<PAGE> 1
As filed with the Securities and Exchange Commission on September 15, 1998
Registration No. 33-488/811-4416
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
POST-EFFECTIVE AMENDMENT NO. 43 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 42
[x]
Armada Funds (formerly known as "NCC Funds")
(Exact Name of Registrant as Specified in Charter)
Oaks, Pennsylvania, 19456
(Address of Principal Executive Offices)
Registrant's Telephone Number:
1-800-622-FUND
W. Bruce McConnel, III, Esq.
DRINKER BIDDLE & REATH LLP
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
(Name and Address of Agent for Service)
Copy to:
Thomas F. Harvey, Esq.
National City Bank
National City Center
P.O. Box 5756
Cleveland, Ohio 44101-0756
It is proposed that this filing will become effective (check appropriate box):
[X] immediately upon filing pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (b)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(iii) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Title of Securities Being Registered . . . . Shares of beneficial interest
<PAGE> 2
CROSS REFERENCE SHEET
Money Market Fund
Government Money Market Fund
Treasury Money Market Fund
Tax Exempt Money Market Fund
Pennsylvania Tax Exempt Money Market Fund
Ohio Municipal Money Market Fund
<TABLE>
<CAPTION>
Form N-1A Part A Item Prospectus Caption
- --------------------- ------------------
<S> <C>
1. Cover Page ....................... Cover Page
2. Synopsis.......................... Expense Table
3. Condensed Financial
Information....................... Financial Highlights; Yield
4. General Description of
Registrant........................ Risk Factors, Investment
Objectives and Policies;
Investment Limitations;
Description of the Trust and
Its Shares
5. Management of the Trust........... Management of the Trust;
Custodian and Transfer Agent
6. Capital Stock and Other
Securities........................ How to Purchase and Redeem
Shares; Dividends and
Distributions; Taxes;
Description of the Trust and
Its Shares; Miscellaneous
7. Purchase of Securities
Being Offered..................... Pricing of Shares; How to
Purchase and Redeem Shares;
Distribution and Servicing
Arrangements
8. Redemption Repurchase............. How to Purchase and Redeem
Shares
9. Pending Legal Proceedings......... Inapplicable
</TABLE>
<PAGE> 3
ARMADA FUNDS
----------------------
PROSPECTUS
----------------------
SEPTEMBER 15, 1998
MONEY MARKET FUND
GOVERNMENT MONEY MARKET FUND
TREASURY MONEY MARKET FUND
TAX EXEMPT MONEY MARKET FUND
PENNSYLVANIA TAX EXEMPT MONEY MARKET FUND
OHIO MUNICIPAL MONEY MARKET FUND
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Introduction................................................ 2
Expense Table............................................... 3
Financial Highlights........................................ 5
Investment Objectives and Policies.......................... 11
Investment Limitations...................................... 19
Yield and Performance Information........................... 20
Pricing of Shares........................................... 21
How to Purchase and Redeem Shares........................... 21
Distribution and Servicing Arrangements..................... 29
Dividends and Distributions................................. 29
Taxes....................................................... 30
Management of the Trust..................................... 32
Description of the Trust and Its Shares..................... 33
Custodian and Transfer Agent................................ 35
Expenses.................................................... 35
Miscellaneous............................................... 35
</TABLE>
- - SHARES OF ARMADA FUNDS ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED OR OTHERWISE SUPPORTED BY NATIONAL CITY INVESTMENT MANAGEMENT
COMPANY, 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 INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
National City Investment Management Company receives an investment advisory fee
as investment adviser to Armada Funds. 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> 5
ARMADA FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
One Freedom Valley Drive Oaks, If you purchased your shares through NatCity Investments, Inc. or any
Pennsylvania 19456 other broker-dealer, please call your Financial Consultant for
information.
For current performance, fund information, account redemption
information, and to purchase shares, please call 1-800-622-FUND(3863).
</TABLE>
This Prospectus describes shares in the following six investment funds (the
"Funds") of Armada Funds (the "Trust"), each having its own investment objective
and policies:
MONEY MARKET FUND'S investment objective is to seek as high a level of
current income as is consistent with liquidity and stability of principal. The
Fund invests in "money market" instruments such as bank certificates of deposit,
bankers' acceptances, and commercial paper (including variable and floating rate
notes) in addition to obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities and repurchase agreements relating to such
obligations.
GOVERNMENT MONEY MARKET FUND'S investment objective is to seek as high a
level of current income as is consistent with liquidity and stability of
principal. The Fund invests in obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities and repurchase agreements relating
to such obligations.
TREASURY MONEY MARKET FUND'S investment objective is to seek as high a level
of current income as is consistent with liquidity and stability of principal.
The Fund invests in U.S. Treasury bills and notes and other direct obligations
of the U.S. Treasury.
TAX EXEMPT MONEY MARKET FUND'S investment objective is to provide as high a
level of current interest income exempt from federal income tax as is consistent
with liquidity and stability of principal.
PENNSYLVANIA TAX EXEMPT MONEY MARKET FUND'S investment objective is to
provide current income exempt from regular federal income and Pennsylvania
personal income taxes, consistent with stability of principal. The Fund invests
primarily in high quality debt obligations issued by or on behalf of the
Commonwealth of Pennsylvania and its political subdivisions and financing
authorities.
OHIO MUNICIPAL MONEY MARKET FUND'S investment objective is to provide
current income exempt from regular federal income tax and Ohio personal income
tax, consistent with stability of principal.
All securities or instruments in which the Funds invest have remaining
maturities of 397 calendar days or less, except variable and floating rate
instruments and securities underlying certain repurchase agreements which may
bear longer maturities.
National City Investment Management Company ("IMC" or the "Adviser") serves
as investment adviser to the Money Market, Government Money Market, Treasury
Money Market, Tax Exempt Money Market, Pennsylvania Tax Exempt Money Market and
Ohio Municipal Money Market Funds.
SEI Investments Distribution Co. (the "Distributor") serves as the Trust's
sponsor and distributor. Each Fund pays a fee to the Distributor for
distributing its shares. See "Distribution Agreement."
This Prospectus sets forth concisely the information about the Funds that a
prospective investor should consider before investing. Investors should
carefully read this Prospectus and retain it for future reference. Additional
information about the Funds, 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 INVESTMENT MANAGEMENT
COMPANY, 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.
THERE CAN BE NO ASSURANCE THAT THE FUNDS WILL BE ABLE TO MAINTAIN A STABLE
NET ASSET VALUE OF $1.00 PER SHARE.
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.
September 15, 1998
<PAGE> 6
INTRODUCTION
The Trust is an open-end management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"). Each Fund consists
of a separate pool of assets with separate investment objectives and policies as
described below under "Investment Objectives and Policies." Each Fund is
classified as a diversified investment company under the 1940 Act.
Shares of each Fund have been classified into two separate classes -- A
shares (formerly, Retail shares) and I shares (formerly, Institutional shares),
with the exception of the Money Market and Tax Exempt Money Market Funds, which
have been classified into three separate classes -- A shares, B shares and I
shares. ALTHOUGH B SHARES ARE NOT CURRENTLY BEING OFFERED FOR THE TAX EXEMPT
MONEY MARKET FUND, THEY MAY BE OFFERED IN THE FUTURE. A shares, B shares and I
shares represent equal pro rata interests in the investments held in a Fund and
are identical in all respects, except that shares of each class bear separate
distribution and/or shareholder administrative servicing fees and enjoy certain
exclusive voting rights on matters relating to these fees. See "Distribution and
Servicing Arrangements," "Dividends and Distributions" and "Description of the
Trust and Its Shares." Except as provided below, A shares are sold through
selected broker-dealers and other financial intermediaries to individual or
institutional customers. B shares are sold with a contingent deferred sales
charge (back-end charge) imposed on a sliding schedule when such shares are
redeemed. B shares of the Money Market and Tax Exempt Money Market Funds are
available only to holders of another Fund's B shares who wish to exchange them
for B shares of the Money Market and/or Tax Exempt Money Market Funds.
2
<PAGE> 7
EXPENSE TABLE
<TABLE>
<CAPTION>
GOVERNMENT GOVERNMENT TREASURY TREASURY
MONEY MONEY MONEY MONEY MONEY MONEY MONEY
MARKET MARKET MARKET MARKET MARKET MARKET MARKET
A SHARES(1) B SHARES(1) I SHARES A SHARES(1) I SHARES A SHARES(1) I SHARES
----------- ----------- -------- ----------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Sales Charge Imposed on
Purchases................ None None None None None None None
Sales Charge Imposed on
Reinvested Dividends..... None None None None None None None
Deferred Sales Charge(3)... None 5.00% None None None None None
Exchange Fee............... None None None None None None None
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average
daily net assets)
Management Fees (after fee
waivers)(4).............. .25% .25% .25% .25% .25% .25% .25%
12b-1 Fees(5).............. .04% .75% .04% .04% .04% .04% .04%
Other Expenses(6).......... .22% .22% .07% .24% .09% .25% .10%
---- ---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES
(after fee waivers)(4,
6)....................... .51% 1.22% .36% .53% .38% .54% .39%
==== ==== ==== ==== ==== ==== ====
<CAPTION>
PENNSYLVANIA PENNSYLVANIA
TAX TAX TAX TAX TAX OHIO OHIO
EXEMPT EXEMPT EXEMPT EXEMPT EXEMPT MUNICIPAL MUNICIPAL
MONEY MONEY MONEY MONEY MONEY MONEY MONEY
MARKET MARKET MARKET MARKET MARKET MARKET MARKET
A SHARES(1) B SHARES(1,2) I SHARES A SHARES(1) I SHARES A SHARES(1) I SHARES
----------- ------------- -------- ------------ ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Sales Charge Imposed on
Purchases................ None None None None None None None
Sales Charge Imposed on
Reinvested Dividends..... None None None None None None None
Deferred Sales Charge(3)... None 5.00% None None None None None
Exchange Fee............... None None None None None None None
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average
daily net assets)
Management Fees (after fee
waivers)(4).............. .15% .15% .15% .15% .15% .15% .15%
12b-1 Fees(5).............. .04% .75% .04% .04% .04% .04% .04%
Other Expenses(6).......... .24% .24% .09% .28% .13% .37% .22%
---- ---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES
(after fee waivers)(4,
6)....................... .43% 1.14% .28% .47% .32% .56% .41%
==== ==== ==== ==== ==== ==== ====
</TABLE>
- ---------------
ALTHOUGH B SHARES ARE NOT CURRENTLY BEING OFFERED FOR THE TAX EXEMPT MONEY
MARKET FUND, THEY MAY BE OFFERED IN THE FUTURE.
(1) The Trust has implemented plans imposing shareholder servicing fees with
respect to A shares in each of the Funds and B shares of the Money Market
and Tax Exempt Money Market Funds. Pursuant to such plans, the Trust enters
into shareholder servicing agreements with certain financial institutions
under which they agree to provide shareholder administrative services to
their customers who beneficially own A shares or B shares in consideration
for the payment of up to .15% (on an annualized basis) of the net asset
value of such A shares or B shares, respectively, of the Funds. For further
information concerning these plans, see "Distribution and Servicing
Arrangements."
(2) As of the date of this Prospectus, the Tax Exempt Money Market Fund's B
share class has not commenced operations, and therefore, "Other Expenses"
for such class are estimates only.
(3) This amount applies to redemptions during the first year. The deferred sales
charge decreases to 5.0%, 4.0%, 3.0% and 2.0% for redemptions made during
the second through fifth years, respectively. No deferred sales charge is
charged after the fifth year. For more information, see "How to Purchase and
Redeem Shares Sales Charges Applicable to Purchase of B Shares."
(4) The expense information in the table relating to each Fund has been restated
to reflect current fees. For the current fiscal year, the Adviser will
voluntarily waive fees in the amount of .10% of the average daily net assets
of the Money Market and Government Money Market Funds, .05% of the average
daily net assets of the Treasury Money Market Fund, .20% of the average
daily net assets of the Tax Exempt Money Market and Ohio Municipal Money
Market Funds, and .25% of the average daily net assets of the Pennsylvania
Tax Exempt Money Market Fund (the Adviser is entitled to receive an advisory
fee, computed daily and payable monthly, at the annual rate of .35% of the
average daily net assets of each of the Money Market, Government Money
Market, Tax Exempt Money Market and Ohio Municipal Money Market Funds, .30%
of the average daily net assets of the Treasury Money Market Fund and .40%
of the average daily net assets of the Pennsylvania Tax Exempt Money Market
Fund pursuant to its Advisory Agreement with the Trust). Without such fee
waivers, Total Fund Operating Expenses would be .61%, 1.32% and .46% for the
A, B and I shares of the Money Market Fund, respectively, .63% and .48% for
the A and I shares of the Government Money Market Fund, respectively, .59%
and .44% for the A and I shares of the Treasury Money Market Fund,
respectively, .63%, 1.34% and .48% for the A, B and I shares of the Tax
Exempt Money Market Fund, respectively, .72% and .57% for the A and I shares
of the Pennsylvania Tax Exempt Money Market Fund, respectively, and .76% and
.61% for the A and I shares of the Ohio Municipal Money Market Fund,
respectively.
(5) The Funds have in effect a 12b-1 Plan for the A and I classes of shares
pursuant to which each Fund's A and I shares may bear fees in an amount of
up to .10% per annum of such classes' average net assets. A separate 12b-1
Plan exists with respect to the Money Market and Tax Exempt Money Market
Funds' B class of shares, pursuant to which each class of B shares may bear
fees in an amount of up to .75% of average daily net assets. As a result of
the payment of 12b-1 fees, long-term shareholders may pay more than the
economic equivalent of the maximum sales charges permitted by the National
Association of Securities Dealers, Inc. ("NASD"). The NASD has adopted rules
which generally limit the aggregate payments under the Trust's 12b-1 Plans
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.
(6) As of the date of this Prospectus, the Ohio Municipal Money Market Fund had
not commenced investment operations, and therefore, the other expenses for
this Fund are estimates only.
3
<PAGE> 8
- ---------------
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); and (2) the redemption of your investment at the end of the
following time periods (None of the Funds charges a redemption fee):
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market A Shares.................................. $ 5 $16 $ 29 $ 64
Money Market B Shares(1)............................... $62 $79 $ 87 $128(2)
Money Market I Shares.................................. $ 4 $12 $ 20 $ 46
Government Money Market A Shares....................... $ 5 $17 $ 30 $ 66
Government Money Market I Shares....................... $ 4 $12 $ 21 $ 48
Treasury Money Market A Shares......................... $ 6 $17 $ 30 $ 68
Treasury Money Market I Shares......................... $ 4 $13 $ 22 $ 49
Tax Exempt Money Market A Shares....................... $ 4 $14 $ 24 $ 54
Tax Exempt Money Market B Shares(1).................... $62 $76 $ 83 $119(2)
Tax Exempt Money Market I Shares....................... $ 3 $ 9 $ 16 $ 36
Pennsylvania Tax Exempt Money Market A Shares.......... $ 5 $15 $ 26 $ 59
Pennsylvania Tax Exempt Money Market I Shares.......... $ 3 $10 $ 18 $ 41
Ohio Municipal Money Market A Shares................... $ 6 $18 N/A N/A
Ohio Municipal Money Market I Shares................... $ 4 $13 N/A N/A
</TABLE>
- ---------------
(1) Assumes deduction of maximum applicable contingent deferred sales charge.
(2) Based on conversion of B shares to A shares after eight years.
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 Trust will bear directly
or indirectly. For more complete descriptions of these costs and expenses, see
"Financial Highlights," "Management of the Trust" and "Distribution and
Servicing Arrangements" in this Prospectus and the financial statements and
related notes incorporated by reference into the Statement of Additional
Information for the Money Market, Government Money Market, Treasury Money
Market, Tax Exempt Money Market and Pennsylvania Tax Exempt Money Market Funds.
THE INFORMATION INCLUDED IN THE TABLES AND HYPOTHETICAL EXAMPLE ABOVE IS BASED
ON THE OHIO MUNICIPAL MONEY MARKET FUND'S ESTIMATED FEES AND EXPENSES FOR THE
CURRENT FISCAL YEAR AND SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF PAST OR
FUTURE EXPENSES. 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 shares of any of the Funds are in addition to and are not
reflected in the fees and expenses described above.
4
<PAGE> 9
FINANCIAL HIGHLIGHTS
(For a Fund share outstanding throughout each period)
MONEY MARKET FUND
The following information has been derived from financial statements
audited by Ernst & Young LLP, independent auditors, whose report is incorporated
by reference in the Statement of Additional Information. It should be read in
conjunction with the financial statements and related notes which are
incorporated by reference in the Statement of Additional Information. As of the
date of this Prospectus, "Institutional shares" are renamed "I shares," and
"Retail shares" are renamed "A shares."
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
-----------------------------------------------------------------------------------------
1998 1997
----------------------------------------------- ---------------------------
I SHARES A SHARES B SHARES(6) I SHARES A SHARES
-------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- -------- ------- ---------- --------
INCOME FROM
INVESTMENT
OPERATIONS
Net Investment
Income............. 0.05 0.05 0.05 0.05 0.05
LESS DISTRIBUTIONS
Dividends from Net
Investment
Income............. (0.05) (0.05) (0.05) (0.05) (0.05)
---------- -------- ------- ---------- --------
Net Asset Value, End
of Period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ======== ======= ========== ========
TOTAL RETURN......... 5.39% 5.26% 5.04% 5.19% 5.09%
RATIOS/ SUPPLEMENTAL
DATA
Net Assets, End of
Period (in 000s)... $1,911,689 $696,893 $ 5 $1,943,021 $346,172
Ratio of Expenses to
Average Net
Assets............. 0.38%(3) 0.51%(4) 1.22%(5) 0.37%(3) 0.47%(4)
Ratio of Net
Investment Income
to Average Net
Assets............. 5.27%(3) 5.14%(4) 4.39%(5) 5.07%(3) 4.97%(4)
<CAPTION>
FOR THE YEAR ENDED MAY 31,
-------------------------------------------------------------------------------------------------
1996 1995 1994
--------------------- --------------------------- -------------------------
I SHARES A SHARES I SHARES A SHARES I SHARES A SHARES
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- -------- ---------- -------- -------- -------
INCOME FROM
INVESTMENT
OPERATIONS
Net Investment
Income............. 0.05 0.05 0.05 0.05 0.03 0.03
LESS DISTRIBUTIONS
Dividends from Net
Investment
Income............. (0.05) (0.05) (0.05) (0.05) (0.03) (0.03)
---------- -------- ---------- -------- -------- -------
Net Asset Value, End
of Period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ======== ========== ======== ======== =======
TOTAL RETURN......... 5.45% 5.35% 5.11% 5.01% 2.91% 2.81%
RATIOS/ SUPPLEMENTAL
DATA
Net Assets, End of
Period (in 000s)... $1,344,414 $343,087 $1,083,243 $175,192 $743,377 $67,229
Ratio of Expenses to
Average Net
Assets............. 0.37%(3) 0.47%(4) 0.37%(3) 0.47%(4) 0.43%(3) 0.53%(4)
Ratio of Net
Investment Income
to Average Net
Assets............. 5.30%(3) 5.18%(4) 5.07%(3) 5.12%(4) 2.94%(3) 2.78%(5)
<CAPTION>
FOR THE YEAR ENDED MAY 31,
------------------------------------------------------------------------------------------------
1993 1992 1991
------------------- ------------------------- ----------------------------
I SHARES A SHARES I SHARES A SHARES I SHARES A SHARES(1)
-------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------- -------- ------- -------- -------
INCOME FROM
INVESTMENT
OPERATIONS
Net Investment
Income............. 0.03 0.03 0.05 0.04 0.07 0.01
LESS DISTRIBUTIONS
Dividends from Net
Investment
Income............. (0.03) (0.03) (0.05) (0.04) (0.07) (0.01)
-------- ------- -------- ------- -------- -------
Net Asset Value, End
of Period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======= ======== ======= ======== =======
TOTAL RETURN......... 2.93% 2.82% 4.59% 4.50% 7.34% 5.64%(2)
RATIOS/ SUPPLEMENTAL
DATA
Net Assets, End of
Period (in 000s)... $399,191 $57,710 $352,578 $28,497 $322,943 $22,658
Ratio of Expenses to
Average Net
Assets............. 0.43% 0.53% 0.43% 0.53% 0.42% 0.52%(2)
Ratio of Net
Investment Income
to Average Net
Assets............. 2.89% 2.79% 4.51% 4.41% 7.52% 6.03%(2)
<CAPTION>
FOR THE YEAR ENDED MAY 31,
-------------------
1990 1989
-------- --------
<S> <C> <C>
Net Asset Value,
Beginning of
Period.............. $ 1.00 $ 1.00
-------- --------
INCOME FROM
INVESTMENT
OPERATIONS
Net Investment
Income............. 0.08 0.08
LESS DISTRIBUTIONS
Dividends from Net
Investment
Income............. (0.08) (0.08)
-------- --------
Net Asset Value, End
of Period.......... $ 1.00 $ 1.00
======== ========
TOTAL RETURN......... 8.69% 8.66%
RATIOS/ SUPPLEMENTAL
DATA
Net Assets, End of
Period (in 000s)... $365,468 $387,631
Ratio of Expenses to
Average Net
Assets............. 0.42% 0.44%
Ratio of Net
Investment Income
to Average Net
Assets............. 8.37% 8.35%
</TABLE>
- ---------------
(1) The A class commenced operations on April 1, 1991.
(2) Annualized.
(3) The operating expense ratio and the net investment income ratio before fee
waivers by the advisers for the I class for the years ended May 31, 1998 and
May 31, 1997 would have been 0.48%, and 5.17% and 0.47% and 4.97%,
respectively. The operating expense ratio and net investment income ratio
before fee waivers by the advisers and custodian for the I class for the
years ended May 31, 1996 and 1995 would have been .48% and 5.19%, and .48%
and 4.96%, respectively. The operating expense ratio and net investment
income ratio before fee waivers by the advisers for the I class for the year
ended May 31, 1994 would have been .45% and 2.92%, respectively.
(4) The operating expense ratio and the net investment income ratio before fee
waivers by the advisers for the A class for the years ended May 31, 1998 and
May 31, 1997 would have been 0.61%, and 5.08% and 0.57% and 4.87%,
respectively. The operating expense ratio and net investment income ratio
before fee waivers by the advisers and custodian for the A class for the
years ended May 31, 1996 and 1995 would have been .58% and 5.07%, and .58%
and 5.01%, respectively. The operating expense ratio and net investment
income ratio before fee waivers by the advisers for the A class for the year
ended May 31, 1994 would have been .55% and 2.76%, respectively.
