming complete
redemption of the hypothetical investment and the deduction of all nonrecurring
charges at the end of the measuring period covered by the computation.
The Fund may also from time to time include in Materials a total
return figure that is not calculated according to the formulas set forth above
in order to compare more accurately the Fund's performance with other measures
of investment return. For example, in comparing a Fund's total return with data
published by Lipper Analytical Services, Inc., CDA Investment Technologies,
Inc. or Weisenberger Investment Company Service, or with the performance of an
index, the Fund may calculate its aggregate total return for the period of time
specified in the advertisement or communication by assuming the investment of
$10,000 in shares and assuming the reinvestment of each dividend or other
distribution at net asset value on the reinvestment date. Percentage increases
are determined by subtracting the initial value of the investment from the
ending value and by dividing the remainder by the beginning value. The Fund
does not, for these purposes, deduct from the initial value invested any amount
representing sales charges. The Fund will, however, disclose the maximum sales
charge and will also disclose that the performance data do not reflect sales
charges and that inclusion of sale charges would reduce the performance quoted.
The Fund may also from time to time include discussions or
illustrations of the effects of compounding in Materials. "Compounding" refers
to the fact that, if dividends or other distributions on the Fund investment
are reinvested by being paid in additional Fund shares, any future income or
capital appreciation of the Fund would increase the value, not only of the
original Fund investment, but also of the additional Fund shares received
through reinvestment. As a result, the value of the Fund investment would
increase more quickly than if dividends or other distributions had been paid in
cash.
In addition, the Fund may also include in Materials discussions
and/or illustrations of the potential investment goals of a prospective
investor, investment management strategies, techniques, policies or investment
suitability of the Fund, high-quality investments, economic conditions, the
relationship between sectors of the economy and the economy as a whole, various
securities markets, the effects of inflation and historical performance of
various asset classes, including but not limited to, stocks, bonds and Treasury
securities. From time to time, Materials may summarize the substance of
information contained in shareholder reports (including the investment
composition of the Fund), as well as the views of the adviser as to current
market,
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<PAGE> 204
economic, trade and interest rate trends, legislative, regulatory and monetary
developments, investment strategies and related matters believed to be of
relevance to the Fund. The Fund may also include in Materials charts, graphs or
drawings which compare the investment objective, return potential, relative
stability and/or growth possibilities of the Fund and/or other mutual funds, or
illustrate the potential risks and rewards of investment in various investment
vehicles, including but not limited to, stocks, bonds, Treasury securities and
shares of the Fund and/or other mutual funds. Materials may include a
discussion of certain attributes or benefits to be derived by an investment in
the Fund and/or other mutual funds (such as value investing, market timing,
dollar cost averaging, asset allocation, constant ratio transfer, automatic
accounting rebalancing, the advantages and disadvantages of investing in
tax-deferred and taxable investments), shareholder profiles and hypothetical
investor scenarios, timely information on financial management, tax and
retirement planning and investment alternatives to certificates of deposit and
other financial instruments. Such Materials may include symbols, headlines or
other material which highlight or summarize the information discussed in more
detail therein.
MISCELLANEOUS
-------------
The Fund bears all costs in connection with its organization,
including the fees and expenses of registering and qualifying its shares for
distribution under federal and state securities regulations. All organization
expenses are being amortized on the straight-line method over a period of five
years from the date of commencement of operations.
As used in the Prospectus, "assets belonging to the Fund" means
the consideration received by the Trust upon the issuance of shares in that
particular Fund, together with all income, earnings, profits, and proceeds
derived from the investment thereof, including any proceeds from the sale of
such investments, any funds or payments derived from any reinvestment of such
proceeds, and a portion of any general assets of the Trust not belonging to a
particular Fund. In determining the Fund's net asset value, assets belonging to
the Fund are charged with the liabilities in respect of that Fund.
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<PAGE> 205
APPENDIX A
----------
DESCRIPTION OF RATINGS
Commercial Paper Ratings
- ------------------------
A S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market. The following summarizes the highest rating category used by S&P for
commercial paper:
"A-1" - Issue's degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted "A-1+."
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the highest rating
category used by Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are
considered to have a superior capacity for repayment of short-term promissory
obligations. Principal repayment capacity will normally be evidenced by the
following characteristics: leading market positions in well established
industries; high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protection; broad
margins in earning coverage of fixed financial charges and high internal cash
generation; and well established access to a range of financial markets and
assured sources of alternate liquidity.
The following summarizes the highest rating category used by Duff
& Phelps for commercial paper:
"Duff 1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or
access to alternative sources of funds, is outstanding, and safety
is just below risk-free U.S. Treasury short-term obligations.
"Duff 1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental
protection factors. Risk factors are minor.
"Duff 1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by
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<PAGE> 206
good fundamental protection factors. Risk factors are very small.
The following summarizes the highest rating category used by Fitch
for short-term notes, municipal notes, variable rate demand instruments and
commercial paper:
"F-1+" - Instruments assigned this rating are regarded as having
the strongest degree of assurance for timely payment.