(5) The operating expense ratio and the net investment income ratio before fee
waivers by the advisers for the Class B for period ended May 31, 1998 would
have been 1.27% and 4.31%, respectively.
(6) The B class commenced operations January 5, 1998.
5
<PAGE> 10
FINANCIAL HIGHLIGHTS
(For a Fund share outstanding throughout each period)
GOVERNMENT MONEY MARKET FUND
(Formerly, the Government Fund)
The following information has been derived from financial statements
audited by Ernst & Young LLP, independent auditors, whose report is incorporated
by reference in the Statement of Additional Information. It should be read in
conjunction with the financial statements and related notes which are
incorporated by reference in the Statement of Additional Information. As of the
date of this Prospectus, "Institutional shares" are renamed "I shares," and
"Retail shares" are renamed "A shares."
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
-------------------------------------------------------------------
1998 1997
--------------------------- -------------------------
I SHARES A SHARES I SHARES A SHARES
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- -------- -------- --------
INCOME FROM
INVESTMENT
OPERATIONS
Net Investment
Income............ 0.05 0.05 0.05 0.05
LESS DISTRIBUTIONS
Dividends from Net
Investment
Income............ (0.05) (0.05) (0.05) (0.05)
---------- -------- -------- --------
Net Asset Value, End
of Period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ======== ======== ========
TOTAL RETURN......... 5.30% 5.17% 5.15% 5.04%
RATIOS/SUPPLEMENTAL
DATA
Net Assets, End of
Period (in 000s).. $1,137,078 $247,281 $811,662 $159,129
Ratio of Expenses to
Average Net
Assets............ 0.40%(3) 0.52%(4) 0.36%(3) 0.47%(4)
Ratio of Net
Investment Income
to Average Net
Assets............ 5.17%(3) 5.05%(4) 5.03%(3) 4.93%(4)
<CAPTION>
FOR THE YEAR ENDED MAY 31,
----------------------------------------------------------------------------
1996 1995 1994
------------------- ------------------------- --------------
I SHARES A SHARES I SHARES A SHARES I SHARES
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ------- --------
INCOME FROM
INVESTMENT
OPERATIONS
Net Investment
Income............ 0.05 0.05 0.05 0.05 0.03
LESS DISTRIBUTIONS
Dividends from Net
Investment
Income............ (0.05) (0.05) (0.05) (0.05) (0.03)
-------- -------- -------- ------- --------
Net Asset Value, End
of Period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======= ========
TOTAL RETURN......... 5.41% 5.31% 4.97% 4.87% 2.91%
RATIOS/SUPPLEMENTAL
DATA
Net Assets, End of
Period (in 000s).. $741,894 $131,194 $618,058 $19,174 $768,337
Ratio of Expenses to
Average Net
Assets............ 0.36%(3) 0.46%(4) 0.39%(3) 0.51%(4) 0.42%(3)
Ratio of Net
Investment Income
to Average Net
Assets............ 5.27%(3) 5.13%(4) 4.83%(3) 5.01%(4) 2.92%(3)
<CAPTION>
FOR THE YEAR ENDED MAY 31,
-----------------------------------------------------------
1994 1993 1992
-------- ------------------------- --------------
A SHARES I SHARES A SHARES I SHARES
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ -------- ------- --------
INCOME FROM
INVESTMENT
OPERATIONS
Net Investment
Income............ 0.03 0.03 0.03 0.05
LESS DISTRIBUTIONS
Dividends from Net
Investment
Income............ (0.03) (0.03) (0.03) (0.05)
------ -------- ------- --------
Net Asset Value, End
of Period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ======== ======= ========
TOTAL RETURN......... 2.80% 2.91% 2.81% 4.65%
RATIOS/SUPPLEMENTAL
DATA
Net Assets, End of
Period (in 000s).. $6,945 $272,809 $11,050 $148,389
Ratio of Expenses to
Average Net
Assets............ 0.52%(4) 0.45%(3) 0.55%(4) 0.45%(3)
Ratio of Net
Investment Income
to Average Net
Assets............ 2.75%(4) 2.84%(3) 2.74%(4) 4.49%(3)
<CAPTION>
FOR THE YEAR ENDED MAY 31,
------------------------------------------------------------------------
1992 1991 1990 1989
-------- ---------------------------- -------- -------
A SHARES I SHARES A SHARES(1)
-------- -------- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ -------- ------ -------- -------
INCOME FROM
INVESTMENT
OPERATIONS
Net Investment
Income............ 0.04 0.07 0.01 0.08 0.08
LESS DISTRIBUTIONS
Dividends from Net
Investment
Income............ (0.04) (0.07) (0.01) (0.08) (0.08)
------ -------- ------ -------- -------
Net Asset Value, End
of Period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ======== ====== ======== =======
TOTAL RETURN......... 4.55% 7.17% 5.63%(2) 8.53% 8.38%
RATIOS/SUPPLEMENTAL
DATA
Net Assets, End of
Period (in 000s).. $2,234 $136,376 $3,671 $110,675 $74,684
Ratio of Expenses to
Average Net
Assets............ 0.55%(4) 0.45%(3) 0.55%(2,4) 0.45%(3) 0.45%(3)
Ratio of Net
Investment Income
to Average Net
Assets............ 4.39%(4) 6.81%(3) 5.47%(2,4) 8.16%(3) 8.20%(3)
</TABLE>
- ---------------
(1) The A class commenced operations on April 1, 1991.
(2) Annualized.
(3) The operating expense ratio and the net investment income ratio before fee
waivers by the advisers for the I class for the years ended May 31, 1998 and
May 31, 1997 would have been .50% and 5.07% and .46% and 4.93%,
respectively. The operating expense ratio and net investment income ratio
before fee waivers by the advisers and custodian for the I class for the
years ended May 31, 1996 and 1995 would have been .47% and 5.16% and .50%
and 4.72%, respectively. The operating expense ratio and net investment
income ratio before fee waivers by the advisers for the I class for the
years ended May 31, 1994, 1993, 1992, 1991, 1990 and 1989 would have been
.44% and 2.90%, .46% and 2.82%, .46% and 4.48%, .47% and 6.79%, .46% and
8.15%, .48% and 8.17% and .55%, and 6.28%, respectively.
(4) The operating expense ratio and the net investment income ratio before fee
waivers by the advisers for the A class for the years ended May 31, 1998 and
May 31, 1997 would have been .62% and 4.95% and .57% and 4.83%,
respectively. The operating expense ratio and net investment income ratio
before fee waivers by the advisers and custodian for the A class for the
years ended May 31, 1996 and 1995 would have been .57% and 5.02%, and .63%
and 4.90%, respectively. The operating expense ratio and net investment
income ratio before fee waivers by the advisers for the A class for the
years ended May 31, 1994, 1993, 1992 and 1991 would have been .54% and
2.73%, .56% and 2.72%, .56% and 4.38%, and .56% and 5.46%, respectively.
6
<PAGE> 11
FINANCIAL HIGHLIGHTS
(For a Fund share outstanding throughout the period)
TREASURY MONEY MARKET FUND
(Formerly, the Treasury Fund)
The following information has been derived from financial statements
audited by Ernst & Young LLP, independent auditors, whose report is incorporated
by reference in the Statement of Additional Information. It should be read in
conjunction with the financial statements and related notes which are
incorporated by reference in the Statement of Additional Information. As of the
date of this Prospectus, "Institutional shares" are renamed "I shares," and
"Retail shares" are renamed "A shares."
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
-----------------------------------------------------------------
1998 1997
------------------------- -------------------------
I SHARES A SHARES I SHARES A SHARES
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period........................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------ -------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income............ 0.05 0.05 0.05 0.05
LESS DISTRIBUTIONS
Dividends from Net Investment
Income......................... (0.05) (0.05) (0.05) (0.05)
-------- ------ -------- ------
Net Asset Value, End of Period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ====== ======== ======
TOTAL RETURN....................... 4.95% 4.82% 4.89% 4.79%
RATIO/SUPPLEMENTAL DATA
Net Assets, End of Period (in
000's)......................... $359,605 $7,222 $276,327 $5,680
Ratio of Expenses to Average Net
Assets......................... 0.39%(4) 0.51%(5) 0.37%(4) 0.47%(5)
Ratio of Net Investment Income to
Average Net Assets............. 4.84%(4) 4.71%(5) 4.79%(4) 4.68%(5)
<CAPTION>
FOR THE YEAR ENDED MAY 31,
------------------- FOR THE PERIOD ENDED
1996 MAY 31, 1995
------------------- -------------------------------
I SHARES A SHARES I SHARES(1) A SHARES(2)
-------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period........................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------ -------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income............ 0.05 0.05 0.05 0.02
LESS DISTRIBUTIONS
Dividends from Net Investment
Income......................... (0.05) (0.05) (0.05) (0.02)
-------- ------ -------- ------
Net Asset Value, End of Period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ====== ======== ======
TOTAL RETURN....................... 5.07% 4.97% 4.86%(3) 5.41%(3)
RATIO/SUPPLEMENTAL DATA
Net Assets, End of Period (in
000's)......................... $312,255 $4,355 $142,877 $ 366
Ratio of Expenses to Average Net
Assets......................... 0.41%(4) 0.52%(5) 0.43%(3,4) 0.56%(3,5)
Ratio of Net Investment Income to
Average Net Assets............. 4.88%(4) 4.77%(5) 4.78%(3,4) 5.35%(3,5)
</TABLE>
- ---------------
(1) The I class commenced operations on June 16, 1994.
(2) The A class commenced operations on December 22, 1994.
(3) Annualized.
(4) The operating expense ratio and the net investment income ratio before fee
waivers by the advisers for the I class for the years ended May 31, 1998 and
May 31, 1997 would have been .44% and 4.79%, and .42% and 4.74%,
respectively. The operating expense ratio and net investment income ratio
before fee waivers by the advisers and custodian for the I class for the
years ended May 31, 1996 and the period ended May 31, 1995 would have been
.47% and 4.82%, and .49% and 4.72%, respectively.
(5) The operating expense ratio and the net investment income ratio before fee
waivers by the advisers for the A class for the years ended May 31, 1998 and
May 31, 1997 would have been .56% and 4.66%, and .52% and 4.63%
respectively. The operating expense ratio and net investment income ratio
before fee waivers by the advisers and custodian for the A class for the
year ended May 31, 1996 and for the period ended May 31, 1995 would have
been .58% and 4.71%, and .63% and 5.28%, respectively.
7
<PAGE> 12
FINANCIAL HIGHLIGHTS
(For a Fund share outstanding throughout each period)
TAX EXEMPT MONEY MARKET FUND
(Formerly, the Tax Exempt Fund)
The following information has been derived from financial statements
audited by Ernst & Young LLP, independent auditors, whose report is incorporated
by reference in the Statement of Additional Information. It should be read in
conjunction with the financial statements and related notes which are
incorporated by reference in the Statement of Additional Information. As of the
date of this Prospectus, "Institutional shares" are renamed "I shares," and
"Retail shares" are renamed "A shares."
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
-----------------------------------------------------------------
1998 1997
------------------------- -------------------------
I SHARES A SHARES I SHARES A SHARES
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period................ $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income.... 0.03 0.03 0.03 0.03
LESS DISTRIBUTIONS
Dividends from Net
Investment Income...... (0.03) (0.03) (0.03) (0.03)
-------- -------- -------- -------
Net Asset Value, End of
Period................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== =======
TOTAL RETURN.............. 3.40% 3.27% 3.23% 3.12%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(in 000s).............. $418,953 $132,548 $370,679 $71,917
Ratio of Expenses to
Average Net Assets..... 0.30%(4) 0.42%(5) 0.29%(4) 0.39%(5)
Ratio of Net Investment
Income to Average Net
Assets................... 3.32%(4) 3.20%(5) 3.18%(4) 3.08%(5)
<CAPTION>
FOR THE YEAR ENDED MAY 31,
---------------------------------------------------------------------------------
1996 1995 1994
------------------- ---------------------- ----------------------
I SHARES A SHARES I SHARES A SHARES I SHARES A SHARES
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------- -------- ------- -------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income.... 0.03 0.03 0.03 0.03 0.02 0.02
LESS DISTRIBUTIONS
Dividends from Net
Investment Income...... (0.03) (0.03) (0.03) (0.03) (0.02) (0.02)
-------- ------- -------- ------- -------- -------
Net Asset Value, End of
Period................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======= ======== ======= ======== =======
TOTAL RETURN.............. 3.40% 3.29% 3.14% 3.04% 2.06% 1.96%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(in 000s).............. $261,808 $85,928 $172,643 $51,916 $139,015 $17,819
Ratio of Expenses to
Average Net Assets..... 0.30%(4) 0.40%(5) 0.35%(4) 0.46%(5) 0.33%(4) 0.43%(5)
Ratio of Net Investment
Income to Average Net
Assets................... 3.33%(4) 3.23%(5) 3.15%(4) 3.17%(5) 2.05%(4) 1.94%(5)
<CAPTION>
FOR THE YEAR ENDED MAY 31,
----------------------------------------------------------------------------
1993 1992 1991
------------------- ------------------------- --------------
I SHARES A SHARES I SHARES A SHARES I SHARES
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income.... 0.02 0.02 0.04 0.03 0.05
LESS DISTRIBUTIONS
Dividends from Net
Investment Income...... (0.02) (0.02) (0.04) (0.03) (0.05)
------- ------- ------- ------- -------
Net Asset Value, End of
Period................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
TOTAL RETURN.............. 2.18% 2.07% 3.57% 3.47% 5.29%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(in 000s).............. $58,928 $17,791 $60,079 $10,745 $63,559
Ratio of Expenses to
Average Net Assets..... 0.36%(4) 0.46%(5) 0.28%(4) 0.38%(5) 0.20%(4)
Ratio of Net Investment
Income to Average Net
Assets................... 2.16%(4) 2.06%(5) 3.45%(4) 3.35%(5) 5.14%(4)
<CAPTION>
FOR THE
PERIOD
FOR THE YEAR ENDED MAY 31, ENDED
--------------------- MAY 31,
1991 1990 1989(1)
----------- ------- -------
A SHARES(2)
-----------
<S> <C> <C> <C>
Net Asset Value, Beginning
of Period................ $ 1.00 $ 1.00 $ 1.00
------ ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income.... 0.01 0.06 0.05
LESS DISTRIBUTIONS
Dividends from Net
Investment Income...... (0.01) (0.06) (0.05)
------ ------- -------
Net Asset Value, End of
Period................... $ 1.00 $ 1.00 $ 1.00
====== ======= =======
TOTAL RETURN.............. 4.24%(3) 5.96% 6.03%(3)
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(in 000s).............. $4,922 $73,265 $87,770
Ratio of Expenses to
Average Net Assets..... 0.28%(3,5) 0.21%(4) 0.31%(3,4)
Ratio of Net Investment
Income to Average Net
Assets................... 4.15%(3,5) 5.82%(4) 5.93%(3,4)
</TABLE>
- ---------------
(1) The Tax Exempt Money Market Fund commenced operations on July 20, 1988.
(2) The A class (formerly the "Retail class") commenced operations on April 1,
1991.
(3) Annualized.
(4) The operating expense ratio and the net investment income ratio before fee
waivers by the advisers for the I class for the years ended May 31, 1998 and
May 31, 1997 would have been 0.50% and 3.12% and .49% and 2.98%,
respectively. The operating expense ratio and net investment income ratio
before fee waivers by the advisers and custodian for the I class for the
years ended May 31, 1996 and 1995 would have been .51% and 3.12%, and .56%
and 2.94%, respectively. The operating expense ratio and net investment
income ratio before fee waivers by the advisers for the I class for the
years ended May 31, 1994, 1993, 1992, 1991, 1990, and the period ended May
31, 1989 would have been .53% and 1.85%, .56% and 1.96%, .54% and 3.20%,
.55% and 4.79%, .27% and 5.76%, and .51% and 5.73%, respectively.
(5) The operating expense ratio and net investment income ratio before fee
waivers by the advisers for the A class for the years ended May 31, 1998 and
May 31, 1997 would have been 0.62% and 3.00% and .59% and 2.88%,
respectively. The operating expense ratio and net investment income ratio
before fee waivers by the advisers and custodian for the A class (formerly
the "Retail Class") for the years ended May 31, 1996 and 1995 would have
been .61% and 3.02% and .67% and 2.96%, respectively. The operating expense
ratio and net investment income ratio before fee waivers by the advisers for
the A class for the years ended May 31, 1994, 1993, 1992, and for the period
ended May 31, 1991 would have been .63% and 1.74%, .66% and 1.86%, .64% and
3.10%, and .63% and 3.80%, respectively.
8
<PAGE> 13
FINANCIAL HIGHLIGHTS
(For a Fund share outstanding throughout the period)
PENNSYLVANIA TAX EXEMPT MONEY MARKET FUND
(Formerly, the Pennsylvania Tax Exempt Fund)
The Fund commenced operations on August 8, 1994 as a separate investment
portfolio (the "Predecessor Fund") of Inventor Funds, Inc., which was organized
as a Maryland corporation. On September 9, 1996, the Fund was reorganized as a
new portfolio of the Trust. Prior to the reorganization, the Predecessor Fund
offered and sold A shares that were similar to the Fund's A shares.
The financial highlights presented below set forth certain information
concerning the investment results of the Predecessor Fund's A shares (the series
that is similar to the A shares of the Pennsylvania Tax Exempt Money Market
Fund) for the fiscal period from May 1, 1996 to May 31, 1996, the fiscal year
ended April 30, 1996 and the fiscal period ended April 30, 1995. As part of the
reorganization, the fiscal year of the Predecessor Fund was changed to coincide
with the Trust's May 31 fiscal year. A one-month financial report representing
the Predecessor Fund's operations from May 1, 1996 through May 31, 1996 is being
presented. The information was derived from financial statements audited by
PricewaterhouseCoopers LLP, independent accountants for the Predecessor Fund,
whose reports thereon are contained in Inventor Funds' Annual Reports to
Shareholders for the fiscal year ended April 30, 1996 and the period ended May
31, 1996. Such financial highlights should be read in conjunction with the
financial statements and notes thereto contained in Inventor Funds' Annual
Reports to Shareholders and incorporated by reference into the Statement of
Additional Information relating to the Pennsylvania Tax Exempt Money Market
Fund.
The information presented below relating to the fiscal years ended May 31,
1998 and May 31, 1997 has been derived from financial statements audited by
Ernst & Young, LLP, independent auditors for the Pennsylvania Tax Exempt Money
Market Fund, whose report is incorporated by reference in the Statement of
Additional Information. It should be read in conjunction with the financial
statements and related notes which are incorporated by reference in the
Statement of Additional Information. As of the date of this Prospectus,
"Institutional shares" are renamed "I shares," and "Retail shares" are renamed
"A shares."
9
<PAGE> 14
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD YEAR PERIOD
MAY 31, 1998 MAY 31, 1997(5) ENDED ENDED ENDED
--------------------- --------------------- MAY 31, APRIL 30, APRIL 30,
I SHARES A SHARES I SHARES A SHARES 1996(5) 1996(5) 1995(5)
-------- -------- -------- -------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income..... 0.03 0.03 0.03 0.02 0.00 0.03 0.02
LESS DISTRIBUTIONS
Distributions from Net
Investment Income....... (0.03) (0.03) (0.03) (0.02) 0.00 (0.03) (0.02)
------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= ======= =======
TOTAL RETURN................ 3.41% 3.29% 3.26% 3.18% 0.28%(4) 3.36% 2.32%(4)
RATIO/SUPPLEMENTAL DATA
Net Assets, End of Period
(in 000's).............. $73,264 $33,375 $60,876 $20,830 $68,742 $70,422 $56,668
Ratio of Expenses to
Average Net Assets...... 0.34%(1) 0.46%(2) 0.41%(1) 0.46%(2,3) 0.55%(1,3) 0.55% 0.55%(1,3)
Ratio of Net Investment
Income to Average Net
Assets.................. 3.35%(1) 3.23%(2) 3.20%(1) 3.27%(2,3) 3.24%(1,3) 3.29% 3.21%(1,3)
</TABLE>
- ---------------
(1) The operating expense ratio and the net investment income ratio before fee
waivers by the Adviser and other affiliates for the I class for the periods
ending May 31, 1998, May 31, 1997, May 31, 1996, April 30, 1996, and April
30, 1995 would have been .58% and 3.11%, .74% and 2.87%, .97% and 2.82%,
.96% and 2.88%, and 1.04% and 2.72%, respectively.
(2) The operating expense ratio and the net investment income ratio before fee
waivers by the Adviser and other affiliates for the A class for the years
ended May 31, 1998 and May 31, 1997 would have been .71% and 2.98% and .71%
and 3.02%, respectively.
(3) Annualized.
(4) Not annualized.
(5) Activity for the period presented includes that of the Predecessor Fund
through September 6, 1996. The Predecessor Fund commenced operations on
August 10, 1994. During 1996, the Predecessor Fund changed its fiscal
year-end from April 30 to May 31.
(6) A Shares (formerly "Retail shares") commenced operations on September 11,
1996.
10
<PAGE> 15
INVESTMENT OBJECTIVES AND POLICIES
A Fund's investment objective may be changed without a vote of
shareholders, although the Board of Trustees would only change a Fund's
objective upon 30 days' notice to shareholders. There can be no assurance that a
Fund will achieve its objective.
Each Fund will only purchase "eligible securities" that present minimal
credit risks as determined by the Adviser pursuant to guidelines established by
the Trust's Board of Trustees. Eligible securities generally include (i) U.S.
government obligations, (ii) securities that are rated (at the time of purchase)
by nationally recognized statistical rating organizations ("Rating Agencies") in
the two highest rating categories for such securities, and (iii) certain
securities that are not so rated but are of comparable quality to rated eligible
securities as determined by the Adviser. See "Investment Objectives and
Policies" in the Statement of Additional Information for a more complete
description of eligible securities. A description of ratings is also contained
in the Statement of Additional Information.
Each Fund's assets have remaining maturities of 397 calendar days or less
(except for certain variable and floating rate instruments and securities
underlying certain repurchase agreements) as defined by the SEC, and each Fund's
dollar-weighted average portfolio maturity may not exceed 90 days.
MONEY MARKET FUND
The investment objective of the Money Market Fund is to seek as high a
level of current income as is consistent with liquidity and stability of
principal. The Fund seeks to achieve its objective by investing in "money
market" instruments such as certificates of deposit and other obligations issued
by domestic and foreign banks, and commercial paper (including variable and
floating rate instruments) rated high quality by an unaffiliated Rating Agency,
or determined to be of comparable quality by the Adviser. The Money Market Fund
may also invest in obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities, and repurchase agreements issued by financial
institutions such as banks and broker-dealers.
GOVERNMENT MONEY MARKET FUND
The investment objective of the Government Money Market Fund is to seek as
high a level of current income as is consistent with liquidity and stability of
principal. The Fund seeks to achieve its objective by investing in obligations
issued or guaranteed as to payment of principal and interest by the U.S.
government, its agencies or instrumentalities, and repurchase agreements issued
by financial institutions such as banks and broker-dealers. The Fund is
currently rated by Standard & Poor's Ratings Services ("Standard & Poor's").
TREASURY MONEY MARKET FUND
The investment objective of the Treasury Money Market Fund is to seek as
high a level of current income as is consistent with liquidity and stability of
principal. The Fund seeks to achieve its objective by investing exclusively in
direct obligations of the U.S. Treasury, such as Treasury bills and notes, and
investment companies that invest exclusively in such obligations. The Fund is
currently rated by Standard & Poor's.
TAX EXEMPT MONEY MARKET FUND
The investment objective of the Tax Exempt Money Market Fund is to provide
as high a level of current interest income exempt from federal income tax as is
consistent with liquidity and stability of principal. The Fund seeks to achieve
its objective by investing substantially all of its assets in a diversified fund
of obligations issued by or on behalf of states, territories and possessions of
the United States, the District of Columbia and their political subdivisions,
agencies, instrumentalities and authorities, the income from which, in the
opinion of bond counsel, is exempt from regular federal income tax ("Municipal
Securities").
Under normal market conditions, at least 80% of the value of the Tax Exempt
Money Market Fund's total assets will be invested in Municipal Securities. This
policy is fundamental and may not be changed without the affirmative vote of the
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holders of a majority of the Fund's outstanding shares (as defined under
"Miscellaneous").
PENNSYLVANIA TAX EXEMPT MONEY MARKET FUND
The investment objective of the Pennsylvania Tax Exempt Money Market Fund
is to provide current income exempt from regular federal income tax and
Pennsylvania personal income taxes, consistent with stability of principal. The
Fund seeks to achieve its objective by investing substantially all of its assets
in Municipal Securities issued by or on behalf of the Commonwealth of
Pennsylvania and its political subdivisions and financing authorities, and
obligations of the United States, including territories and possessions of the
United States, the income from which, in the opinion of bond counsel, is exempt
from regular federal income tax and Pennsylvania income tax imposed upon
non-corporate taxpayers ("Pennsylvania Municipal Securities").
As a matter of fundamental policy, the Fund invests its assets so that at
least 80% of its annual interest income is not only exempt from regular federal
income tax and Pennsylvania personal income taxes, but is not considered a
preference item for purposes of the federal alternative minimum tax. However,
the Fund may invest up to 100% of its assets in non-Pennsylvania Municipal
Securities and in taxable securities, during temporary defensive periods when,
in the opinion of the Adviser, Pennsylvania Municipal Securities of sufficient
quality are unavailable.
The Pennsylvania Tax Exempt Money Market Fund is concentrated in securities
issued by the Commonwealth of Pennsylvania or entities within the Commonwealth
of Pennsylvania, and therefore, investment in the Fund may be riskier than an
investment in other types of money market funds.
SPECIAL RISK CONSIDERATIONS -- PENNSYLVANIA TAX EXEMPT MONEY MARKET FUND
Pennsylvania's economy historically has been dependent upon heavy industry,
but has diversified recently into various services, particularly into medical
and health services, education and financial services. Agricultural industries
continue to be an important part of the economy, including not only the
production of diversified food and livestock products, but substantial economic
activity in agribusiness and food-related industries. Service industries
currently employ the greatest share of non-agricultural workers, followed by the
categories of trade and manufacturing. Future economic difficulties in any of
these industries could have an adverse impact on the finances of the
Commonwealth or its municipalities, and could adversely affect the ability of
the respective obligors to make payments of interest and principal due on the
obligations held by the Fund, and the market values of these obligations. Rising
unemployment, a relatively high proportion of persons 65 and older in the
Commonwealth of Pennsylvania and court ordered increases in healthcare
reimbursement rates place increased pressures on the tax resources of the
Commonwealth and its municipalities. The Commonwealth has sold a substantial
amount of bonds over the past several years, but the debt burden remains
moderate. The recession in the early 1990s affected Pennsylvania's economic
base, with income and job growth at levels below national averages. Employment
growth has shifted to the trade and service sectors, with losses in more
high-paid manufacturing positions. A new governor took office in January 1995,
but the Commonwealth has continued to show fiscal restraint.
OHIO MUNICIPAL MONEY MARKET FUND
The investment objective of the Ohio Municipal Money Market Fund is to
provide current income exempt from regular federal income tax and Ohio personal
income tax, consistent with stability of principal. The Fund seeks to achieve
its objective by investing substantially all of its assets in Municipal
Securities issued by or on behalf of the State of Ohio, political subdivisions
thereof or agencies or instrumentalities of the State or its political
subdivisions ("Ohio Municipal Securities").
Under normal market conditions, at least 80% of the value of the Fund's
total assets will be invested in Ohio Municipal Securities. This policy is
fundamental and may not be changed without the affirmative vote of the holders
of a majority of the Fund's outstanding shares (as defined under "Mis-
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cellaneous"). Dividends paid by the Fund which are derived from interest
properly attributable to Ohio Municipal Securities will be exempt from regular
federal income tax and Ohio personal income tax. Dividends derived from interest
on Municipal Securities of other governmental issuers will be exempt from
regular federal income tax but may be subject to Ohio personal income tax. The
Fund may invest up to 100% of its assets in Municipal Securities known as
private activity bonds (described below) the interest on which is an item of tax
preference for purposes of the federal alternative minimum tax ("AMT Paper").
The Fund may also invest up to 100% of its assets in non-Ohio Municipal
Securities and in taxable securities, during temporary defensive periods when,
in the opinion of the Adviser, Ohio Municipal Securities of sufficient quality
are unavailable.
The Ohio Municipal Money Market Fund is concentrated in securities issued
by the State of Ohio or entities within the State of Ohio, and therefore,
investment in the Fund may be riskier than an investment in other types of money
market funds.
SPECIAL RISK CONSIDERATIONS -- OHIO MUNICIPAL MONEY MARKET FUND
While diversifying more into the service and other non-manufacturing areas,
the Ohio economy continues to rely in part on durable goods manufacturing
largely concentrated in motor vehicles and equipment, steel, rubber products and
household appliances. As a result, general economic activity, as in many other
industrially-developed states, tends to be more cyclical than in some other
states and in the nation as a whole. Agriculture is an important segment of the
economy, with over half the State's area devoted to farming and approximately
16% of total employment in agribusiness.
In prior years, the State's overall unemployment rate was commonly somewhat
higher than the national figure. For example, the reported 1990 average monthly
State rate was 5.7%, compared to the 5.5% national figure. However, for the last
seven years, the State rates were below the national rates (4.6% versus 4.9% in
1997).
There can be no assurance that future national, regional or state-wide
economic difficulties, and the resulting impact on State or local government
finances generally, will not adversely affect the market value of Ohio Municipal
Securities held in the Fund or the ability of particular obligors to make timely
payments of debt service on (or lease payments relating to) those securities. A
more detailed summary of the more significant conditions affecting the financial
situation in Ohio is contained in the Statement of Additional Information.
SPECIAL RISK CONSIDERATIONS -- TAX EXEMPT MONEY MARKET, PENNSYLVANIA TAX EXEMPT
MONEY MARKET AND OHIO MUNICIPAL MONEY MARKET FUNDS
Although the Tax Exempt Money Market Fund may invest 25% or more of its net
assets in Municipal Securities whose issuers are in the same state and the Tax
Exempt Money Market, Pennsylvania Tax Exempt Money Market and Ohio Municipal
Money Market Funds may invest 25% or more of their respective net assets in
Municipal Securities the interest on which is paid solely from revenues of
similar projects, the Funds do not presently intend to do so unless in the
opinion of the Adviser the investment is warranted. In addition, although the
Tax Exempt Money Market and Pennsylvania Tax Exempt Money Market Funds may
invest up to 20% of their respective total assets in private activity bonds
(described below) and taxable investments, these Funds do not currently intend
to do so unless in the opinion of the Adviser the investment is warranted. The
Ohio Municipal Money Market Fund may invest up to 100% of its assets in private
activity bonds. To the extent that a Fund's assets are invested in Municipal
Securities that are payable from the revenues of similar projects or are issued
by issuers located in the same state or are invested in private activity bonds,
the Fund will be subject to the peculiar risks presented by the laws and
economic conditions relating to such states, projects and bonds to a greater
extent than it would be if its assets were not so invested.
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COMMON INVESTMENT POLICIES OF THE FUNDS
Illiquid Securities
The Funds will not knowingly invest more than 10% of the value of their
respective net assets in securities that are illiquid. Each Fund may purchase
securities which are not registered under the Securities Act of 1933, as amended
(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
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 a Fund during any
period that qualified institutional buyers become uninterested in purchasing
these restricted securities.
Risk Factors Associated with Derivative Instruments
The Funds are managed with emphasis on safety and high credit quality. This
requires that liquidity risk and market risk or interest rate risk, as well as
credit risk, be held to minimal levels. The Adviser has determined that many
types of floating rate and variable rate instruments, commonly referred to as
"derivatives," are considered to be potentially volatile. These derivative
instruments are structured in a way that may not allow them to reset to par at
an interest rate adjustment date. Accordingly, the Adviser has adopted the
following policies on behalf of the Funds.
The following types of derivative instruments ARE NOT permitted investments
for the Funds:
- - leveraged or deleveraged floaters (whose interest rate reset provisions are
based on a formula that magnifies the effect of changes in interest rates);
- - range floaters (which do not pay interest if market interest rates move
outside of a specified range);
- - dual index floaters (whose interest rate reset provisions are tied to more
than one index so that a change in the relationship between these indices may
result in the value of the instrument falling below face value);
- - inverse floaters (which reset in the opposite direction of their index); and
- - any other structured instruments having cash flow characteristics that can
create potential market volatility similar to the instruments listed above.
Additionally, the Funds may not invest in instruments indexed to longer
than one-year rates, or in instruments whose interest rate reset provisions are
tied to an index that materially lags short-term interest rates, such as "COFI
floaters."
At the present time, the only derivative investments that have been
determined to be suitable for investment by the Funds are:
- - securities based on short-term, fixed-rate contracts; and
- - floating-rate or variable-rate securities whose interest rates reset based on
changes in standard money market rate indices such as U.S. government Treasury
bills, London Interbank Offered Rate, published commercial paper rates, or
federal funds rates.
The risk to the Funds due to the use of derivatives will be limited to the
principal invested in such instruments. The Adviser will evaluate the risks
presented by the derivative instruments purchased by the Funds, and will
determine, in connection with their day-to-day management of the Funds, how they
will be used in furtherance of the Funds' investment objectives.
Repurchase and Reverse Repurchase Agreements
The Money Market, Government Money Market, Pennsylvania Tax Exempt Money
Market and Ohio Municipal Money Market Funds may agree to purchase portfolio
securities subject to the seller's agreement to repurchase them at a mutually
agreed-upon date and price ("repurchase agreements"). These Funds may enter into
repurchase agreements only with financial institutions such as banks and
broker-dealers which are deemed to be creditworthy by the Adviser, pursuant to
guidelines approved by the Trust's Board of Trustees. None of
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the Funds may enter into repurchase agreements with the Adviser, Distributor, or
any of their affiliates. Although the securities subject to repurchase
agreements may bear maturities exceeding 397 days, the Funds presently intend to
enter only into repurchase agreements which terminate within seven days after
notice by the Funds. If a Fund were to enter into repurchase agreements which
provide for a notice period greater than seven days in the future, the Fund
would do so only if such investment, together with other illiquid securities,
did not exceed 10% of the Fund's net assets.
The seller under a repurchase agreement will be required to maintain the
value of the securities which a Fund holds subject to the agreement at not less
than the repurchase price, marked to market daily, by providing additional
securities or other collateral to the Fund if necessary. If the seller defaulted
on its repurchase obligation, the Fund holding such obligation would suffer a
loss to the extent that the proceeds from a sale of the underlying securities
(including accrued interest) were less than the repurchase price (including
accrued interest) under the agreement. In the event that such a defaulting
seller filed for bankruptcy or became insolvent, disposition of such securities
by the Fund might be delayed pending court action. Further, it is uncertain
whether the Trust would be entitled, as against a claim by such seller or its
receiver or trustee in bankruptcy, to retain the underlying securities.
The Money Market and Government Money Market Funds may also borrow funds
for temporary purposes by entering into reverse repurchase agreements. Pursuant
to such agreements the Funds will sell portfolio securities to financial
institutions such as banks and broker-dealers and agree to repurchase them at a
particular date and price. Reverse repurchase agreements involve the risk that
the market value of the securities sold by a Fund may decline below the price of
the securities it is obligated to repurchase.
Lending Portfolio Securities
In order to generate additional income, the Money Market and Government
Money Market Funds may, from time to time, lend their portfolio securities to
broker-dealers, banks or other institutional borrowers. A Fund must receive 100%
collateral in the form of cash or U.S. government securities. This collateral
must be valued daily by the Adviser, 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 Funds 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. A Fund will only enter into loan arrangements with broker-
dealers, banks or other institutions which the Adviser has determined are
creditworthy under guidelines established by the Trust's Board of Trustees.
Variable and Floating Rate Obligations
The Money Market, Government Money Market, Tax Exempt Money Market,
Pennsylvania Tax Exempt Money Market and Ohio Municipal Money Market Funds may
purchase variable and floating rate demand 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. A Fund, however, may invest in such obligations which have a
stated maturity in excess of 397 days only if the Fund may demand repayment at
intervals in accordance with guidelines established by the Board of Trustees.
Because variable and floating rate obligations are direct lending arrangements
between the purchasing Fund and the issuer, they are not normally traded.
Although there may be no active secondary market in such instruments, a 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,
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will be determined to be of comparable quality by the adviser. Variable and
floating rate obligations entered into by the Government Money Market Fund, 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. In the event an issuer of a
variable or floating rate obligation defaulted on its payment obligation, a 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.
Money Market Instruments
The Money Market Fund may invest in "money market" instruments, including
bank obligations and commercial paper. The Pennsylvania Tax Exempt Money Market
and Ohio Municipal Money Market Funds may also invest, from time to time, a
portion of their assets for temporary defensive or other purposes in such
taxable money market instruments.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit, and non-negotiable 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 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 Money Market 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.
Investments in commercial paper and other short-term promissory notes
issued by corporations (including variable and floating rate instruments) must
be rated at the time of purchase "A-2" or better by Standard & Poor's Ratings
Group ("S&P"), "Prime-2" or better by Moody's Investors Service, Inc.
("Moody's"), "F-2" or better by Fitch Investors Service, L.P. ("Fitch"), "Duff
2" or better by Duff & Phelps Credit Rating Co. ("Duff"), or "A2" or better by
IBCA, Inc. or, if not rated, determined by the Adviser to be of comparable
quality pursuant to guidelines approved by the Trust's Board of Trustees.
Investments may also include corporate notes. In addition, the Money Market Fund
may invest in Canadian Commercial Paper ("CCP"), which is U.S. dollar
denominated 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 Money Market Fund may
acquire zero coupon obligations, which have greater price volatility than coupon
obligations and which will not result in the payment of interest until maturity.
Investments in the obligations of foreign branches of U.S. banks, foreign
banks and other foreign issuers may subject the Money Market Fund to additional
investment risks, including future political and economic developments, the
possible imposition of withholding taxes on interest income, possible seizure or
nationalization of foreign deposits, the possible establishment of exchange
controls, or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on such obligations. In
addition, foreign branches of U.S. banks and foreign banks may be subject to
less stringent reserve requirements and to different accounting, auditing,
reporting, and recordkeeping standards than those applicable to domestic
branches of U.S. banks. The Money Market Fund will invest in the obligations of
foreign banks or foreign branches of U.S. banks only when the Adviser believes
that the credit risk with respect to the instrument is minimal.
The Money Market Fund may also make limited investments in guaranteed
investment contracts ("GICs") issued by U.S. insurance companies. The Fund will
purchase a GIC only when the Adviser has 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 certain nationally recognized statistical rating organizations.
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Government Obligations
The Treasury Money Market Fund may only invest in direct obligations of the
U.S. Treasury and investment companies that invest only in such obligations. The
other Funds may invest in these obligations and other obligations issued or
guaranteed by the U.S. government, its agencies and instrumentalities.
Obligations of certain agencies and instrumentalities of the U.S. government,
such as the Government National Mortgage Association, are supported by the full
faith and credit of the U.S. Treasury; 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 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; still others, such as
those of the Student Loan Marketing Association, are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
government would provide financial support to U.S. Government-sponsored
instrumentalities if it is not obligated to do so by law. Some of these
investments may be variable or floating rate instruments. See "Variable and
Floating Rate Obligations."
Types of Municipal Securities
The two principal classifications of municipal bonds are "general
obligation" bonds and "revenue" bonds. General obligation securities are secured
by the issuer's pledge of its full faith, credit and taxing power for the
payment of principal and interest. Revenue or "special obligation" securities
are payable only from the revenues derived from a particular facility or class
of facilities or, in some cases, from the proceeds of a specific excise tax or
other specific revenue source such as the user of the facility being financed.
"Private activity" bonds are revenue securities normally issued by industrial
development authorities to finance privately-owned facilities and are backed by
private entities. Any private activity bonds (including industrial development
bonds) held by a Fund are not payable from revenues of the issuer. Consequently,
the credit quality of private activity bonds is usually directly related to the
credit standing of the corporate or other user of the facility involved. Private
activity bonds are included in the term "Municipal Securities" with respect to
the Tax Exempt Money Market and Pennsylvania Tax Exempt Money Market Funds only
if the interest paid thereon is exempt from regular federal income tax and not
treated as a specific tax preference item under the federal alternative minimum
tax. See "Taxes."
The Tax Exempt Money Market Fund, Pennsylvania Tax Exempt Money Market Fund
and Ohio Municipal Money Market Fund may also invest in "moral obligation"
bonds, which are ordinarily issued by special purpose public authorities. If the
issuer of moral obligation bonds is unable to meet its debt service obligations
from current revenues, it may draw on a reserve fund, the restoration of which
is a moral commitment but not a legal obligation of the state or municipality
which created the issuer.
In addition, the Tax Exempt Money Market Fund, Pennsylvania Tax Exempt
Money Market Fund and Ohio Municipal Money Market Fund may purchase short-term
Tax Anticipation Notes, Bond Anticipation Notes, Revenue Anticipation Notes, and
other forms of short-term loans. Such notes are issued with a short-term
maturity in anticipation of the receipt of tax or other funds, the proceeds of
bonds or other revenues. Municipal Securities purchased by these Funds may
include variable and floating rate instruments (described above). These Funds
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.
Certain municipal obligations may be accompanied by a guaranty, letter of
credit or insurance. The Tax Exempt Money Market and Pennsylvania Tax Exempt
Money Market and Ohio Municipal Money Market Funds typically evaluate the credit
quality and ratings of such "credit enhanced" securities based upon the
financial condition and ratings of the party providing the credit enhancement
(the "credit enhancer"), in addition to the issuer. The bankruptcy, receivership
or default of the credit enhancer will adversely affect the quality and
marketability of the underlying security.
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Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities and may be
considered to be illiquid. They may take the form of a lease, an installment
purchase contract, a conditional sales contract, or a participation certificate
in any of the above. Municipal lease obligations typically are not backed by the
municipality's credit, and their interest may become taxable if the lease is
assigned. Under guidelines established by the Board of Trustees, the credit
quality of municipal leases will be determined on an ongoing basis, including an
assessment of the likelihood that a lease will be canceled.
Participation interests are interests in Municipal Securities from
financial institutions such as commercial and investment banks, savings and loan
associations and insurance companies. These interests may take the form of
participations, beneficial interests in a trust, partnership interests or any
other form of indirect ownership that allows the Tax Exempt Money Market,
Pennsylvania Tax Exempt Money Market and Ohio Municipal Money Market Funds to
treat the income from the investment as exempt from federal income tax. These
Funds invest in these participation interests in order to obtain credit
enhancement or demand features that would not be available through direct
ownership of the underlying Municipal Securities.
A participation interest may be in the form of "certificates of
participation" which represent undivided proportional interests in lease
payments by a governmental or nonprofit entity. The municipal leases underlying
the certificates of participation in which the Tax Exempt Money Market,
Pennsylvania Tax Exempt Money Market and Ohio Municipal Money Market Funds
invest will be subject to the same quality rating standards applicable to
Municipal Securities.
Stand-by Commitments
The Tax Exempt Money Market, Pennsylvania Tax Exempt Money Market and Ohio
Municipal Money Market Funds may acquire stand-by commitments with respect to
Municipal Securities. Under a stand-by commitment, a dealer agrees to purchase
at the Fund's option specified Municipal Securities at a specified price.
Stand-by commitments must be of high quality as determined by any Rating Agency,
or, if not rated, must be deemed to be of comparable quality. The Funds acquire
stand-by commitments solely to facilitate fund liquidity and do not intend to
exercise their rights thereunder for trading purposes.
Tax-Exempt Derivatives and Other Municipal Securities
The Tax Exempt Money Market, Pennsylvania Tax Exempt Money Market and Ohio
Municipal Money Market Funds may invest in tax-exempt derivative securities
relating to Municipal Securities, including tender option bonds, participations,
beneficial interests in trusts and partnership interests. (See generally "Risk
Factors Associated with Derivative Instruments" above.)
Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance, and opinions relating
to the validity of and the tax-exempt status of payments received by the Tax
Exempt Money Market Fund, Pennsylvania Tax Exempt Money Market Fund and Ohio
Municipal Money Market Fund from tax-exempt derivative securities are rendered
by counsel to the respective sponsors of such securities. The Funds and the
Adviser will rely on such opinions and will not review independently the
underlying proceedings relating to the issuance of Municipal Securities, the
creation of any tax-exempt derivative securities, or the bases for such
opinions.
When-Issued Securities
The Tax Exempt Money Market, Pennsylvania Tax Exempt Money Market and Ohio
Municipal Money Market Funds may purchase securities on a "when-issued" or
delayed delivery basis. These transactions are arrangements in which a Fund
purchases securities with payment and delivery scheduled for a future time.