"F-1" - Instruments assigned this rating reflect an assurance of
timely payment only slightly less in degree than issues rated
'F-1+."
IBCA uses the following highest rating category for short term
notes including commercial paper:
"A1+" - These issues display the very highest quality borrowing
characteristics and are of undoubted or prime creditworthiness.
"A1" - These issues display very strong borrowing characteristics.
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<PAGE> 207
APPENDIX B
As stated in the Prospectus, the International Equity Fund (the
"Fund") may enter into certain futures transactions and options for hedging
purposes. Such transactions are described in this Appendix.
I. Index Futures Contracts
-----------------------
GENERAL. A stock index assigns relative values to the stocks
included in the index and the index fluctuates with changes in the market
values of the stocks included. Some stock index futures contracts are based on
broad market indexes, such as the Standard & Poor's Ratings Group 500 or the
New York Stock Exchange Composite Index. In contrast, certain exchanges offer
futures contracts on narrower market indexes or indexes based on an industry or
market segment, such as oil and gas stocks.
Futures contracts are traded on organized exchanges regulated by
the Commodity Futures Trading Commission. Transactions on such exchanges are
cleared through a clearing corporation, which guarantees the performance of the
parties to each contract.
The Fund may sell index futures contracts in order to offset a
decrease in market value of its portfolio securities that might otherwise
result from a market decline. The Fund may do so either to hedge the value of
its Fund as a whole, or to protect against declines, occurring prior to sales
of securities, in the value of the securities to be sold. Conversely, the Fund
will purchase index futures contracts in anticipation of purchases of
securities. A long futures position may be terminated without a corresponding
purchase of securities.
In addition, the Fund may utilize index futures contracts in
anticipation of changes in the composition of its Fund holdings. For example,
in the event that the Fund expects to narrow the range of industry groups
represented in its holdings it may, prior to making purchases of the actual
securities, establish a long futures position based on a more restricted index,
such as an index comprised of securities of a particular industry group. The
Fund may also sell futures contracts in connection with this strategy, in order
to protect against the possibility that the value of the securities to be sold
as part of the restructuring of the Fund will decline prior to the time of
sale.
II. Margin Payments
---------------
Unlike purchases or sales of portfolio securities, no price is
paid or received by the Fund upon the purchase or sale of a futures contract.
Initially, the Fund will be required to deposit with the broker or in a
segregated account with the
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<PAGE> 208
Custodian an amount of cash or cash equivalents, known as initial margin, based
on the value of the contract. The nature of initial margin in futures
transactions is different from that of margin in security transactions in that
futures contract margin does not involve the borrowing of funds by the customer
to finance the transactions. Rather, the initial margin is in the nature of a
performance bond or good faith deposit on the contract which is returned to the
Fund upon termination of the futures contract assuming all contractual
obligations have been satisfied. Subsequent payments, called variation margin,
to and from the broker, will be made on a daily basis as the price of the
underlying instruments fluctuates making the long and short positions in the
futures contract more or less valuable, a process known as
marking-to-the-market. For example, when a particular Fund has purchased a
futures contract and the price of the contract has risen in response to a rise
in the underlying instruments, that position will have increased in value and
the Fund will be entitled to receive from the broker a variation margin payment
equal to that increase in value. Conversely, where the Fund has purchased a
futures contract and the price of the future contract has declined in response
to a decrease in the underlying instruments, the position would be less valuable
and the Fund would be required to make a variation margin payment to the broker.
At any time prior to expiration of the futures contract, the adviser may elect
to close the position by taking an opposite position, subject to the
availability of a secondary market, which will operate to terminate the Fund's
position in the futures contract. A final determination of variation margin is
then made, additional cash is required to be paid by or released to the Fund,
and the Fund realizes a loss or gain.
III. Risks of Transactions in Futures Contracts
------------------------------------------
There are several risks in connection with the use of futures by
the Fund as a hedging device. One risk arises because of the imperfect
correlation between movements in the price of the futures and movements in the
price of the instruments which are the subject of the hedge. The price of the
future may move more than or less than the price of the instruments being
hedged. If the price of the futures moves less than the price of the
instruments which are the subject of the hedge, the hedge will not be fully
effective but, if the price of the instruments being hedged has moved in an
unfavorable direction, the Fund would be in a better position than if it had
not hedged at all. If the price of the instruments being hedged has moved in a
favorable direction, this advantage will be partially offset by the loss on the
futures. If the price of the futures moves more than the price of the hedged
instruments, the Fund involved will experience either a loss or gain on the
futures which will not be completely offset by movements in the price of the
instruments which are the subject of the hedge. To compensate for the imperfect
correlation of movements in the price of instruments being hedged and movements
in
B-2
<PAGE> 209
the price of futures contracts, the Fund may buy or sell futures contracts in a
greater dollar amount than the dollar amount of instruments being hedged if the
volatility over a particular time period of the prices of such instruments has
been greater than the volatility over such time period of the futures, or if
otherwise deemed to be appropriate by the adviser. Conversely, the Fund may buy
or sell fewer futures contracts if the volatility over a particular time period
of the prices of the instruments being hedged is less than the volatility over
such time period of the futures contract being used, or if otherwise deemed to
be appropriate by the advisers. It is also possible that, where the Fund has
sold futures to hedge its Fund against a decline in the market, the market may
advance and the value of instruments held in the Fund may decline. If this
occurred, the Fund would lose money on the futures and also experience a decline
in value in its portfolio securities.