These transactions involve the risk that the price or yield obtained may be less
favorable than the price or yield available
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when delivery takes place. The Funds expect that commitments to purchase
when-issued securities will not exceed 25% of the value of their respective
total assets under normal market conditions. The Funds do not intend to purchase
when-issued securities for speculative purposes but only for the purpose of
acquiring portfolio securities. In when-issued and delayed delivery
transactions, each Fund relies on the seller to complete the transaction; its
failure to do so may cause the Fund to miss a price or yield considered to be
attractive. For further information, see "Risk Factors, Investment Objectives,
and Policies" in the Statement of Additional Information.
Securities of Other Investment Companies
Subject to 1940 Act limitations and pursuant to applicable SEC
requirements, each Fund other than the Treasury Money Market 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 and the Treasury Money
Market Fund may invest in securities issued by other investment companies which
invest exclusively in direct obligations of the U.S. Treasury 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, 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 Funds may invest may
also impose a sales or distribution charge in connection with the purchase or
redemption of their shares and other types of commissions or charges. Such
charges will be payable by the Fund and, therefore, will be borne indirectly by
its shareholders.
Miscellaneous
Each Fund may hold up to 100% of its assets in uninvested cash reserves
pending investment, during temporary defensive periods or if, in the opinion of
the Adviser, desirable tax-exempt obligations are unavailable to the Tax Exempt
Money Market, Pennsylvania Tax Exempt Money Market or Ohio Municipal Money
Market Funds. Uninvested cash reserves will not earn income.
INVESTMENT LIMITATIONS
Each Fund is subject to a number of investment limitations. The following
investment limitations are matters of fundamental policy and may not be changed
with respect to a particular Fund without the affirmative vote of the holders of
a majority of the Fund's outstanding shares (as defined under "Miscellaneous").
(Other fundamental 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.")
No Fund may:
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, or domestic bank obligations and repurchase agreements
secured by such obligations;
(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; and
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(d) personal credit and business credit businesses will be considered
separate industries.
2. Make loans, except that the Fund 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.
For purposes of the above investment limitations, the Funds treat all
supranational organizations as a single industry and each foreign government
(and all of its agencies) as a separate industry. In addition, a security is
considered to be issued by the government entity (or entities) whose assets and
revenues back the security.
Except for the Funds' policy on illiquid securities, 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.
YIELD AND PERFORMANCE INFORMATION
From time to time, the Trust may quote in advertisements or in reports to
shareholders each Fund's "yield" and "effective yield" and the Tax Exempt Money
Market, Pennsylvania Tax Exempt Money Market and Ohio Municipal Money Market
Funds' "tax-equivalent yield" for each class of shares. The "yield" quoted in
advertisements refers to the income generated by an investment in a class of
shares of a Fund over a seven-day period identified in the advertisement. This
income is then "annualized." The amount of income so generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The "effective yield" for a class of
shares is calculated similarly but, when annualized, the income earned by an
investment in the class is assumed to be reinvested. An effective yield for a
class of shares will be slightly higher than its yield because of the
compounding effect of the assumed reinvestment. The Tax Exempt Money Market,
Pennsylvania Tax Exempt Money Market and Ohio Municipal Money Market Funds'
"tax-equivalent yield" for a class of shares, which shows the level of taxable
yield necessary to produce an after-tax equivalent to the tax-free yield for
that class, may also be quoted from time to time. It is calculated by increasing
the yield (calculated as above) for a class of shares by the amount necessary to
reflect the payment of federal income tax and state income tax at stated tax
rates. The tax-equivalent yield for a class of shares will always be higher than
its yield.
Investors may compare the performance of each class of shares of a Fund to
the performance of other mutual funds with comparable investment objectives, to
various mutual fund or market indices, 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 IBC's Money Fund
Report, a nationally recognized money market fund reporting service, 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 performance of each class of shares of the Funds is based on historical
earnings and will fluctuate and is not intended to indicate future performance.
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. Yield
will be affected by fund quality, composition, maturity, market conditions and
the level of operating expenses for the class of shares. From time to time, the
Adviser may voluntarily waive its investment advisory fees in order to reduce
such operating expenses, which will have the effect
20
<PAGE> 25
of enhancing the yield. 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
a Fund.
Shareholders should note that the yields, effective yields and
tax-equivalent yields of A shares and B shares will be lower than those of the I
shares of a Fund because of the different distribution and/or servicing fees.
The yields, effective yields and tax-equivalent yields of the B shares will be
lower than those of the A shares of a Fund due to the different distribution
fees of the classes. See "Distribution and Servicing Arrangements."
Further information about the performance of the Funds is available in the
annual and semi-annual reports to shareholders. Shareholders may obtain copies
from the Trust free of charge by calling 1-800-622-FUND(3863).
PRICING OF SHARES
For processing purchase and redemption orders, the net asset values per
share of the Money Market and Government Money Market Funds are calculated on
each business day first at 3:00 p.m. Eastern time, then as of the close of
trading of the New York Stock Exchange (the "Exchange"). The net asset values
per share of the Treasury Money Market, Tax Exempt Money Market, Pennsylvania
Tax Exempt Money Market and Ohio Municipal Money Market Funds are calculated on
each business day first at 1:00 p.m. Eastern time then as of the close of
trading of 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 is calculated by dividing the value of all
securities and other assets allocable to a particular class, less liabilities
charged to that class, by the number of outstanding shares of the respective
class.
The assets in all of the Funds are valued based upon the amortized cost
method, which has been determined by the Trust's Board of Trustees to represent
the fair value of the Funds' investments. Amortized cost valuation involves
valuing an instrument at its cost initially and, thereafter, assuming a constant
amortization to maturity of any discount or premium. Although the Trust seeks to
maintain the net asset value per share of the Funds at $1.00, there can be no
assurance that the net asset value will not vary.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Funds 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 One Freedom Valley Drive, Oaks, Pennsylvania 19456.
The Distributor, Adviser and/or their affiliates, at their own expense, may
provide compensation to dealers in connection with the sale and/or servicing of
shares of the Funds of the Trust. Compensation may include financial assistance
to dealers in connection with conferences, sales or training programs for their
employees, seminars for the public, advertising campaigns regarding one or more
Funds of the Trust, and/or other dealer-sponsored special events. In some
instances, this compensation may be made available only to certain dealers whose
representatives have sold or are expected to sell a significant amount of such
shares. Compensation may include payment for travel expenses, including lodging,
incurred in connection with trips taken by
21
<PAGE> 26
invited registered representatives and members of their families to exotic
locations within or outside of the United States for meetings or seminars of a
business nature. Compensation may also include the following types of non-cash
items offered through sales contests: (1) vacation trips, including travel
arrangements and lodging at resorts; (2) tickets for entertainment events (such
as concerts, cruises and sporting events); and (3) merchandise (such as
clothing, trophies, clocks and pens). The Distributor, at its expense, currently
conducts sales contests for dealers in connection with their sales of shares of
the Funds. Dealers may not use sales of a Fund's shares to qualify for this
compensation to the extent such may be prohibited by the laws of any state or
any self-regulatory agency, such as the National Association of Securities
Dealers, Inc.
PURCHASE OF A SHARES AND B SHARES
A shares of the Funds are sold without a front-end sales charge. B shares
of the Funds are sold subject to a back-end sales charge. This back-end sales
charge declines over time and is known as a "contingent deferred sales charge."
B shares of the Money Market Fund and Tax Exempt Money Market Fund are not
available to investors for initial purchases, but only for exchange from B
shares of other investment funds offered by the Trust.
A shares and B shares are sold to the public ("Investors") primarily
through financial institutions such as banks, brokers and dealers. Investors may
purchase A 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. B shares of the Money Market and Tax
Exempt Money Market Funds are available only to the holders of B shares of
another fund who wish to exchange those B shares for B shares of the Money
Market and/or Tax Exempt Money Market Fund.
Financial institutions may charge certain account fees depending on the
type of account the Investor has established with the institution. Investors may
be charged a fee if they effect transactions in fund shares through a broker or
agent. (For information on such fees, the Investor should review his or her
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 A shares and
B shares and would receive fees from the Funds for such services of up to .15%
(on an annualized basis). See "Distribution and Servicing Arrangements." For
direct purchases of shares, Investors should call 1-800-622-FUND(3863) or to
speak with a NatCity Investments professional, call 1-888-4NATCTY (462-8289).
With respect to the Money Market, Government Money Market and Treasury
Money Market Funds, 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 is $500 for the initial purchase of A shares in a
Fund. There is no minimum for subsequent investments for A shares and IRAs are
subject to a minimum investment of $250. All purchases made by check should be
in U.S. dollars. Please make the check payable to Armada Funds (fund name), or,
in the case of a retirement account, the custodian or trustee for the account.
The Trust will not accept third-party checks under any circumstance. Investments
made in A shares by a sweep program described below or through the Planned
Investment Program ("PIP"), a savings program described below, are not subject
to the minimum initial investment requirements or any minimum account balance
requirements described under "Other Redemption Information." Purchases for an
IRA through the PIP will be considered as contributions for the year in which
the purchases are made.
Customers of Banks may purchase A shares through procedures established by
the Banks or their financial institutions in connection with the
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<PAGE> 27
requirements of their customer accounts. These procedures may include
instructions under which a Bank or financial institution may automatically
"sweep" a customer account and invest amounts agreed to by the Bank or financial
institution and the customer in additional A shares of a Fund. Customers may
obtain information relating to the requirements of such accounts from their
Banks or financial institutions.
Under a PIP, Investors may add to their investment in the A shares of a
Fund, in a consistent manner each month or quarter, with a minimum amount of
$50. Monies may be automatically withdrawn from a checking or savings account
available through an Investor's financial institution and invested in additional
A 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 or quarterly
program by completing an application obtained through a financial institution,
such as banks, brokers, or dealers selling A shares of the Funds, 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 B SHARES
B shares of the Money Market and Tax Exempt Money Market Funds are sold at
their net asset value next determined after an order to exchange B shares of
another Fund is received in good form by the Trust's Distributor. Although
Investors pay no front-end sales charge on exchanges into B shares, such shares
are subject to a deferred sales charge at the rates set forth in the chart below
if they are redeemed within five years of purchase of the B shares of the
original Fund.
The deferred sales charge on B shares is based on the lesser of the net
asset value of the shares on the redemption date or the original cost of the
shares being redeemed. As a result, no sales charge is charged on any increase
in the principal value of an Investor's shares. In addition, a contingent
deferred sales charge will not be assessed on B shares purchased through
reinvestment of dividends or capital gain distributions.
The amount of any contingent deferred sales charge an Investor must pay on
B shares depends on the number of years that elapse between the purchase date of
the B shares of the original Fund and the date such B shares are redeemed.
Solely for purposes of determining the number of years from the time of payment
for an Investor's share purchase, all payments during a month will be aggregated
and deemed to have been made on the first day of the month.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE (AS A
NUMBER OF YEARS PERCENTAGE OF DOLLAR AMOUNT
ELAPSED SINCE PURCHASE SUBJECT TO THE CHARGE)
- ---------------------------- ---------------------------
<S> <C>
Less than one............... 5.0%
More than one, but less than
two....................... 5.0%
More than two, but less than
three..................... 4.0%
More than three, but less
than four................. 3.0%
More than four, but less
than five................. 2.0%
After five years.......... None
After eight years......... *
</TABLE>
- ---------------
* Conversion to A shares
When an Investor redeems his or her B shares, the redemption order is
processed to minimize the amount of the contingent deferred sales charge that
will be charged. B shares are redeemed first from those B shares that are not
subject to the deferred sales load (i.e., B shares that were acquired through
reinvestment of dividends or capital gain distributions) and thereafter, unless
otherwise designated by the shareholder, from the B shares that have been held
the longest.
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<PAGE> 28
Exemptions From Contingent Deferred Sales Charge
The following types of redemptions qualify for an exemption from the
contingent deferred sales charge:
(a) exchanges described under "Exchange Privilege Applicable to A shares
and B Shares" below
(b) redemptions in connection with required (or, in some cases,
discretionary) distributions to participants or beneficiaries of an employee
pension, profit-sharing or other trust or qualified retirement or Keogh plan,
individual retirement account or custodial account maintained pursuant to
Section 403(b)(7) of the Internal Revenue Code due to death, disability or the
attainment of a specified age
(c) redemptions effected pursuant to a Fund's right to liquidate a
shareholder's account if the aggregate net asset value of shares held in the
account is less than the minimum account size
(d) redemptions in connection with the death or disability of a shareholder
(e) redemptions by a settlor of a living trust
(f) redemptions resulting from a tax-free return of an excess contribution
pursuant to Section 408(d)(4) or (5) of the Internal Revenue Code.
CHARACTERISTICS OF
A SHARES AND B SHARES
B shares which have been outstanding for eight years after the end of the
month in which the shares were initially purchased will automatically convert to
A shares. The purpose of the conversion is to relieve a holder of B shares of
the higher ongoing expenses charged to those shares, after enough time has
passed to allow the Distributor to recover approximately the amount it would
have received if a front-end sales charge had been charged. The conversion from
B shares to A shares takes place at net asset value, as a result of which an
Investor receives dollar-for-dollar the same value of A shares as he or she had
of B shares. As a result of the conversion, the converted shares are relieved of
the distribution and service fees borne by B shares, although they are subject
to the distribution and service fees borne by A shares.
B shares acquired through a reinvestment of dividends or distributions are
also converted at the earlier of two dates -- eight years after the beginning of
the calendar month in which the reinvestment occurred or the date of conversion
of the most recently purchased B shares that were not acquired through
reinvestment of dividends or distributions. For example, if an Investor makes a
one-time purchase of B shares of the Fund, and subsequently acquires additional
B shares of the Fund only through reinvestment of dividends and/or
distributions, all of such Investor's B shares in the Fund, including those
acquired through reinvestment, will convert to A shares of the Fund on the same
date.
PURCHASE OF I SHARES
I shares are sold primarily to Banks, National Asset Management Corporation
("NAM") customers that are large institutions, and investment advisers and
financial planners affiliated with IMC ("Financial Advisers") who charge an
advisory, consulting or other fee for their services and buy shares for their
own accounts or the accounts of their clients ("Customers"). Depending on the
terms governing the particular account, the Banks, NAM or Financial Advisers 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 or
her investment in a Fund. There is no minimum investment.
Customers may purchase I shares through procedures established by the
Banks, NAM or Financial Advisers in connection with the requirements of their
Customer accounts. These procedures may include instructions under which a Bank,
NAM or Financial Advisers may automatically "sweep" a Customer's account not
less frequently than weekly and invest amounts in excess of a minimum balance
agreed to by the Bank, NAM or Financial Advisers and the Customer in additional
I shares of a Fund. Customers should obtain information relating to the
24
<PAGE> 29
requirements of such accounts from their Banks, NAM or Financial Advisers.
It is the responsibility of the Banks, NAM and Financial Advisers 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. I shares will normally be held of record by the Banks, NAM or Financial
Advisers. Confirmations of share purchases and redemptions will be sent to the
Banks, NAM and Financial Advisers. Beneficial ownership of I shares will be
recorded by the Banks, NAM or Financial Advisers or the Transfer Agent 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 Money Market and Government Money Market
Funds which are received by the Transfer Agent by 3:00 pm Eastern time are
processed that day. Similarly, purchase orders for shares of the Treasury Money
Market, Tax Exempt Money Market, Pennsylvania Tax Exempt Money Market and Ohio
Municipal Money Market Funds which are received by the Transfer Agent by 1:00 pm
Eastern time are also processed that day. Purchase orders received after the
above listed times are processed the following business day.
Purchase orders are processed at the net asset value per share next
determined after an order is received by the Transfer Agent.
Purchases will be effected only when federal funds or other funds are
immediately available to the Trust's custodian to make the purchase on the day
the Transfer Agent receives the purchase order. Orders for which funds have not
been received by the Transfer Agent by the prescribed deadline on a given day
will not be accepted and notice thereof will be given promptly to the Bank or
financial institution. In accordance with this policy, purchase orders which are
accompanied by a check will be executed on the second Business Day following
receipt of the order at the previous day's net asset value per share.
REDEMPTION OF A SHARES AND B SHARES
Redemption orders are effected at a Fund's net asset value per share next
determined after receipt of the order by the Fund. Proceeds from the redemptions
of B shares will be reduced by the amount of any applicable contingent deferred
sales charge. 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 or her
financial institution.
REDEMPTION OF I SHARES
Customers may redeem all or part of their I shares in accordance with
instructions and limitations pertaining to their accounts at the Banks, NAM or
Financial Advisers. It is the responsibility of the Banks, NAM or Financial
Advisers 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, NAM or Financial Advisers
may charge their Customers' accounts for services. Information relating to such
services and charges, if any, is available from the Banks, NAM or Financial
Advisers.
If a Customer has agreed with a particular Bank, NAM or a Financial Adviser
to maintain a minimum balance in his or her account and the balance in such
account falls below that minimum, the Customer may be obliged to redeem all or
part of his or her I shares to the extent necessary to maintain the required
minimum balance. Customers who have instructed that automatic purchases
25
<PAGE> 30
and redemptions be made for their accounts receive monthly confirmations of
share transactions.
WRITTEN REDEMPTION PROCEDURES
A shareholder who purchased shares directly from the Trust 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 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 who purchased shares directly from the Trust 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 A shares or B 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 held on the Transfer Agent's system. The
Plan allows the shareholder to have a fixed minimum sum of $100 distributed at
regular intervals. Withdrawals will be reduced by any applicable contingent
deferred sales charge. Because automatic withdrawals of B shares will be subject
to the contingent deferred sales charge, it may not be in the best interest of
holders of B shares to make systematic withdrawals. Additional information
regarding this service may be obtained from an Investor's financial institution
or the Transfer Agent at 1-800-622-FUND(3863).
CHECKWRITING APPLICABLE TO A SHARES
Checkwriting is available from certain institutions with respect to A
shares of the Funds. No charge for the use of the checkwriting privilege is
currently imposed by the Trust, although a charge may be imposed in the future.
With this service, a shareholder may write a check in an amount of $100 or more.
To obtain checks, a shareholder must complete the signature card that
accompanies the account application. To establish this checkwriting service
after opening an account in one or more of the Funds, the shareholder must
contact the Trust by calling 1-800-622-FUND(3863) or by sending a written
request to the Armada Funds, P.O. Box 8421,
26
<PAGE> 31
Boston, Massachusetts 02266-8421 to obtain an
application. A signature guarantee may be required. A shareholder will receive
daily dividends declared on the shares to be redeemed up to the day that a check
is presented to the Custodian for payment. Upon 30 days written notice to
shareholders, the checkwriting privilege may be modified or terminated. An
investor cannot close an account in a Fund by writing a check.
OTHER REDEMPTION INFORMATION
Payment for redemption orders received by the Transfer Agent before 3:00 pm
Eastern time for the Money Market and Government Money Market Funds and received
before 1:00 pm Eastern time for the Treasury Money Market, Tax Exempt Money
Market, Pennsylvania Tax Exempt Money Market and Ohio Municipal Money Market
Funds will be wired the same day to the Bank or financial institution placing
the order. Payment for redemption orders received after such times will normally
be wired the next business day. The Trust reserves the right to wire redemption
proceeds within seven days after receiving the redemption orders if, in the
judgement of the Adviser, an earlier payment could adversely affect the Trust.
Redemption orders are processed at the net asset value per share next
determined after receipt of the order by the Transfer Agent.
WHEN REDEEMING SHARES IN A FUND, SHAREHOLDERS SHOULD INDICATE WHETHER THEY
ARE REDEEMING A SHARES OR B SHARES. In the event a redeeming shareholder owns
both A shares and B shares in a Fund, the A shares will be redeemed first unless
the shareholder indicates otherwise. 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 (with the exception of Planned
Investment Program account) that has a value of less than $500 due to
redemptions (including exchanges as described below) where the shareholder does
not increase the amount in the account to at least $500 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 or her 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.
The Trust may also redeem shares involuntarily or make payment for
redemption in securities if it appears appropriate to do so in light of the
Trust's responsibilities under the 1940 Act. See "Net Asset Value" in the
Statement of Additional Information.
Payment to shareholders for shares redeemed will be made within seven days
after receipt of the request for redemption.
EXCHANGE PRIVILEGE APPLICABLE TO A SHARES AND B SHARES
Investors may exchange A shares of the Funds for A shares of another Fund
at the net asset value per share without payment of a sales charge.
The Trust also offers an exchange program whereby Investors who own A
shares of the Funds (each a "no load Fund") may exchange those A shares for A
shares of an investment fund offered by the Trust or The Parkstone Group of
Funds ("Parkstone") which is sold with a front-end sales charge (each a "load
Fund") subject to payment of the applicable front-end sales charge and the
conditions described below. Shareholders exchanging A shares of a no load Fund
which were received in a previous exchange transaction involving A shares of a
load Fund will not be required to pay an additional front-end sales charge upon
the reinvestment of the equivalent amount into the A shares of a load Fund
subject to the following. If a shareholder paid a sales charge on the previously
exchanged A shares that is less than the sales charge applicable to the A shares
sought to be acquired through the exchange, he or she must pay a sales charge on
the exchange equal to such difference. Shareholders must notify the Trust that a
sales charge was previously paid.
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<PAGE> 32
Shareholders who have exchanged their B shares of another investment fund
offered by the Trust or Parkstone for B shares of the Money Market Fund or Tax
Exempt Money Market Fund (including shares acquired through reinvestment of
dividends or distributions on such shares) may exchange those shares for B
shares of another fund without the payment of any contingent deferred sales
charge at the time the exchange is made. In determining the holding period for
calculating the contingent deferred sales charge payable on redemptions of B
shares, the holding period of the B shares originally held will be added to the
holding period of the B shares acquired through the exchange.
No exchange fee is imposed by the Trust. 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). A Parkstone Prospectus may be obtained by calling (800)
451-8377.
Any A shares or B 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 A shares or B 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 before 3:00 pm Eastern time for the Money Market and Government
Money Market Funds and before 1:00 pm Eastern time for the Treasury Money
Market, Tax Exempt Money Market, Pennsylvania Tax Exempt Money Market and Ohio
Municipal Money Market Funds will be processed as of the close of business on
the day of receipt. Requests received by the Transfer Agent after the above
listed times 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 or her financial
institution, and an Investor who directly purchased shares from the Trust should
mail the exchange request to the Transfer Agent.
The exchange privilege is a convenient way to respond to changes in
investment goals or in market conditions. This privilege is not designed for
frequent trading in response to short-term market fluctuations. Management of
the Trust reserves the right to limit, amend, impose charges upon, terminate or
otherwise modify the exchange privilege upon 60 days' notice to shareholders.
Except for the Systematic Exchange Program described below, as of the date of
this Prospectus, an Investor is limited to one exchange every two months during
a given 12-month period beginning upon the date of the first exchange
transaction.
SYSTEMATIC EXCHANGE PROGRAM APPLICABLE TO A SHARES AND B SHARES
Shares of a Fund may also be purchased through automatic monthly or
quarterly 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 or quarterly 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 non-money funds. This effect also can be achieved through the
Planned Investment Program described previously in this Prospectus. Because
purchases of A shares of non-money market funds may be subject to an initial
sales charge, it may be beneficial for an Investor to execute a Letter of Intent
indicating an intent to purchase A shares in connection with the systematic
exchange program. An Investor may also arrange to purchase B shares through the
systematic exchange program. Upon
28
<PAGE> 33
exchange into another fund, such shares will convert to B shares of that fund,
and, while the Investor will not pay a front-end sales load for such purchase,
the shares will bear the regular expenses borne by B shares of such fund. A
shareholder may apply for participation in this program through his or her
financial institution or by calling 1-800-622-FUND(3863).
DISTRIBUTION AND SERVICING ARRANGEMENTS
Pursuant to the Trust's Distribution Agreement, as amended and Rule 12b-1
under the 1940 Act, the Trust adopted a Service and Distribution Plan for A and
I Share Classes ("A and I Plan") and a separate B Shares Distribution and
Servicing Plan ("B Shares Plan"). Under the A and I Plan, the Trust reimburses
the Distributor for direct and indirect costs and expenses incurred in
connection with advertising, marketing and other distribution services related
to the A and I shares of each of the Trust's investment funds and in preparing
and distributing such shares' prospectus. In the case of each such fund, such
reimbursement shall not exceed .10% per annum of the average aggregate net
assets of its A and I shares. Under the B Shares Plan, the Trust pays the
Distributor up to .75% annually of the average daily net assets of each fund's B
shares for the same types of services provided and expenses assumed as in the A
and I Shares Plan. Such compensation is payable monthly and accrued daily by the
fund's B shares only.
Under the Shareholder Services Plan relating to each Fund's A shares and
the B Shares Plan, the Trust enters into shareholder servicing agreements with
certain financial institutions. Pursuant to these agreements, the institutions
agree to render shareholder administrative services to their customers who are
the beneficial owners of A or B shares in consideration for the payment of up to
.15% (on an annualized basis) of the average daily net asset value of such
shares. Persons entitled to receive compensation for servicing A or B shares may
receive different compensation with respect to those shares than with respect to
I shares in the same Fund. Shareholder administrative services may include
aggregating and processing purchase and redemption orders, processing dividend
payments from the Funds on behalf of customers, providing information
periodically to customers showing their position in A or B shares, and providing
sub-transfer agent services or the information necessary for sub-transfer agent
services, with respect to A or B 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 A or B
shares should read this Prospectus in light of the terms and fees governing
their accounts with financial institutions.
DIVIDENDS AND DISTRIBUTIONS
On each day that the net asset values per share of the Funds are
determined, each Fund declares a dividend from net investment income as of the
close of business on the day of declaration. Net investment income for the Money
Market, Government Money Market and Treasury Money Market Funds consists of (a)
interest accrued and discount earned (including both original issue and market
discount) on the Fund's assets, (b) less amortization of market premium on such
assets, and the accrued expenses of the Fund. Net investment income of the Tax
Exempt Money Market, Pennsylvania Tax Exempt Money Market and Ohio Municipal
Money Market Funds consists of interest accrued, original issue discount earned,
less amortization of any market premium and accrued expenses. Fund shares begin
earning dividends on the day the purchase order is executed and continue earning
dividends through and including the day before the redemption order for the
shares is executed.
Dividends are paid monthly by check, or by wire transfer if requested in
writing by the shareholder to his or her Bank or financial institution, within
five Business Days after the end of each calendar month or within five Business
Days after a
29
<PAGE> 34
shareholder's complete redemption of his or her shares in a Fund.
Shareholders may elect to have their dividends reinvested in additional
full and fractional Fund shares of the same class of any Armada Funds at the net
asset value of such shares on the ex-dividend date. Shareholders must make such
election, or any revocation thereof, in writing to their Banks or financial
institutions. The election will become effective with respect to dividends and
distributions paid after its receipt.
TAXES
IN GENERAL
The Money Market, Government Money Market and Treasury Money Market Funds
intend to distribute substantially all of their respective investment company
taxable income and net tax-exempt interest income each year. Such dividends will
generally be taxable as ordinary income to each Fund's 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 Internal
Revenue Code of 1986, as amended (the "Code.")
The Tax Exempt Money Market, Pennsylvania Tax Exempt Money Market and Ohio
Municipal Money Market Funds intend to distribute substantially all of their
respective net tax-exempt income (such distributions are known as
"exempt-interest dividends") and investment company taxable income (if any) each
taxable year. Exempt-interest dividends may be treated by shareholders as items
of interest excludable from their gross income under Section 103(a) of the Code
unless under the circumstances applicable to the particular shareholder the
exclusion would be disallowed. See the Statement of Additional Information under
"Additional Information Concerning Taxes." To the extent, if any, dividends paid
to each Fund's shareholders are derived from taxable income or from net
long-term capital gains, such dividends will not be exempt from federal income
tax and may also be subject to state and local taxes. The Funds do not intend to
earn any investment company taxable income or net long-term capital gains.
If the Tax Exempt Money Market, Pennsylvania Tax Exempt Money Market and
Ohio Municipal Money Market Funds hold certain private activity bonds,
shareholders must include as an item of tax preference for purposes of the
federal alternative minimum tax that portion of dividends paid by these Funds
derived from interest received on such bonds. Shareholders receiving Social
Security or railroad retirement payments should note that all exempt-interest
dividends will be taken into account in determining the taxability of such
benefits.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Tax Exempt Money Market, Pennsylvania Tax Exempt Money Market or
Ohio Municipal Money Market Funds generally will not be deductible for federal
income tax purposes.
PENNSYLVANIA TAXES
Under current Pennsylvania law, shareholders will not be subject to
Pennsylvania Personal Income Tax on distributions from the Pennsylvania Tax
Exempt Money Market Fund attributable to interest income from obligations of the
Commonwealth of Pennsylvania or its political subdivisions, the United States,
its territories or certain of its agencies and instrumentalities ("Exempt
Securities"). However, Pennsylvania Personal Income Tax will apply to
distributions from the Pennsylvania Tax Exempt Money Market Fund attributable to
gain realized on the disposition of any investment, including Exempt Securities,
or to interest income from investments other than Exempt Securities.
Shareholders also will be subject to the Penn-
30
<PAGE> 35
sylvania Personal Income Tax in the unlikely event that they realize any gain on
the disposition of shares in the Fund.
Distributions attributable to interest from Exempt Securities are not
subject to the Philadelphia School District Net Income Tax. However,
distributions attributable to gain from the disposition of Exempt Securities are
subject to the Philadelphia School District Net Income Tax, except that
distributions attributable to gain on any investment held for more than six
months are exempt.
OHIO TAXES
Under current Ohio law, individuals and estates that are subject to the
Ohio personal income tax, or municipal or school district income taxes in Ohio
will not be subject to such taxes on distributions with respect to shares of the
Ohio Municipal Money Market Fund ("Distributions") to the extent that the
Distributions are properly attributable to interest on Ohio Municipal
Securities. Corporations that are subject to the Ohio corporation franchise tax
will not be required to include Distributions in their tax base for purposes of
calculating the Ohio corporation franchise tax on the net income basis to the
extent that such Distributions either represent exempt-interest dividends for
federal income tax purposes or are properly attributable to interest on Ohio
Municipal Securities. However, shares of the Fund will be included in a
corporation's tax base for purposes of calculating the Ohio corporation
franchise tax on the net worth basis.
Distributions that consist of interest on obligations of the United States
or its territories or possessions or of any authority, commission, or
instrumentality of the United States ("Territorial Obligations") the interest on
which is exempt from state income taxes under the laws of the United States are
exempt from the Ohio personal income tax, and municipal and school district
income taxes in Ohio, and, provided, in the case of Territorial Obligations,
such interest is excluded from gross income for federal income tax purposes, are
excluded from the net income base of the Ohio corporation franchise tax.
Distributions properly attributable to gain on the sale, exchange or other
disposition of Ohio Obligations will not be subject to the Ohio personal income
tax, or municipal or school district income taxes in Ohio, and will not be
included in the net income base of the Ohio corporation franchise tax.
Distributions attributable to other sources generally will not be exempt from
the Ohio personal income tax, municipal or school district income taxes in Ohio,
or the net income base of the Ohio corporation franchise tax.
It is assumed for purposes of this discussion of Ohio state and local taxes
that the Fund will continue to qualify as a regulated investment company under
the Code and that at all times at least 50% of the value of the total assets of
the Fund consists of Ohio Municipal Securities or similar obligations of other
states or their subdivisions.
MISCELLANEOUS
Shareholders of the Funds will be advised at least annually as to the
federal income tax consequences and, in the case of the Pennsylvania Tax Exempt
Money Market Fund and Ohio Municipal Money Market Fund, Pennsylvania income tax
consequences and Ohio income tax consequences, respectively, of distributions
made to them each year. Shareholders are advised to consult their tax advisers
concerning the application of state and local taxes, other than Pennsylvania and
Ohio 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 Funds and their
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.
31
<PAGE> 36
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
IMC serves as the investment adviser to the Funds. The Adviser is an
indirect, wholly-owned subsidiary of National City Corporation ("NCC"). On June
30, 1998, IMC had approximately $18.73 billion in assets under management. The
principal office of the investment adviser is as follows:
National City Investment Management Company
1900 East Ninth Street
Cleveland, OH 44114
Subject to the general supervision of the Trust's Board of Trustees and in
accordance with the Funds' investment policies, the Adviser has agreed to manage
the Funds, make decisions with respect to and place orders for all purchases and
sales of the Funds' securities, and maintain the Trust's records relating to
such purchases and sales.
For the services provided and expenses assumed pursuant to the Advisory
Agreement, 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
Money Market Fund, .35% of the average net assets of the Government Money Market
Fund, .30% of the average net assets of the Treasury Money Market Fund, .35% of
the average net assets of the Tax Exempt Money Market Fund, .40% of the average
net assets of the Pennsylvania Tax Exempt Money Market Fund and .35% of the
average net assets of the Ohio Municipal Money Market Fund. The Adviser may from
time to time waive all or a portion of the advisory fee payable by one or more
of the Funds.
YEAR 2000 RISKS
Like other investment companies, financial and business organizations and
individuals around the world, the Funds could be adversely affected if the
computer systems used by the Adviser and the Funds' other service providers do
not properly process and calculate date-related information and data from and
after January 1, 2000. This is commonly known as the "Year 2000 Problem." The
Adviser is taking steps to address the Year 2000 Problem with respect to the
computer systems that it uses and to obtain assurance that comparable steps are
being taken by the Funds' other major service providers. At this time, however,
there can be no assurance that these steps will be sufficient to avoid any
adverse impact on the Funds or their shareholders as a result of the Year 2000
Problem.
ADMINISTRATOR AND SUB-ADMINISTRATOR
SEI Fund Resources (the "Administrator"), located at One Freedom Valley
Drive, Oaks, Pennsylvania 19456, serves as the administrator to the Funds. SEI
Fund Resources is an indirect, wholly-owned subsidiary of SEI Investments
Company ("SEI").
Under its Administration Agreement with the Trust relating to the Funds,
SEI provides the Funds with administrative services, including fund accounting,
regulatory reporting, necessary office space, equipment, personnel and
facilities. The Administrator also acts as shareholder servicing agent of the
Funds. SEI is entitled to receive with respect to the Funds an administrative
fee, computed daily and paid monthly, at the annual rate of .07% of the
aggregate average daily net assets of all of the investment funds of Armada up
to the first $18 billion, and .06% of the aggregate average daily net assets
over $18 billion, and is entitled to be reimbursed for its out-of-pocket
expenses incurred on behalf of the Funds.
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<PAGE> 37
IMC serves as sub-administrator for each Fund and provides certain services
as may be requested by the Administrator from time to time. For its services as
Sub-Administrator, IMC receives, from the Administrator, pursuant to its
Sub-Administration Agreement with the Administrator, a fee, computed daily and
paid monthly, at the annual rate of .01% of the aggregate average daily net
assets of all of the investment funds of Armada up to the first $15 billion, and
.015% of the aggregate average daily net assets over $15 billion.
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 the separate classes or
series of shares of beneficial interest ("shares") mentioned below. Fourteen of
these classes or series, which represent interests in the Money Market Fund
(Class A, Class A-Special Series 1 and Class A-Special Series 2), Government
Money Market Fund (Class B and Class B-Special Series 1), Treasury Money Market
Fund (Class C and Class C-Special Series 1), Tax Exempt Money Market Fund (Class
D, Class D-Special Series 1 and Class D-Special Series 2), Pennsylvania Tax
Exempt Money Market Fund (Class Q and Class Q-Special Series 1) and Ohio
Municipal Money Market Fund (Class BB and Class BB-Special Series 1), are
described in this Prospectus. Class A, Class B, Class C, Class D, Class Q and
Class BB shares constitute the I class or series of shares; and Class A-Special
Series 1, Class B-Special Series 1, Class C-Special Series 1, Class D-Special
Series 1, Class Q-Special Series 1 and Class BB-Special Series 1 shares
constitute the A class or series of shares, and Class A-Special Series 2 and
Class D-Special Series 2 constitute the B class or series of shares. The other
Funds of the Trust are:
Equity Growth Fund
(Class H, Class H-Special Series 1 and Class H-Special Series 2)
Intermediate Bond Fund
(Class I, Class I-Special Series 1 and Class I-Special Series 2)
Ohio Tax Exempt Fund
(Class K, Class K-Special Series 1 and Class K-Special Series 2)
National Tax Exempt Fund
(Class L, Class L-Special Series 1 and Class L-Special Series 2)
Equity Income Fund
(Class M, Class M-Special Series 1 and Class M-Special Series 2)
Small Cap Value Fund
(Class N, Class N-Special Series 1 and Class N-Special Series 2)
Enhanced Income Fund
(Class O, Class O-Special Series 1 and Class O-Special Series 2)
Total Return Advantage Fund
(Class P, Class P-Special Series 1 and Class P-Special Series 2)
Bond Fund
(Class R, Class R-Special Series 1 and Class R-Special Series 2)
GNMA Fund
(Class S, Class S-Special Series 1 and Class S-Special Series 2)
Pennsylvania Municipal Fund
(Class T, Class T-Special Series 1 and Class T-Special Series 2)
International Equity Fund
(Class U, Class U-Special Series 1 and Class U-Special Series 2)
Equity Index Fund
(Class V and Class V-Special Series 1)
Core Equity Fund
(Class W, Class W-Special Series 1 and Class W-Special Series 2)
Small Cap Growth Fund
(Class X, Class X-Special Series 1 and Class X-Special Series 2)
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<PAGE> 38
Real Return Advantage Fund
(Class Y and Class Y-Special Series 1)
Tax Managed Equity Fund
(Class Z, Class Z-Special Series 1 and Class Z-Special Series 2)
Balanced Allocation Fund
(Class AA, Class AA-Special Series 1 and Class AA-Special Series 2)
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 Shareholder
Services Plan and B Shares Plan, only the holders of A or B shares in an
investment fund are, or would be, entitled to vote on matters submitted to a
vote of shareholders (if any) concerning their respective plans. 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 above, 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 or her being or having been a shareholder and not because of his or her
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 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.
As of September 3, 1998, IMC's bank affiliates held beneficially or of
record approximately 91.69%, 92.59%, 99.48%, 99.99% and 100.00% of the
outstanding I shares of the Money Market, Government Money Market, Treasury
Money Market, Tax Exempt Money Market and Pennsylvania Tax Exempt Money Market
Funds, respectively. Neither IMC nor its affiliates have any economic interest
in such shares which are held solely for the benefit of their customers, but may
be deemed to be a controlling person of the Funds within the meaning of the 1940
Act by reason of their record ownership of such shares. The names of beneficial
owners and record owners who are controlling shareholders under the 1940 Act may
be found in the Statement of Additional Information.
CUSTODIAN AND TRANSFER AGENT
National City Bank, an affiliate of IMC, serves as the custodian of the
Trust's assets. With respect to each Fund, the Trust pays National City Bank an
annual custody fee, calculated daily and paid
34
<PAGE> 39
monthly, of .02% of each Fund's first $100 million of average daily net assets,
.01% of each Fund's next $650 million of average daily net assets and .008% of
the average daily net assets of each Fund which exceed $750 million, exclusive
of out-of-pocket expenses and transaction charges. The Trust reimburses the
custodian for its out-of-pocket expenses including, but not limited to, postage,
telephone, telex, interest claim fee ($50.00 per claim), transfer and
registration fees, Federal Express charges, Federal Reserve and wire fees, as
well as its out-of-pocket costs in providing any foreign custody services and/or
precious metal custody services. The transaction charges are a bundled fee which
will not exceed .25% of the total monthly asset based fee payable by the Trust.
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 Adviser bears all expenses in connection with
the performance of its services. Each Fund of the Trust 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 and
servicing plans; 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. Each Fund also pays for brokerage fees and commissions
(if any) in connection with the purchase of its portfolio securities.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and annual
financial statements audited by independent auditors.
Pursuant to Rule 17f-2, since National City Bank and IMC serve the Trust as
its custodian and as 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 a particular investment 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 such fund or
(b) 67% or more of the shares of the Trust or such fund present at a meeting if
more than 50% of the outstanding shares of the Trust or such 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).
35
<PAGE> 40
(ARMADA FUNDS LOGO)
BOARD OF TRUSTEES
ROBERT D. NEARY
Chairman
Retired Co-Chairman, Ernst & Young
Director:
Cold Metal Products, Inc.
HERBERT R. MARTENS, JR.
President
Executive Vice President,
National City Corporation
Chairman, President and Chief Executive Officer,
Officer, NatCity Investments, Inc.
LEIGH CARTER
Retired President and Chief Operating
Officer B.F. Goodrich Company
Director:
Kirtland Capital Corporation
Morrison Products
JOHN F. DURKOTT
President and Chief Operating Officer,
Kittle's Home Furnishings Center, Inc.
ROBERT J. FARLING
Retired Chairman, President and
Chief Executive Officer, Centerior Energy
Director:
Republic Engineered Steels
RICHARD W. FURST, DEAN
Professor of Finance and Dean
Carol Martin Gatton College of Business
and Economics, University of Kentucky
Director:
Foam Design, Inc.
The Seed Corporation
GERALD L. GHERLEIN
Executive Vice President and General
Counsel, Eaton Corporation
Trustee:
WVIZ Educational Television
J. WILLIAM PULLEN
President and Chief Executive Officer,
Whayne Supply Company
<PAGE> 41
ARMADA FUNDS
INVESTMENT ADVISER
AN AFFILIATE OF NATIONAL
CITY CORPORATION
- --------------------------------------------------------------------------------
National City Investment Management Company
1900 East Ninth Street
Cleveland, Ohio 44114
<PAGE> 42
CROSS REFERENCE SHEET
Money Market Fund
Government Money Market Fund
Treasury Money Market Fund
Tax Exempt Money Market Fund
Pennsylvania Tax Exempt Money Market Fund
Ohio Municipal Money Market Fund
<TABLE>
<CAPTION>
Statement of Additional
Form N-1A Part B Item Information Caption
- ---------------------------------------------------- -------------------
<S> <C>
1. Cover Page.................................... Cover Page
2. Table of Contents............................. Table of Contents
3. General Information and History............... Statement of Additional
Information
4. Investment Objectives and Policies............ Risk Factors Investment
Objectives and Policies
5. Management of Registrant...................... Trustees and Officers
6. Control Persons and Principal
Holders of Securities......................... Description of Shares
7. Investment Advisory and Other
Services...................................... Advisory, Administration,
Distribution, Custodian
Services and Transfer Agency
Agreements
8. Brokerage Allocation and Other
Practices..................................... Risk Factors, Investment
Objectives and Policies
9. Capital Stock and Other Securities............ Additional Purchase and
Redemption Information
10. Purchase, Redemption and Pricing
of Securities Being Offered................... Additional Purchase and
Redemption Information
11. Tax Status.................................... Additional Information
Concerning Taxes
12. Underwriters.................................. Not Applicable
13. Calculation of Performance Data............... Yield and Performance
Information
14. Financial Statements.......................... Financial Statements
</TABLE>
<PAGE> 43
ARMADA FUNDS
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 15, 1998
MONEY MARKET FUND
GOVERNMENT MONEY MARKET FUND
TREASURY MONEY MARKET FUND
TAX EXEMPT MONEY MARKET FUND
PENNSYLVANIA TAX EXEMPT MONEY MARKET FUND
OHIO MUNICIPAL MONEY MARKET FUND
This Statement of Additional Information is not a prospectus but should be read
in conjunction with the current Prospectus for the above Funds of Armada Funds
(the "Trust"), dated September 15, 1998 (the "Prospectus"). A copy of the
Prospectus may be obtained by calling or writing the Trust at 1-800-622-FUND
(3863), One Freedom Valley Drive, Oaks, Pennsylvania 19456.
<PAGE> 44
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
STATEMENT OF ADDITIONAL INFORMATION........................................ 1
INVESTMENT OBJECTIVES AND POLICIES......................................... 1
NET ASSET VALUE............................................................ 16
DIVIDENDS.................................................................. 17
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION............................. 17
DESCRIPTION OF SHARES...................................................... 18
ADDITIONAL INFORMATION CONCERNING TAXES.................................... 20
TRUSTEES AND OFFICERS...................................................... 22
ADVISORY, ADMINISTRATION, DISTRIBUTION, CUSTODIAN SERVICES
AND TRANSFER AGENCY AGREEMENTS............................................. 26
SHAREHOLDER SERVICES PLANS................................................. 31
PORTFOLIO TRANSACTIONS..................................................... 31
AUDITORS................................................................... 32
COUNSEL.................................................................... 33
STANDARDIZED YIELD QUOTATIONS.............................................. 33
MISCELLANEOUS.............................................................. 34
FINANCIAL STATEMENTS....................................................... 42
APPENDIX A................................................................. A-1
</TABLE>
-i-
<PAGE> 45
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 Money
Market Fund, Government Money Market Fund (the "Government Fund"), Treasury
Money Market Fund (the "Treasury Fund"), Tax Exempt Money Market Fund (the "Tax
Exempt Fund"), Pennsylvania Tax Exempt Money Market Fund (the "Pennsylvania Tax
Exempt Fund") and Ohio Municipal Money Market Fund (the "Ohio Municipal Fund").