When futures are purchased to hedge against a possible increase in
the price of securities before the Fund is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes not to invest its cash at that time because
of concern as to possible further market decline or for other reasons, the Fund
will realize a loss on the futures contract that is not offset by a reduction
in the price of the instruments that were to be purchased.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
instruments being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or
taking delivery. To the extent participants decide to make or take delivery,
liquidity in the futures market could be reduced thus producing distortions.
Third, from the point of view of speculators, the deposit requirements in the
futures market are less onerous than margin requirements in the securities
market. Therefore, increased participation by speculators in the futures market
may also cause temporary price distortions. Due to the possibility of price
distortion in the futures market, and because of the imperfect correlation
between the movements in the cash market and movements in the price of futures,
a correct forecast of general market trends or interest rate movements by the
adviser may still not result in a successful hedging transaction over a short
time frame.
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<PAGE> 210
Positions in futures may be closed out only on an exchange or
board of trade which provides a secondary market for such futures. Although the
Fund intends to purchase or sell futures only on exchanges or boards of trade
where there appear to be active secondary markets, there is no assurance that a
liquid secondary market on any exchange or board of trade will exist for any
particular contract or at any particular time. In such event, it may not be
possible to close a futures investment position, and in the event of adverse
price movements, the Fund will continue to be required to make daily cash
payments of variation margin. However, in the event futures contracts have been
used to hedge portfolio securities, such securities will not be sold until the
futures contract can be terminated. In such circumstances, an increase in the
price of the securities, if any, may partially or completely offset losses on
the futures contract. However, as described above, there is no guarantee that
the price of the securities will in fact correlate with the price movements in
the futures contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary
market in a futures contract may be adversely affected by "daily price
fluctuation limits" established by commodity exchanges which limit the amount
of fluctuation in a futures contract price during a single trading day. Once
the daily limit has been reached in the contract, no trades may be entered into
at a price beyond the limit, thus preventing the liquidation of open futures
positions. The trading of futures contracts is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal activity, which could at times make it difficult or
impossible to liquidate existing positions or to recover excess variation
margin payments.
Successful use of futures by the Fund is also subject to the
advisers ability to predict correctly movements in the direction of the market.
For example, if the Fund has hedged against the possibility of a decline in the
market adversely affecting securities held by it and securities prices increase
instead, the Fund will lose part or all of the benefit to the increased value
of its securities which it has hedged because it will have offsetting losses in
its futures positions. In addition, in such situations, if the Fund has
insufficient cash, it may have to sell securities to meet daily variation
margin requirements. Such sales of securities may be, but will not necessarily
be, at increased prices which reflect the rising market. The Fund may have to
sell securities at a time when it may be disadvantageous to do so.
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<PAGE> 211
IV. Options on Futures Contracts
----------------------------
The Fund may purchase and write options on the futures contracts
described above. A futures option gives the holder, in return for the premium
paid, the right to buy (call) from or sell (put) to the writer of the option a
futures contract at a specified price at any time during the period of the
option. Upon exercise, the writer of the option is obligated to pay the
difference between the cash value of the futures contract and the exercise
price. Like the buyer or seller of a futures contract, the holder, or writer,
of an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing an option of the same
series, at which time the person entering into the closing transaction will
realize a gain or loss. The Fund will be required to deposit initial margin and
variation margin with respect to put and call options on futures contracts
written by it pursuant to brokers' requirements similar to those described
above. Net option premiums received will be included as initial margin
deposits.
Investments in futures options involve some of the same
considerations that are involved in connection with investments in futures
contracts (for example, the existence of a liquid secondary market). In
addition, the purchase or sale of an option also entails the risk that changes
in the value of the underlying futures contract will not correspond to changes
in the value of the option purchased. Depending on the pricing of the option
compared to either the futures contract upon which it is based, or upon the
price of the securities being hedged, an option may or may not be less risky
than ownership of the futures contract or such securities. In general, the
market prices of options can be expected to be more volatile than the market
prices on the underlying futures contract. Compared to the purchase or sale of
futures contracts, however, the purchase of call or put options on futures
contracts may frequently involve less potential risk to the Fund because the
maximum amount at risk is the premium paid for the options (plus transaction
costs). The writing of an option on a futures contract involves risks similar
to those risks relating to the sale of futures contracts.
V. Other Matters
-------------
Accounting for futures contracts will be in accordance with
generally accepted accounting principles. The Fund intends to comply with the
regulations of the Commodity Futures Trading Commission exempting it from
registration as a "commodity pool operator." The Fund's commodities
transactions must constitute bona fide hedging or other permissible
transactions pursuant to such regulations.
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