The information contained in this Statement of Additional Information expands
upon matters discussed in the Prospectus. No investment in shares of a Fund
should be made without first reading the Prospectus.
The Pennsylvania Tax Exempt Fund commenced operations on August 8, 1994
as a separate investment portfolio (the "Predecessor Fund") of Inventor Funds,
Inc, which was organized as a Maryland corporation. On September 9, 1996, the
Predecessor Fund was reorganized as a new portfolio of the Trust. Prior to the
reorganization, the Predecessor Fund offered and sold shares of stock that were
similar to the Trust's A Shares of beneficial interest.
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, "Standardized Yield Quotations" 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 municipal bonds, short term notes and other securities which may
be held by the Funds.
ELIGIBLE SECURITIES
The Funds may purchase "eligible securities" that present minimal
credit risks as determined by the Adviser pursuant to guidelines established by
the Trust's Board of Trustees. Eligible securities generally include: (1)
securities that are rated by two or more Rating Agencies (or the only Rating
Agency which has issued a rating) in one of the two highest rating categories
for short term debt securities; (2) securities that have no short term rating,
if the issuer has other outstanding short term obligations that are comparable
in priority and security as determined by the Adviser ("Comparable Obligations")
and that have been rated in accordance with (1) above; (3) securities that have
no short term rating, but are determined to be of comparable quality to a
security satisfying (1) or (2) above, and the issuer does not have Comparable
Obligations rated by a Rating Agency; and (4) securities with credit supports
that meet specified rating criteria similar to the foregoing and other criteria
in accordance with applicable Securities and Exchange Commission ("SEC")
regulations. Securities issued by a money market fund and securities issued by
the U.S. Government may constitute eligible
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securities if permitted under applicable SEC regulations and Trust procedures.
The Board of Trustees will approve or ratify any purchases by the Money Market,
Government, Treasury, Tax Exempt, Pennsylvania Tax Exempt and Ohio Municipal
Funds of securities that are rated by only one Rating Agency or that qualify
under (3) above as long as required by applicable regulations or Trust
procedures.
VARIABLE AND FLOATING RATE INSTRUMENTS
The Funds may purchase variable rate and floating rate obligations as
described in the Prospectus. The Adviser will consider the earning power, cash
flows and other liquidity ratios of the issuers and guarantors of such notes and
will continuously monitor their financial status to meet payment on demand. In
determining average weighted portfolio maturity, a variable or floating rate
instrument issued or guaranteed by the U.S. government or an agency or
instrumentality thereof will be deemed to have a maturity equal to the period
remaining until the obligation's next interest rate adjustment. Other variable
and floating rate obligations will be deemed to have a maturity equal to the
longer or shorter of the periods remaining to the next interest rate adjustment
or the demand notice period in accordance with applicable regulations or Trust
procedures.
Variable and floating rate obligations held by a Fund may have
maturities of more than 397 days, provided: (a) (i) the Fund is entitled to
payment of principal and accrued interest upon not more than 30 days' notice or
at specified intervals not exceeding one year (upon not more than 30 days'
notice) and (ii) the rate of interest on such instrument is adjusted
automatically at periodic intervals which normally will not exceed 31 days, but
may extend up to one year, or (b) if the obligation is an asset-backed security,
and if permitted under Trust procedures and applicable regulations, the security
has a feature permitting the holder unconditionally to receive principal and
interest within 13 months of making demand.
GUARANTEED INVESTMENT CONTRACTS
As stated in the Prospectus, the Money Market Fund may invest in GICs
issued by insurance companies. Pursuant to such contracts, the Fund makes cash
contributions to a deposit fund of the insurance company's general account. The
insurance company then credits to the Fund on a monthly basis guaranteed
interest which is based on an index. The GICs provide that this guaranteed
interest will not be less than a certain minimum rate. 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 only purchase a GIC when the Adviser has 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 Rating Agencies. The Fund's investments in GICs will not exceed 10%
of the Fund's net assets. In addition, because the Fund may not receive the
principal amount of a GIC from the insurance company on seven days' notice or
less, the GIC is considered an illiquid investment, and, together with other
instruments in the Fund which are not readily marketable, will not exceed 10% of
the Fund's net assets. The term of a GIC will be one year or less. In
determining average weighted portfolio maturity, a GIC will be deemed to
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have a maturity equal to the period of time remaining until the next
readjustment of the guaranteed interest rate.
BANK OBLIGATIONS AND COMMERCIAL PAPER
The Money Market, Pennsylvania Tax Exempt and Ohio Municipal Funds may
invest in bank obligations. Bank obligations include bankers' acceptances
generally having a maturity of six months or less and negotiable certificates of
deposit. Bank obligations also include U.S. dollar denominated bankers'
acceptances and certificates of deposit. 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. For purposes of the Money Market Fund's
investment policy with respect to bank obligations, the assets of a bank or
savings institution will be deemed to include the assets of its domestic and
foreign branches.
Investments by the Pennsylvania Tax Exempt Fund and Ohio Municipal Fund
include commercial paper and other short term promissory notes issued by
corporations, municipalities and other entities (including variable and floating
rate instruments).
REPURCHASE AGREEMENTS; REVERSE REPURCHASE AGREEMENTS; LENDING OF PORTFOLIO
SECURITIES
Securities held by the Money Market, Government, Pennsylvania Tax
Exempt and Ohio Municipal Funds may be subject to repurchase agreements. Under
the terms of a repurchase agreement, the Funds purchase securities from
financial institutions such as banks and broker-dealers which the Adviser deems
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 are considered to be borrowings by the
Funds under the 1940 Act. Whenever a Fund enters into a reverse repurchase
agreement as described in the Prospectus, it will place in a segregated
custodial account liquid assets at least equal to the
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repurchase price marked to market daily (including accrued interest) and will
subsequently monitor the account to ensure such equivalent value is maintained.
Reverse repurchase agreements involve the risk that the market value of the
securities sold by the Portfolio may decline below the price of the securities
it is obligated to repurchase.
With respect to loans by the Money Market or Government Funds of its
portfolio securities as described in the Prospectus, the Fund would continue to
accrue interest on loaned securities and would also earn income on loans. Any
cash collateral received by the Funds in connection with such loans would be
invested in short-term U.S. Government obligations.
GOVERNMENT SECURITIES
Examples of the types of U.S. government obligations that may be held
by the Money Market, Government, Tax Exempt, Pennsylvania Tax Exempt and Ohio
Municipal Funds include, in addition to Treasury Bills, the obligations of
Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the
Federal Housing Administration, Farmers Home Administration, Export-Import Bank
of the United States, Small Business Administration, Government National
Mortgage Association, General Services Administration, Student Loan Marketing
Association, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks and Maritime Administration. 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 Money Market,
Government and Tax Exempt, Pennsylvania Tax Exempt and Ohio Municipal Funds will
invest in the obligations of such agencies or instrumentalities only when the
Adviser believes that their credit risk with respect thereto is minimal.
SECURITIES OF OTHER INVESTMENT COMPANIES
Each Fund may invest in securities issued by other investment companies
as described in the Prospectus. Each Fund currently intends to limit such
investments so that, as determined immediately after a securities purchase is
made: (a) not more than 5% of the value of its total assets will be invested in
the securities of any one investment company; (b) not more than 10% of the value
of its total assets will be invested in the aggregate in securities of
investment companies as a group; (c) not more than 3% of the outstanding voting
stock of any one investment company will be owned by the Fund; and (d) not more
than 10% of the outstanding voting stock of any one investment company will be
owned in the aggregate by the Fund and other investment companies advised by the
Adviser. As a shareholder of another investment company, a Fund would bear,
along with other shareholders, its pro rata portion of
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that company's expenses, including advisory fees. These expenses would be in
addition to the advisory and other expenses that a Fund bears directly in
connection with its own operations. Investment companies in which a 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.
MUNICIPAL SECURITIES
As described in the Prospectus, the Tax Exempt, Pennsylvania Tax Exempt
and Ohio Municipal Funds may purchase Municipal Securities. The two principal
classifications of Municipal Securities consist of "general obligation" and
"revenue" issues. The Funds also may invest in "moral obligation" issues, which
are normally issued by special purpose authorities. Municipal Securities include
debt obligations issued by governmental entities to obtain funds for various
public purposes, including the construction of a wide range of public
facilities, the refunding of outstanding obligations, the payment of general
operating expenses and the extension of loans to public institutions and
facilities. Private activity bonds may be purchased if the interest paid is
excludable from federal income tax. Private activity bonds are issued by or on
behalf of states or political subdivisions thereof to finance privately owned or
operated facilities for business and manufacturing, housing, sports, and
pollution control and to finance activities of and facilities for charitable
institutions. Private activity bonds are also used to finance public facilities
such as airports, mass transit systems, ports, parking and low income housing.
The payment of the principal and interest on private activity bonds is dependent
solely on the ability of the facility's user to meet its financial obligations
and may be secured by a pledge of real and personal property so financed.
Ohio and Pennsylvania Municipal Securities which are payable only from
the revenues derived from a particular facility may be adversely affected by
federal, by Ohio in the case of Ohio Municipal Securities and by Pennsylvania in
the case of Pennsylvania Municipal Securities, laws, regulations or court
decisions which make it more difficult for the particular facility to generate
revenues sufficient to pay such interest and principal, including, among others,
laws, decisions and regulations which limit the amount of fees, rates or other
charges which may be imposed for use of the facility or which increase
competition among facilities of that type or which limit or otherwise have the
effect of reducing the use of such facilities generally, thereby reducing the
revenues generated by the particular facility. Pennsylvania Municipal
Securities, the payment of interest and principal on which is insured in whole
or in part by a Pennsylvania governmentally created fund, may be adversely
affected by Pennsylvania laws or regulations which restrict the aggregate
proceeds available for payment of principal and interest in the event of a
default on such municipal securities. The payment of interest and principal on
Ohio and Pennsylvania Municipal Securities may be adversely affected by
respective state laws which limit the availability of remedies or the scope of
remedies available in the event of a default on such municipal securities.
Because of the diverse nature of such laws and regulations and the impossibility
of either predicting in which specific Ohio or Pennsylvania Municipal Securities
the Ohio Municipal or Pennsylvania Tax Exempt Funds will invest from time to
time or predicting the nature or extent of future judicial interpretation or
changes in existing laws or regulations or the future enactment or adoption of
additional laws or regulations,
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it is not presently possible to determine the impact of such laws,
regulations and judicial interpretation on the securities in which the Ohio
Municipal and Pennsylvania Tax Exempt Funds may invest and, therefore, on the
shares of that Fund.
There are, of course, variations in the quality of Municipal Securities
both within a particular classification and between classifications, and the
yields on Municipal Securities depend upon a variety of factors, including the
financial condition of the issuer, general conditions of the municipal bond
market, the size of a particular offering, the maturity of the obligation and
the rating of the issue. The ratings of Rating Agencies represent their opinions
as to the quality of Municipal Securities. It should be emphasized, however,
that ratings are general and are not absolute standards of quality, and
Municipal Securities with the same maturity, interest rate and rating may have
different yields while Municipal Securities of the same maturity and interest
rate with different ratings may have the same yield. Subsequent to its purchase
by the Tax Exempt Fund, Pennsylvania Tax Exempt Fund or Ohio Municipal Fund, an
issue of Municipal Securities may cease to be rated or its rating may be reduced
below the minimum rating required for purchase by such Funds. The Adviser will
consider such an event in determining whether it should continue to hold the
obligation.
The payment of principal and interest on most Municipal Securities
purchased by the Tax Exempt, Pennsylvania Tax Exempt and Ohio Municipal Funds
will depend upon the ability of the issuers to meet their obligations. An
issuer's obligations under its Municipal Securities are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Code, and laws, if any,
which may be enacted by federal or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon the ability of municipalities to levy
taxes. The power or ability of an issuer to meet its obligations for the payment
of interest on and principal of its Municipal Securities may be materially
adversely affected by litigation or other conditions.
Certain Municipal Securities held by the Tax Exempt, Pennsylvania Tax
Exempt or Ohio Municipal Funds may be insured at the time of issuance as to the
timely payment of principal and interest. The insurance policies will usually be
obtained by the issuer or original purchaser of the Municipal Bond at the time
of its original issuance. In the event that the issuer defaults on interest or
principal payments, the insurer of the bond is required to make payment to the
bondholders upon proper notification. There is, however, no guarantee that the
insurer will meet its obligations. In addition, such insurance will not protect
against market fluctuations caused by changes in interest rates and other
factors.
Municipal notes in which the Tax Exempt, Pennsylvania Tax Exempt and
Ohio Municipal Funds may invest include, but are not limited to, general
obligation notes, tax anticipation notes (notes sold to finance working capital
needs or capital facilities of the issuer in anticipation of receiving taxes on
a future date), revenue anticipation notes (notes sold to provide needed cash
prior to receipt of expected non-tax revenues from a specific source), bond
anticipation notes, certificates of indebtedness, demand notes and construction
loan notes.
OTHER TAX-EXEMPT INSTRUMENTS
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Tax-exempt commercial paper will be limited to investments in
obligations which are rated at least A-2 or SP-2 by S&P, F-2 by Fitch or
Prime-2, MIG-2 or VMIG-2 by Moody's at the time of investment or which are of
equivalent quality as determined by the Adviser. Investments in floating rate
instruments will normally involve industrial development or revenue bonds which
provide that the investing Fund can demand payment of the obligation at all
times or at stipulated dates on short notice (not to exceed 30 days) at par plus
accrued interest. A Fund must use the shorter of the period required before it
is entitled to prepayment under such obligations or the period remaining until
the next interest rate adjustment date for purposes of determining the maturity.
Such obligations are frequently secured by letters of credit or other credit
support arrangements provided by banks. The quality of the underlying credit or
of the bank, as the case may be, must, in the opinion of the Adviser be
equivalent to the commercial paper ratings stated above. The Adviser will
monitor the earning power, cash flow and liquidity ratios of the issuers of such
instruments and the ability of an issuer of a demand instrument to pay principal
and interest on demand. Other types of tax-exempt instruments may also be
purchased as long as they are of a quality equivalent to the bond or commercial
paper ratings stated above.
STAND-BY COMMITMENTS
The Tax Exempt, Pennsylvania Tax Exempt and Ohio Municipal Funds may
acquire stand-by commitments (also known as put options) with respect to
Municipal Securities held in their portfolios. These Funds expect that stand-by
commitments will generally be available without the payment of any direct or
indirect consideration. However, if necessary or advisable, the Funds may pay
for a stand-by commitment either separately in cash or by paying a higher price
for portfolio securities which are acquired subject to the commitment (thus
reducing the yield to maturity otherwise available for the same securities). The
Funds will not acquire stand-by commitments unless immediately after the
acquisition, not more than 5% of their respective total assets will be invested
in instruments subject to a demand feature, or in stand-by commitments, with the
same institution.
The Tax Exempt, Pennsylvania Tax Exempt, and Ohio Municipal Funds'
right to exercise stand-by commitments will be unconditional and unqualified. A
stand-by commitment will be transferable only with the underlying Municipal
Securities which may be sold to a third party at any time. Until a Fund
exercises its stand-by commitment, it owns the securities in its portfolio which
are subject to the commitment.
The amount payable to the Tax Exempt, Pennsylvania Tax Exempt or Ohio
Municipal Fund upon its exercise of a stand-by commitment will normally be (i)
the Fund's acquisition cost of the Municipal Securities (excluding any accrued
interest which the Fund paid on its acquisition), less any amortized market
premium or plus any amortized market or original issue discount during the
period the Fund owned the securities, plus (ii) all interest accrued on the
securities since the last interest payment date during that period. Under normal
market conditions, in determining net asset value the Funds value the underlying
Municipal Securities on an amortized cost basis. Accordingly, the amount payable
by a dealer upon exercise of a
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stand-by commitment will normally be substantially the same as the portfolio
value of the underlying Municipal Securities.
The Tax Exempt, Pennsylvania Tax Exempt and Ohio Municipal Funds intend
to enter into stand-by commitments only with dealers, banks and broker-dealers
which, in the Adviser's opinion, present minimal credit risks. The Funds'
reliance upon the credit of these dealers, banks and broker-dealers will be
secured by the value of the underlying Municipal Securities subject to the
commitment. Thus, the risk of loss to the Funds in connection with a stand-by
commitment will not be qualitatively different from the risk of loss faced by a
person that is holding securities pending settlement after having agreed to sell
the securities in the ordinary course of business.
WHEN-ISSUED SECURITIES
The Tax Exempt, Pennsylvania Tax Exempt and Ohio Municipal Funds may
purchase Municipal Securities on a "when-issued" basis (i.e., for delivery
beyond the normal settlement date at a stated price and yield). When a Fund
agrees to purchase 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 a Fund's net assets will fluctuate to
a greater degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. Because the Funds will set aside cash
or liquid assets to satisfy the Funds' purchase commitments in the manner
described, their liquidity and ability to manage their portfolios might be
affected in the event the Funds' commitments to purchase when-issued securities
ever exceeded 25% of the value of their respective total assets.
When the Funds engage in when-issued transactions, they rely on the
seller to consummate the trade. Failure of the seller to do so may result in a
Fund incurring a loss or missing an opportunity to obtain a price considered to
be advantageous.
ADDITIONAL INVESTMENT LIMITATIONS
In addition to the investment limitations disclosed in the Prospectus,
the Funds are subject to the following investment limitations which may be
changed with respect to a particular Fund only by a vote of the holders of a
majority of such Fund's outstanding shares (as defined under "Miscellaneous" in
the Prospectus).
No Fund may:
1. Purchase or sell real estate, except that the Fund may
purchase securities of issuers which deal in real estate and may purchase
securities which are secured by interests in real estate.
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2. Invest in commodities, except that as consistent with its
investment objective and policies a Fund may: (a) purchase and sell options,
forward contracts, futures contracts, including without limitation those
relating to indices; (b) purchase and sell options on futures contracts or
indices; and (c) purchase publicly traded securities of companies engaging in
whole or in part in such activities. For purposes of this investment limitation,
"commodities" includes commodity contracts.
3. Act as an underwriter of securities within the meaning of the
Securities Act of 1933 except insofar as the Fund 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, the Funds are subject to the following non-fundamental
limitations, which may be changed without the vote of shareholders.
No Fund may:
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, as consistent with a Fund's
investment objective and policies, (a) this investment limitation shall not
apply to the Fund's 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 10% of its net assets in illiquid securities.
The Funds do not intend to purchase securities while their outstanding
borrowings (including reverse repurchase agreements) are in excess of 5% of
their respective total assets. Securities held in escrow or separate accounts in
connection with a Fund's investment practices are not deemed to be pledged for
purposes of this limitation.
SPECIAL RISK CONSIDERATIONS REGARDING INVESTMENT IN PENNSYLVANIA MUNICIPAL
SECURITIES
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Potential shareholders should consider the fact that the Pennsylvania
Tax Exempt Fund's portfolio consists primarily of securities issued by the
Commonwealth of Pennsylvania (the "Commonwealth"), its municipalities and
authorities and should realize that such Fund's performance is closely tied to
general economic conditions within the Commonwealth as a whole and to economic
conditions within particular industries and geographic areas located within the
Commonwealth.
Although the General Fund of the Commonwealth (the principal operating
fund of the Commonwealth) experienced deficits in fiscal 1990 and 1991, tax
increases and spending decreases have resulted in surpluses the last four years;
as of June 30, 1996, the General Fund had a surplus of $635.2 million.
Pennsylvania's economy historically has been dependent upon heavy
industry, but has diversified recently into various services, particularly into
medical and health services, education and financial services. Agricultural
industries continue to be an important part of the economy, including not only
the production of diversified food and livestock products, but substantial
economic activity in agribusiness and food-related industries. Service
industries currently employ the greatest share of non-agricultural workers,
followed by the categories of trade and manufacturing. Future economic
difficulties in any of these industries could have an adverse impact on the
finances of the Commonwealth or its municipalities, and could adversely affect
the market value of the Bonds in the Pennsylvania Trust or the ability of the
respective obligors to make payments of interest and principal due on such
Bonds.
Certain litigation is pending against the Commonwealth that could
adversely affect the ability of the Commonwealth to pay debt service on its
obligations including suit relating to the following matters: (i) the American
Civil Liberties Union ("ACLU") filed suit in federal court demanding additional
funding for child welfare services; the Commonwealth settled a similar suit in
the Commonwealth Court of Pennsylvania and is seeking the dismissal of the
federal suit, among other things, because of that settlement. After its earlier
denial of class certification was reversed by the Third Circuit Court of
Appeals, the district court granted class certification to the ACLU and the
parties are proceeding with discovery; (ii) in 1987, the Supreme Court of
Pennsylvania held the statutory scheme for country funding of the judicial
system to be in conflict with the constitution of the Commonwealth, but it
stayed judgment pending enactment by the legislature of funding consistent with
the opinion, and the legislature has yet to consider legislation implementing
the judgment. In 1992, a new action in mandamus was filed seeking to compel the
Commonwealth to comply with the original decision. The Court issued a writ in
mandamus and appointed a special master in 1996 to submit a plan for
implementation, which it intended to require by January 1, 1998. In January
1997, the Court established a committee, consisting of the special master and
representatives of the Executive and Legislative branches, to develop an
implementation plan; (iii) litigation was filed in both state and federal court
by an association of rural and small schools and several individual school
districts and parents challenging the constitutionality of the Commonwealth's
system for funding local school districts -- the federal case has been stayed
pending the resolution of the state case; a trial in the state case commenced in
January 1997 and has recessed; no briefing schedule or date for oral argument
has yet been set; (iv) Envirotest/Synterra Partners ("Envirotest") filed suit
against the Commonwealth asserting that it sustained damages in excess of $350
million, as a
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result of investments it made in reliance on a contract to conduct emissions
testing before the emission testing program was suspended. Envirotest entered
into a Standstill Agreement with the Commonwealth pursuant to which the parties
will attempt to resolve Envirotest will receive $145 million, with interest at 6
percent per annum; and (v) in 1995, the Commonwealth, the Governor of
Pennsylvania, the City of Philadelphia and the Mayor of Philadelphia were joined
as additional respondents in an enforcement action commenced in Commonwealth
Court in 1973 by the Pennsylvania Human Relations Commission against the School
District of Philadelphia pursuant to the Pennsylvania Human Relations Act. The
Commonwealth and the City were joined to determine their liability, if any, to
pay additional costs necessary to remedy segregation-related conditions found to
exist in Philadelphia public schools. In January 1997, the Pennsylvania Supreme
Court ordered the parties to brief certain issues, but no decision by the
Supreme Court has been issued.
A disaster emergency was declared by the Governor and a federal major
disaster declaration was made by the President of the United States for certain
counties in the Commonwealth for a blizzard and subsequent flooding in January
1996. The General Assembly authorized $123 million to provide for the
Commonwealth's share of the required match for federal public assistance and
disaster mitigation funds.
Although there can be no assurance that such conditions will continue,
the Commonwealth's general obligation bonds are currently rated AA- by S&P and
A1 by Moody's and Philadelphia's and Pittsburgh's general obligation bonds are
currently rated BBB- and BBB+, respectively, by S&P and Baa and Baa1,
respectively, by Moody's.
The City of Philadelphia (the "City") experienced a series of General
Fund deficits for fiscal years 1988 through 1992 and, while its general
financial situation has improved, the City is still seeking a long-term solution
for its economic difficulties. The audited balance of the City's General Fund as
of June 30, 1996 was a surplus of $118.5 million.
In recent years, an authority of the Commonwealth, the Pennsylvania
Intergovernmental Cooperation Authority ("PICA"), has issued approximately $1.76
billion of Special Revenue Bonds on behalf of the City to cover budget
shortfalls, to eliminate projected deficits and to fund capital spending. As one
of the conditions of issuing bonds on behalf of the City, PICA exercises
oversight of the City's finances. The City is currently operating under a five
year plan approved by PICA in 1995. PICA's power to issue further bonds to
finance capital projects expired on December 31, 1994. PICA's authority to issue
bonds to finance cash flow deficits expired on December 31, 1996, but its
authority to refund existing debt will not expire.
SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN OHIO MUNICIPAL SECURITIES
As described in the Prospectus, the Ohio Municipal Fund will invest
most of its net assets in securities issued by or on behalf of (or in
certificates of participation in lease-purchase obligations of) the State of
Ohio, political subdivisions of the State, or agencies or instrumentalities of
the State or its political subdivisions ("Ohio Municipal Securities"). The Fund
is therefore susceptible to general or particular economic, political or
regulatory factors that may affect issuers of Ohio Municipal Securities. The
following information constitutes only a
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brief summary of some of the many complex factors that may have an effect. The
information does not apply to "conduit" obligations on which the public issuer
itself has no financial responsibility. This information is derived from
official statements of certain Ohio issuers published in connection with their
issuance of securities and from other publicly available information, and is
believed to be accurate. No independent verification has been made of any of the
following information.
Generally, the creditworthiness of Ohio Municipal Securities of local
issuers is unrelated to that of obligations of the State itself, and the State
has no responsibility to make payments on those local obligations.
There may be specific factors that at particular times apply in
connection with investment in particular Ohio Municipal Securities or in those
obligations of particular Ohio issuers. It is possible that the investment may
be in particular Ohio Municipal Securities, or in those of particular issuers,
as to which those factors apply. However, the information below is intended only
as a general summary, and is not intended as a discussion of any specific
factors that may affect any particular obligation or issuer.
The timely payment of principal of and interest on Ohio Municipal
Securities has been guaranteed by bond insurance purchased by the issuers, the
Fund or other parties. Those Ohio Municipal Securities may not be subject to the
factors referred to in this section of the Prospectus.
Ohio is the seventh most populous state. The 1990 Census count of
10,847,000 indicated a 0.5% population increase from 1980. The Census estimate
for 1996 is 11,173,000.
While diversifying more into the service and other non-manufacturing
areas, the Ohio economy continues to rely in part on durable goods manufacturing
largely concentrated in motor vehicles and equipment, steel, rubber products and
household appliances. As a result, general economic activity, as in many other
industrially-developed states, tends to be more cyclical than in some other
states and in the nation as a whole. Agriculture is an important segment of the
economy, with over half the State's area devoted to farming and approximately
16% of total employment in agribusiness.
In prior years, the State's overall unemployment rate was commonly
somewhat higher than the national figure. For example, the reported 1990 average
monthly State rate was 5.7%, compared to the 5.5% national figure. However, for
the last seven years the State rates were below the national rates (4.6% versus
4.9% in 1997). The unemployment rate and its effects vary among geographic areas
of the State.
There can be no assurance that future national, regional or state-wide
economic difficulties, and the resulting impact on State or local government
finances generally, will not adversely affect the market value of Ohio Municipal
Securities held in the Fund or the ability of particular obligors to make timely
payments of debt service on (or lease payments relating to) those Obligations.
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The State operates on the basis of a fiscal biennium for its
appropriations and expenditures, and is precluded by law from ending its July 1
to June 30 fiscal year (FY) or fiscal biennium in a deficit position. Most State
operations are financed through the General Revenue Fund (GRF), for which the
personal income and sales-use taxes are the major sources. Growth and depletion
of GRF ending fund balances show a consistent pattern related to national
economic conditions, with the ending FY balance reduced during less favorable
and increased during more favorable economic periods. The State has
well-established procedures for, and has timely taken, necessary actions to
ensure resource/expenditure balances during less favorable economic periods.
Those procedures included general and selected reductions in appropriations
spending.
The 1992-93 biennium presented significant challenges to State
finances, successfully addressed. To allow time to resolve certain budget
differences an interim appropriations act was enacted effective July 1, 1991; it
included GRF debt service and lease rental appropriations for the entire
biennium, while continuing most other appropriations for a month. Pursuant to
the general appropriations act for the entire biennium, passed on July 11, 1991,
$200 million was transferred from the Budget Stabilization Fund (BSF, a cash and
budgetary management fund) to the GRF in FY 1992.
Based on updated results and forecasts in the course of that FY, both
in light of a continuing uncertain nationwide economic situation, there was
projected, and then timely addressed, an FY 1992 imbalance in GRF resources and
expenditures. In response, the Governor ordered most State agencies to reduce
GRF spending in the last six months of FY 1992 by a total of approximately $184
million; the $100.4 million BSF balance and additional amounts from certain
other funds were transferred late in the FY to the GRF; and adjustments were
made in the timing of certain tax payments.
A significant GRF shortfall (approximately $520 million) was then
projected for FY 1993. It was addressed by appropriate legislative and
administrative actions, including the Governor's ordering $300 million in
selected GRF spending reductions and subsequent executive and legislative action
(a combination of tax revisions and additional spending reductions). The June
30, 1993 ending GRF fund balance was approximately $111 million, of which, as a
first step to replenishment, $21 million was deposited in the BSF.
None of the spending reductions were applied to appropriations needed
for debt service on or lease rentals relating to any State obligations.
The 1994-95 biennium presented a more affirmative financial picture.
Based on June 30, 1994 balances, an additional $260 million was deposited in the
BSF. The biennium ended June 30, 1995 with a GRF ending fund balance of $928
million, of which $535.2 million was transferred into the BSF. The significant
GRF fund balance, after leaving in the GRF an unreserved and undesignated
balance of $70 million, was transferred to the BSF and other funds including
school assistance funds and, in anticipation of possible federal program
changes, a human services stabilization fund.
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From a higher than forecast 1996-97 mid-biennium GRF fund balance, $100
million was transferred for elementary and secondary school computer network
purposes and $30 million to a new State transportation infrastructure fund.
Approximately $400.8 million served as a basis for temporary 1996 personal
income tax reductions aggregating that amount. The 1996-97 biennium-ending GRF
fund balance was $834.9 million. Of that, $250 million went to school building
construction and renovation, $94 million to the school computer network, $44.2
million for school textbooks and instructional materials and a distance learning
program, and $34 million to the BSF, and the $263 million balance to a State
income tax reduction.
The GRF appropriations act for the 1997-98 biennium was passed on June
25, 1997 and promptly signed (after selective vetoes) by the Governor. All
necessary GRF appropriations for State debt service and lease rental payments
then projected for the biennium were included in that act. Subsequent
legislation increased the fiscal year 1999 GRF appropriation level for
elementary and secondary education, with the increase to be funded in part by
mandated small percentage reductions in State appropriations for various State
agencies and institutions. Expressly exempt from those reductions are all
appropriations for debt service, including lease rental payments.
The BSF had a July 30, 1998 balance of more than $862 million.
The State's incurrence or assumption of debt without a vote of the
people is, with limited exceptions, prohibited by current State constitutional
provisions. The State may incur debt, limited in amount to $750,000, to cover
casual deficits or failures in revenues or to meet expenses not otherwise
provided for. The Constitution expressly precludes the State from assuming the
debts of any local government or corporation. (An exception is made in both
cases for any debt incurred to repel invasion, suppress insurrection or defend
the State in war.)
By 14 constitutional amendments, approved from 1921 to date (the latest
adopted in 1995) Ohio voters authorized the incurrence of State debt and the
pledge of taxes or excises to its payment. At July 30, 1998, $1.14 billion
(excluding certain highway bonds payable primarily from highway use receipts) of
this debt was outstanding or awaiting delivery. The only such State debt at that
date still authorized to be incurred were portions of the highway bonds, and the
following: (a) up to $100 million of obligations for coal research and
development may be outstanding at any one time ($26.7 million outstanding); (b)
$240 million of obligations authorized for local infrastructure improvements, no
more than $120 million of which may be issued in any calendar year (over $1
billion outstanding or awaiting delivery); and (c) up to $200 million in general
obligation bonds for parks, recreation and natural resources purposes which may
be outstanding at any one time ($88.6 million outstanding, with no more than $50
million to be issued in any one year).
The electors in 1995 approved a constitutional amendment extending the
local infrastructure bond program (authorizing an additional $1.2 billion of
State full faith and credit obligations to be issued over 10 years for the
purpose), and authorizing additional highway bonds (expected to be payable
primarily from highway use receipts). The latter supersedes the
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prior $500 million outstanding authorization, and authorizes not more that $1.2
billion to be outstanding at any time and not more than $220 million to be
issued in a fiscal year.
The Constitution also authorizes the issuance of State obligations for
certain purposes, the owners of which do not have the right to have excises or
taxes levied to pay debt service. Those special obligations include obligations
issued by the Ohio Public Facilities Commission and the Ohio Building Authority,
and certain obligations issued by the State Treasurer, over $5.2 billion of
which were outstanding at July 30, 1998.
The State estimates that aggregate FY 1998 rental payments under
various capital lease and lease purchase agreements were approximately $9.1
million. In recent years, State agencies have also participated in
transportation and office building projects that may have some local as well as
State use and benefit, in connection with which the State enters into lease
purchase agreements with terms ranging from 7 to 20 years. Certificates of
participation, or special obligation bonds of the State or a local agency, are
issued that represent fractionalized interests in or are payable from the
State's anticipated payments. The State estimates highest future FY payments
under those agreements (as of July 30, 1998) to be approximately $30.7 million
(of which $27.2 million is payable from sources other than the GRF, such as
federal highway money distributions). State payments under all those agreements
are subject to biennial appropriations, with the lease terms being two years
subject to renewal if appropriations are made.
A 1990 constitutional amendment authorizes greater State and political
subdivision participation (including financing) in the provision of housing. The
General Assembly may for that purpose authorize the issuance of State
obligations secured by a pledge of all or such portion as it authorizes of State
revenues or receipts (but not by a pledge of the State's full faith and credit).
A 1994 constitutional amendment pledges the full faith and credit and
taxing power of the State to meeting certain guarantees under the State's
tuition credit program which provides for purchase of tuition credits, for the
benefit of State residents, guaranteed to cover a specified amount when applied
to the cost of higher education tuition. (A 1965 constitutional provision that
authorized student loan guarantees payable from available State moneys has never
been implemented, apart from a "guarantee fund" approach funded essentially from
program revenues.)
State and local agencies issue obligations that are payable from
revenues from or relating to certain facilities (but not from taxes). By
judicial interpretation, these obligations are not "debt" within constitutional
provisions. In general, payment obligations under lease-purchase agreements of
Ohio public agencies (in which certificates of participation may be issued) are
limited in duration to the agency's fiscal period, and are renewable only upon
appropriations being made available for the subsequent fiscal period.
Local school districts in Ohio receive a major portion (state-wide
aggregate approximately 44% in recent years) of their operating moneys from
State subsidies, but are dependent on local property taxes, and in 119 districts
(as of July 30, 1998) from voter-
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authorized income taxes, for significant portions of their budgets. Litigation,
similar to that in other states, has been pending questioning the
constitutionality of Ohio's system of school funding. The Ohio Supreme Court has
concluded that aspects of the system (including basic operating assistance and
the loan program described below) are unconstitutional, and ordered the State to
provide for and fund a system complying with the Ohio Constitution, staying its
order for a year (to March 24, 1998) to permit time for responsive corrective
actions. The parties await eventual trial court decision on the adequacy of
steps taken to date by the State to enhance school funding consistent with the
Supreme Court decision. A small number of the State's 612 local school districts
have in any year required special assistance to avoid year-end deficits. A
program has provided for school district cash need borrowing directly from
commercial lenders, with diversion of State subsidy distributions to repayment
if needed. Recent borrowings under this program totalled $41.1 million for 28
districts in FY 1994, $71.1 million for 29 districts in FY 1995 (including $29.5
million for one), and $87.2 million for 20 districts in FY 1996 (including $42.1
million for one), and $113.2 million for 12 districts in 1997 (including $90
million to one for restructuring prior loans).
Ohio's 943 incorporated cities and villages rely primarily on property
and municipal income taxes for their operations. With other subdivisions, they
also receive local government support and property tax relief moneys distributed
by the State.
For those few municipalities and school districts that on occasion have
faced significant financial problems, there are statutory procedures for a joint
State/local commission to monitor the fiscal affairs and for development of a
financial plan to eliminate deficits and cure any defaults. (Similar procedures
have recently been extended to counties and townships.) Since inception for
municipalities in 1979, these "fiscal emergency" procedures have been applied to
25 cities and villages; for 18 of them the fiscal situation was resolved and the
procedures terminated (one village and one city are in preliminary "fiscal
watch" status). As of July 30, 1998, the 1996 school district "fiscal emergency"
provision was applied to six districts, and 10 were on preliminary "fiscal
watch" status.
At present the State itself does not levy ad valorem taxes on real or
tangible personal property. Those taxes are levied by political subdivisions and
other local taxing districts. The Constitution has since 1934 limited to 1% of
true value in money the amount of the aggregate levy (including a levy for
unvoted general obligations) of property taxes by all overlapping subdivisions,
without a vote of the electors or a municipal charter provision, and statutes
limit the amount of that aggregate levy to 10 mills per $1 of assessed valuation
(commonly referred to as the "ten-mill limitation"). Voted general obligations
of subdivisions are payable from property taxes that are unlimited as to amount
or rate.
NET ASSET VALUE
The Trust uses the amortized cost method to value shares in the Funds.
Pursuant to this method, a security is valued at its cost initially and
thereafter a constant amortization to maturity of any discount or premium is
assumed, regardless of the impact of fluctuating interest rates on the market
value of the security. Where it is not appropriate to value a security by the
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amortized cost method, the security will be valued either by market quotations,
or by fair value as determined by the Board of Trustees. While this method
provides certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price each respective
Fund would receive if it sold the security. The value of the portfolio
securities held by each respective Fund will vary inversely to changes in
prevailing interest rates. Thus, if interest rates have increased from the time
a security was purchased, such security, if sold, might be sold at a price less
than its cost. Similarly, if interest rates have declined from the time a
security was purchased, such security, if sold, might be sold at a price greater
than its purchase cost. In either instance, if the security is held to maturity,
no gain or loss will be realized.
Each Fund invests only in high-quality instruments and maintains a
dollar-weighted average portfolio maturity appropriate to its objective of
maintaining a stable net asset value per share, provided that a Fund will
neither purchase any security deemed to have a remaining maturity of more than
397 calendar days within the meaning of the 1940 Act nor maintain a
dollar-weighted average portfolio maturity which exceeds 90 days. The Trust's
Board of Trustees has established procedures pursuant to rules promulgated by
the SEC, that are intended to help stabilize the net asset value per share of
each Fund for purposes of sales and redemptions at $1.00. These procedures
include review by the Board of Trustees, at such intervals as it deems
appropriate, to determine the extent, if any, to which the net asset value per
share of each Fund calculated by using available market quotations deviates from
$1.00 per share. In the event such deviation exceeds one-half of one percent,
the Board of Trustees will promptly consider what action, if any, should be
initiated. If the Board of Trustees believes that the extent of any deviation
from a Fund's $1.00 amortized cost price per share may result in material
dilution or other unfair results to investors or existing shareholders, it has
agreed to take such steps as it considers appropriate to eliminate or reduce, to
the extent reasonably practicable, any such dilution or unfair results. These
steps may include selling portfolio instruments prior to maturity; shortening
the average portfolio maturity; withholding or reducing dividends; redeeming
shares in kind; reducing the number of a Fund's outstanding shares without
monetary consideration; or utilizing a net asset value per share determined by
using available market quotations.
DIVIDENDS
As stated, the Trust uses its best efforts to maintain the net asset
value per share of the Funds at $1.00. As a result of a significant expense or
realized or unrealized loss incurred by the Funds, it is possible that a Fund's
net asset value per share may fall below $1.00. Should the Trust incur or
anticipate any unusual or unexpected significant expense or loss which would
affect disproportionately the income of a Fund for a particular period, the
Board of Trustees would at that time consider whether to adhere to the present
dividend policy with respect to the Funds or to revise it in order to ameliorate
to the extent possible the disproportionate effect of such expense or loss on
the income of the Fund experiencing such effect. Such expense or loss may result
in a shareholder's receiving no dividends for the period in which he or she
holds shares of a Fund and/or in his or her receiving upon redemption a price
per share lower than the price he or she paid.
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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.
As of the date hereof, the B share class of the Tax Exempt Fund has not
commenced operations.
The Trust may suspend the right of redemption or postpone the date of
payment for shares for more than seven days during any period when (a) trading
on the Exchange is restricted by applicable rules and regulations of the 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.
As described in the Prospectus, I (formerly, Institutional) shares of
the Funds are sold to certain qualified investors at their net asset value
without a sales charge. A (formerly, Retail) shares of the Funds are sold to
public investors at the public offering price based on the Fund's net asset
value, without a front-end load or sales charge, as described in the Prospectus.
B shares of the Money Market and Tax Exempt Funds are available only to the
holders of B shares of another Fund who wish to exchange their B shares of such
other Fund for B shares of the Money Market and/or Tax Exempt Funds. B shares of
the Funds are sold to public investors at net asset value but are subject to a
contingent deferred sales charge which is payable upon redemption of such shares
as described in the Prospectus. There is no front-end sales charge or contingent
deferred sales charge imposed for shares acquired through the reinvestment of
dividends or distributions on such shares.
EXCHANGE PRIVILEGE
Investors may exchange all or part of their A or B shares as described
in the Prospectus. Any rights an Investor may have (or have waived) to reduce
the sales load applicable to an exchange, as may be provided in a Fund
Prospectus, will apply in connection with any such exchange. The exchange
privilege may be modified or terminated at any time upon 60 days' notice to
shareholders.
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By use of the exchange privilege, the Investor authorizes the Trust's
Transfer Agent or his or her 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 or her financial institution must notify the
Transfer Agent of his or her prior ownership of A or B 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,
qualifications, and terms and conditions of redemption. Pursuant to such
authority, the Board of Trustees has authorized the issuance of the classes or
series of shares, including fourteen classes or series, which represent
interests in the Money Market Fund (Class A, Class A - Special Series 1 and
Class A - Special Series 2), 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, Class D - Special Series 1 and Class D - Special Series 2),
Pennsylvania Tax Exempt Fund (Class Q and Class Q - Special Series 1) and Ohio
Municipal Fund (Class BB and Class BB Special Series 1).
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 a Fund are entitled to receive the assets
available for distribution belonging to the particular 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 I and A shares of an
investment fund will be entitled to vote on matters submitted to a vote of
shareholders (if
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any) relating to a distribution plan for such shares, and only B shares of a
fund will be entitled to vote on matters relating to a distribution plan with
respect to B 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 or her 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 adviser with
specific reference to their own tax situation.
GENERAL
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. 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 any 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
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Municipal Securities with respect to the Tax Exempt, Pennsylvania Tax Exempt and
Ohio Municipal Funds) 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."
Depending upon the extent of a Fund's activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located or in which it is otherwise deemed to be
conducting business, such Fund may be subject to the tax laws of such states or
localities. In addition, in those states and localities which have income tax
laws, the treatment of a Fund and its shareholders under such laws may differ
from their treatment under federal income tax laws. Under state or local law,
distributions of net investment income may be taxable to shareholders as
dividend income even though a substantial portion of such distributions may be
derived from interest on U.S. Government obligations which, if realized
directly, would be exempt from such income taxes. Shareholders are advised to
consult their tax advisers concerning the application of state and local taxes.
TAX EXEMPT FUND, PENNSYLVANIA TAX EXEMPT FUND AND OHIO MUNICIPAL FUND
As described above and in the Prospectus, the Tax Exempt, Pennsylvania
Tax Exempt and Ohio Municipal Funds are designed to provide investors with
tax-exempt interest income. The Funds are not intended to constitute a balanced
investment program and are not designed for investors seeking capital
appreciation or maximum tax-exempt income irrespective of fluctuations in
principal. Shares of the Funds would not be suitable for tax-exempt institutions
and may not be suitable for retirement plans qualified under Section 401 of the
Code, H.R. 10 plans and IRAs since such plans and accounts are generally
tax-exempt and, therefore, would not gain any additional benefit from the Funds'
dividends being tax-exempt.
The policy of the Tax Exempt, Pennsylvania Tax Exempt and Ohio
Municipal Funds is to pay each year as federal exempt-interest dividends
substantially all the Funds' Municipal Securities interest income net of certain
deductions. In order for the Funds to pay federal exempt-interest dividends with
respect to any taxable year, at the close of each taxable quarter at least 50%
of the aggregate value of their respective portfolios must consist of tax-exempt
obligations. An exempt-interest dividend is any dividend or part thereof (other
than a capital gain dividend) paid by a Fund and designated as an
exempt-interest dividend in a written notice mailed to shareholders not later
than 60 days after the close of the Fund's taxable year. However, the aggregate
amount of dividends so designated by the Funds cannot exceed the excess of the
amount of interest exempt from tax under Section 103 of the Code received by the
Funds during the taxable year over any amounts disallowed as deductions under
Sections 265
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and 171(a)(2) of the Code. The percentage of total dividends paid by the Funds
with respect to any taxable year which qualifies as federal exempt-interest
dividends will be the same for all shareholders receiving dividends from the
Funds with respect to such year.
The Tax Exempt, Pennsylvania Tax Exempt and Ohio Municipal Funds do not
expect to realize long-term capital gains and, therefore, do not expect to
distribute any capital gain dividends.
Shareholders are advised to consult their tax advisers with respect to
whether exempt-interest dividends would retain the exclusion under Section
103(a) if the shareholder would be treated as a "substantial user" or a "related
person" to such user with respect to facilities financed through any of the
tax-exempt obligations held by the Tax Exempt, Pennsylvania Tax Exempt and Ohio
Municipal Funds. A "substantial user" is defined under U.S. Treasury Regulations
to include a non-exempt person who regularly uses a part of such facilities in
his or her trade or business and whose gross revenues derived with respect to
the facilities financed by the issuance of bonds are more than 5% of the total
revenues derived by all users of such facilities, or who occupies more than 5%
of the usable area of such facilities or for whom such facilities or a part
thereof were specifically constructed, reconstructed or acquired. A "related
person" includes certain related natural persons, affiliated corporations,
partners and partnerships, and S corporations and their shareholders.
Interest on indebtedness incurred by a shareholder to purchase or carry
Tax Exempt, Pennsylvania Tax Exempt and Ohio Municipal Fund shares is not
deductible for federal income tax purposes if the Funds distribute
exempt-interest dividends during the shareholder's taxable year. In addition, if
a shareholder holds Fund shares for six months or less, any loss on the sale or
exchange of those shares will be disallowed to the extent of the amount of
exempt-interest dividends received with respect to the shares. The Treasury
Department, however, is authorized to issue regulations reducing the six months
holding requirement to a period of not less than the greater of 31 days or the
period between regular dividend distributions where the investment company
regularly distributes at least 90% of its net tax-exempt interest. No such
regulations had been issued as of the date of this Statement of Additional
Information.
TRUSTEES AND OFFICERS
The trustees and executive officers of the Trust, their addresses,
principal occupations during the past five years, and other affiliations are as
follows:
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<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 Board and Trustee Retired Co-Chairman of Ernst & Young,
32980 Creekside Drive April 1984 to September 1993; Director,
Pepper Pike, OH 44124 Cold Metal Products, Inc., since March
Age 64 1994; Director, Zurn Industries, Inc.
(building products and construction
services), June 1995 to June 1998.
Herbert R. Martens, Jr.* President and Trustee Executive Vice President, National City
c/o NatCity Investments, Inc. Corporation (bank holding company),
1965 East Sixth Street since July 1997; Chairman, President
Cleveland, OH 44114 and Chief Executive Officer, NatCity
Age 46 Investments, Inc. (investment banking),
since July 1995; President and Chief
Executive Officer, Raffensberger,
Hughes & Co. (broker-dealer), from 1993
until 1995; President, Reserve Capital
Group, from 1990 until 1993.
Leigh Carter* Trustee Retired President and Chief Operating
13901 Shaker Blvd., #6B Officer, B.F. Goodrich Company, August
Cleveland, OH 44120 1986 to September 1990; Director, Adams
Age 73 Express Company (closed-end investment
company), April 1982 to December 1997; Director,
Acromed Corporation (producer of spinal implants),
June 1992 to March 1998; Director, Petroleum &
Resources Corp., April 1987 to December 1997;
Director, Morrison Products (manufacturer of
blower fans and air moving equipment), since
April 1983; Director, Kirtland Capital Corp.
(privately funded investment group), since
January 1992.
John F. Durkott Trustee President and Chief Operating Officer,
8600 Allisonville Road Kittle's Home Furnishings Center, Inc.,
Indianapolis, IN 46250 since January 1982; partner, Kittles
Age 54 Bloomington Property Company, since
January 1981; partner, KK&D (Affiliated
Real Estate Companies of Kittle's Home
Furnishings Center), since January 1989.
</TABLE>
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<PAGE> 68
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
POSITION WITH DURING PAST 5 YEARS
NAME AND ADDRESS THE TRUST AND OTHER AFFILIATIONS
- ---------------- -------------- ----------------------
<S> <C> <C>
Robert J. Farling Trustee Retired Chairman, President and Chief
1608 Balmoral Way Executive Officer, Centerior Energy
Westlake, OH 44145 (electric utility), March 1992 to
Age 61 October 1997; Director, National City
Bank, until October 1997; Director,
Republic Engineered Steels, since
October 1997.
Richard W. Furst, Dean Trustee Professor of Finance and Dean, Carol
600 Autumn Lane Martin Gatton College of Business and
Lexington, KY 40502 Economics, University of Kentucky,
Age 60 since 1981; Director, The Seed
Corporation (restaurant group), since
1990; Director, Foam Design, Inc.
(manufacturer of industrial and
commercial foam products), since 1993.
Gerald L. Gherlein Trustee Executive Vice-President and General
3679 Greenwood Drive Counsel, Eaton Corporation, since 1991
Pepper Pike, OH 44124 (global manufacturing); Trustee,
Age 60 Meridia Health System (four hospital
health system), 1994 to 1998; Trustee,
WVIZ Educational Television (public television).
J. William Pullen Trustee President and Chief Executive Officer,
Whayne Supply Company Whayne Supply Co. (engine and heavy
1400 Cecil Avenue equipment distribution), since 1986;
P.O. Box 35900 President and Chief Executive Officer,
Louisville, KY 40232-5900 American Contractors Rentals & Sales
Age 59 (rental subsidiary of Whayne Supply
Co.), since 1988.
W. Bruce McConnel, III Secretary Partner of the law firm
Philadelphia National Drinker Biddle & Reath LLP,
Bank Building Philadelphia, Pennsylvania
1345 Chestnut Street
Suite 1100
Philadelphia, PA 19107
Age 55
Carol L. Rooney Treasurer Director of SEI Fund Resources since
c/o SEI Fund Resources 1992.
One Freedom Valley Drive
Oaks, PA 19456
Age 34
Kathryn L. Stanton Assistant Treasurer Vice President and Assistant Secretary
c/o SEI Fund Resources of SEI Fund Resources and SEI
One Freedom Valley Drive Investments Distribution Co. since
Oaks, PA 19456 1994; Associate, Morgan Lewis & Bockius
Age 39 LLP (law firm).
</TABLE>
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<PAGE> 69
* Messrs. Carter and Martens are considered by the Trust to be
"interested persons" of the Trust as defined in the 1940 Act.
Each trustee of the Trust serves as a trustee of The Parkstone Group
of Funds ("Parkstone") and The Parkstone Advantage Fund ("Parkstone
Advantage"), registered investment companies.
Herbert R. Martens, Jr. is employed by National City Corporation, the
parent corporation to National City Investment Management Company, which
receives fees as investment adviser to the Trust. Mmes. Rooney and Stanton are
employed by SEI Fund Resources, which receives fees as Administrator to the
Trust. Ms. Stanton is also employed by SEI Investments Distribution Co., which
receives fees as Distributor to the Trust. Mr. McConnel is a partner of the law
firm, Drinker Biddle & Reath LLP, which receives fees as counsel to the Trust.
With respect to the Trust, Parkstone and Parkstone Advantage, each
trustee receives an aggregate annual fee of $12,500 plus $3,000 for each Board
meeting attended and reimbursement of expenses incurred in attending meetings.
The three fund companies generally hold concurrent Board meetings. The Chairman
of the Board is entitled to receive an additional $5,000 per annum for services
in such capacity. For the year ended May 31, 1998, the Trust's trustees and
officers as a group received aggregate fees of $199,375. The trustees and
officers of the Trust own less than 1% of the shares of the Trust.
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<PAGE> 70
The following table summarizes the compensation for each of
the trustees of the Trust for the fiscal year ended May 31, 1998:
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Accrued Compensation
Aggregate as Part of Estimated from the Trust
Name of Compensation the Trust's Approval Benefits and Fund
Person, Position from the Trust Expenses Upon Retirement Complex*
---------------- -------------- -------- --------------- --------
<S> <C> <C> <C> <C>
Robert D. Neary, $31,500 $0 $0 $31,500
Chairman and Trustee
Thomas R. Benua, Jr., $ 4,375 $0 $0 $ 4,375
Trustee**
Leigh Carter, Trustee $27,750 $0 $0 $27,750
John F. Durkott, Trustee $27,750 $0 $0 $27,750
Robert J. Farling, Trustee*** $20,875 $0 $0 $20,875
Richard W. Furst, Trustee $27,750 $0 $0 $27,750
Gerald L. Gherlein, Trustee*** $27,750 $0 $0 $27,750
Herbert R. Martens, Jr.,*** $0 $0 $0 $0
President and Trustee
J. William Pullen, Trustee $24,750 $0 $0 $24,750
Richard B. Tullis, Trustee** $6,875 $0 $0 $6,875
</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 or her being or having been a
shareholder and not because of his or her acts or omissions or some other
reason. The Declaration of Trust also provides that the Trust shall, upon
request, assume the
------------------------
* The "Fund Complex" consists of Armada, Parkstone and Parkstone
Advantage. Each of the trustees serves as trustee to all three
investment companies. The trustees became trustees of Parkstone
and Parkstone Advantage effective August 14, 1998.
** Messrs. Benua and Tullis resigned as Trustees effective July 17, 1997
and November 19, 1997, respectively.
*** Messrs. Farling, Gherlein and Martens became Trustees as of November
19, 1997, July 17, 1997 and November 19, 1997, respectively.
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<PAGE> 71
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 or her
own bad faith, willful misfeasance, gross negligence, or reckless disregard of
his or her 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 or she may be involved or
with which he or she may be threatened by reason of his or her 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 or she been a trustee.
ADVISORY, ADMINISTRATION, DISTRIBUTION, CUSTODIAN
SERVICES AND TRANSFER AGENCY AGREEMENTS
ADVISORY AGREEMENTS
IMC serves as investment adviser to the Money Market, Government,
Treasury, Tax Exempt and Pennsylvania Tax Exempt Funds under an Advisory
Agreement dated November 19, 1997. Prior to such date, National City Bank,
National City Bank of Columbus and National City Bank of Kentucky served as
investment adviser to these Funds (together, the "three Advisers"). IMC serves
as investment adviser to the Ohio Municipal Money Market Fund pursuant to an
Advisory Agreement dated April 9, 1998. IMC and the three Advisers are
affiliates of National City Corporation, a bank holding company with over $81
billion in assets, and headquarters in Cleveland, Ohio and over 1,000 branch
offices in six states.
Pursuant to the advisory agreements in effect for the
following periods, the Trust incurred advisory fees in the following amounts for
the fiscal years ended May 31, 1998, 1997 and 1996: (i) 6,126,877 (after waivers
of $2,451,233), $5,067,456 (after waivers of $2,026,982) and $3,686,919 (after
waivers of $1,473,398), respectively, for the Money Market Fund; (ii) $2,815,875
(after waivers of $1,126,349), $2,415,282 (after waivers of $966,112) and
$1,654,730 (after waivers of $661,292), respectively, for the Government Fund,
and (iii) $742,324 (after waivers of $989,768), $573,529 (after waivers of
$764,704)
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<PAGE> 72
and $444,402 (after waivers of $592,531), respectively, for the Tax Exempt Fund.
Advisory fees in the amounts of $766,895 (after waivers of $153,379), $794,834
(after waivers of $158,966) and $527,698 (after waivers of $105,510) were
incurred for the fiscal year ended May 31, 1998, 1997 and 1996 with respect to
the Treasury Fund.
Pursuant to the Advisory Agreement, the Trust incurred advisory
fees in the amount of $142,220 (after waivers of $237,029) for the fiscal year
ended May 31, 1998 for the Pennsylvania Tax Exempt Fund. For the period from
September 9, 1996 (date of reorganization of the Predecessor Fund) until May 31,
1997, IMC, the Adviser of the Pennsylvania Tax Exempt Fund, earned advisory fees
of $224,379 and waived fees in the amount of $140,237 with respect to that Fund.
For the period from June 1, 1996 until September 9, 1996, for the one-month
period ended May 31, 1996 and for the fiscal year ended April 30, 1996, Integra
Trust Company ("Integra"), the investment adviser to the Predecessor Fund,
earned advisory fees of $85,768, $26,907 and $310,912, respectively, and Integra
waived fees in the amount of $51,068, $9,868 and $110,272, respectively.
Each of the Advisory Agreements 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
Agreements, except a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Adviser in the
performance of its duties or from reckless disregard by them of their duties and
obligations thereunder.
The Advisory Agreement relating to the Money Market, Government,
Treasury, Tax Exempt and Pennsylvania Tax Exempt Funds was approved by the
shareholders of each Fund on November 19, 1997. The Advisory Agreement with
National City relating to the Ohio Municipal Fund was approved by the sole
shareholder of the Fund as of the day prior to the day it commenced operations.
Unless sooner terminated, each of the Advisory Agreements will continue in
effect with respect to a particular Fund to which it relates until September 30,
1999, 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 such Fund (as defined in the Funds' 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 Agreements may be terminated by the Trust or the
Adviser on 60 days written notice, and will terminate immediately in the event
of their assignment.
ADMINISTRATION AGREEMENT AND SUB-ADMINISTRATION
The Trust and SEI Fund Resources (the "Administrator") have
entered into an administration agreement (the "Administration Agreement")
effective May 1, 1998.
The Administration Agreement provides that the Administrator 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 matters to which the Administration
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or negligence on the part of the Administrator in the performance of its duties
or from reckless disregard by it of its duties and obligations thereunder.
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<PAGE> 73
The Administrator, a Delaware business trust, has its principal
business offices at Oaks, Pennsylvania 19456. SEI Investments Management
Corporation ("SIMC"), a wholly-owned subsidiary of SEI Investments Company ("SEI
Investments"), is the owner of all beneficial interests in the Administrator.
SEI Investments and its affiliates, including the Administrator, are leading
providers of funds evaluation services, trust accounting systems, and brokerage
and information services to financial institutions, institutional investors, and
money managers. The Administrator and its affiliates also serve as administrator
or sub-administrator to the following other mutual funds: The Achievement Funds
Trust, The Advisors' Inner Circle Fund, The Arbor Fund, ARK Funds, Bishop Street
Funds, Boy 1784 Funds(R), CUFUND, The Expedition Funds, FMB Funds, Inc., First
American Funds, Inc., First American Investment Funds, Inc., First American
Strategy Funds, Inc., HighMark Funds, Marquis Funds(R), Monitor Funds, Morgan
Grenfell Investment Trust, Oak Associates Funds, The PBHG Funds, Inc., PBHG
Insurance Series Fund, Inc., The Pillar Funds, Santa Barbara Group of Mutual
Funds, Inc., SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional Investments Trust, SEI Institutional Managed Trust, SEI
International Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, STI Classic
Funds, STI Classic Variable Trust, TIP Funds and TIP Institutional Funds.
For the period from May 1, 1998 through May 31, 1998, the
Administrator earned administration fees of $138,647, $68,244, $18,670, $29,782
and $5,562 with respect to the Money Market, Government, Treasury, Tax Exempt
and Pennsylvania Tax Exempt Funds.
Prior to May 1, 1998, PFPC served as the administrator and
accounting agent to the Funds. Pursuant to the former Administration and
Accounting Services Agreement, the Trust incurred the following fees to PFPC for
the period from June 1, 1997 to April 30, 1998 and the fiscal years ended 1997
and 1996: (i) $523,266, $502,464 and $421,493, respectively, for the Money
Market Fund; (ii) $239,017, $239,708 and $187,373, respectively, for the
Government Fund; (iii) $187,219, $170,489 and $145,303, respectively, for the
Tax Exempt Fund; and (iv) $65,115, $79,005 and $37,703 and $59,255 respectively
for the Treasury Fund.
For the period from June 1, 1997 to April 30, 1998, PFPC earned
administration fees of $36,010 with respect to the Pennsylvania Tax Exempt Fund.
For the period from September 9, 1996 (date of reorganization of the Predecessor
Fund) until May 31, 1997, PFPC earned administration fees of $24,530 with
respect to the Pennsylvania Tax Exempt Fund. For the period from June 1, 1996
until September 9, 1996, for the one-month period ended May 31, 1996, for the
fiscal year ended April 30, 1996, SEI Financial Management Corporation, a
wholly-owned subsidiary of SEI Corporation, served as administrator to the
Predecessor Fund and earned the following fees: $28,589; $8,969; and $103,634;
respectively.
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<PAGE> 74
DISTRIBUTION PLANS AND RELATED AGREEMENT
The Distributor acts as distributor of the Funds' 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
Service and Distribution Plan for A and I shares (the "A and I Shares Plan") and
a B Shares Distribution and Servicing Plan ("B Shares Plan," and, collectively,
the "Distribution Plans") which permit the Trust to bear certain expenses in
connection with the distribution of I and A shares, or B shares, respectively.
As required by Rule 12b-1, the Trust's Distribution Plans and the 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 Distribution Plans or any agreement relating to
the Distribution Plans, by vote cast in person at a meeting called for the
purpose of voting on the Distribution Plans and related agreement. In compliance
with the Rule, the trustees requested and evaluated information they thought
necessary to an informed determination of whether the Distribution Plans 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 Distribution Plans 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 a Distribution Plan that would materially increase
the distribution expenses of a class would require approval by the shareholders
of such class, but otherwise, such Distribution 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 particular Plan or related
agreement. The Distribution Plans and related agreement may be terminated as to
a particular Fund or class by a vote of the Trust's disinterested trustees or by
vote of the shareholders of the Fund or class in question, 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 A and I Shares Plan provides that each fund will reimburse the
Distributor for distribution expenses related to the distribution of A and I
shares in an amount not to exceed .10% per annum of the average aggregate net
assets of such shares. The B Shares Plan provides that each B share class will
compensate the Distributor for distribution of B shares in an amount not to
exceed .75% of the average net assets of such class. Distribution expenses
reimbursable by the Distributor pursuant to each Distribution 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 distribution of its prospectuses to other than current
shareholders.
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<PAGE> 75
Under the former A and I Shares Plan and related distribution
agreement (effective for the period from June 1, 1997 to May 1, 1998) each fund
compensated the Distributor for distribution expenses related to the
distribution of I and A shares in an amount not to exceed .10% per annum of the
average aggregate net assets of such shares. This former Plan provided that the
Trust 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 Trusts'
investment funds with respect to the I and A shares.
For the fiscal year ended May 31, 1998, the Trust paid the
Distributor $1,466,472 with respect to the Money Market Fund, $685,793 with
respect to the Government Fund, $186,159 with respect to the Treasury Fund,
$301,662 with respect to the Tax Exempt Fund and $42,981 with respect to the
Pennsylvania Tax Exempt Fund under the A and I Shares Plans then in effect. Of
the aggregate amounts paid to the Distributor by the Trust with respect to the
Money Market Fund, approximately $936,000 was attributable to distribution
services and approximately $530,000 was attributable to marketing/consultation.
Of the aggregate amount paid to the Distributor by the Trust with respect to the
Government Fund, approximately $406,000 was attributable to distribution
services and approximately $277,000 was attributable to marketing/consultation.
Of the aggregate amounts paid to the Distributor by the Trust with respect to
the Treasury Fund approximately $101,000 was attributable to distribution
services and approximately $85,000 was attributable to marketing/consultation.
Of the aggregate amounts paid to the Distributor by the Trust with respect to
the Tax Exempt Fund, approximately $209,000 was attributable to distribution
services and $93,000 was attributable to marketing/consultation. Of the
aggregate amounts paid to the Distributor by the Trust with respect to the
Pennsylvania Tax Exempt Fund, approximately $39,000 was attributable to
distribution services and approximately $3,000 was attributable to
marketing/consultation. Distribution services include broker/dealer and investor
support, voice response development, wholesaling services, legal review and NASD
filings and transfer agency management. Marketing/Consultation includes planning
and development, market and industry research and analysis and marketing
strategy and planning.
CUSTODIAN SERVICES AND TRANSFER AGENCY AGREEMENTS
National City Bank serves as the Trust's custodian with respect to
the Funds. Under its Custodian Services Agreement, National City Bank has agreed
to: (i) maintain a separate account or accounts in the name of each Fund; (ii)
hold and disburse portfolio securities on account of each Fund; (iii) collect
and make disbursements of money on behalf of each Fund; (iv) collect and receive
all income and other payments and distributions on account of each 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 Funds' operations. National City Bank is authorized to
select one or more banks or trust companies to serve as sub-custodian on behalf
of the Funds, provided that it shall remain responsible for the performance of
all of its duties under the Custodian Services Agreement and shall hold the
Funds harmless from the acts and omissions of any bank or trust company serving
as sub-custodian. The Funds reimburse National City Bank for its direct and
indirect costs and expenses incurred in rendering custodial services, except
that the costs and expenses borne by each Fund in any year may not exceed $.225
for each $1,000 of average gross assets of such Fund.
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<PAGE> 76
State Street Bank and Trust Company (the "Transfer Agent") serves
as the Trust's transfer agent and dividend disbursing agent with respect to the
Funds. Under its Transfer Agency Agreement, it has agreed to: (i) issue and
redeem shares of each Fund; (ii) transmit all communications by each 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 Funds' operations. The Transfer Agent sends each
shareholder of record a monthly statement 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 each Fund.
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<PAGE> 77
SHAREHOLDER SERVICES PLANS
As stated in the Prospectus, the Trust has implemented the
Shareholder Services Plan for A shares and the B Shares Plan for each Fund
offering B shares. Pursuant to these plans, 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 A shares or B
shares in consideration for the payment of up to .15% (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
A or B shares; (iii) processing dividend payments from the Fund; (iv) providing
information periodically to customers showing their position in A or B shares;
(v) arranging for bank wires; (vi) responding to customer inquiries relating to
the services performed with respect to A or B 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 Agreements with the Trust, IMC is
responsible for making decisions with respect to and placing orders for all
purchases and sales of portfolio securities for the Funds. 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 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 the Adviser in its best judgment and in a manner deemed fair and
reasonable to shareholders. Under the Advisory Agreements, pursuant to Section
28(e) of the Securities Exchange Act of 1934, as amended, the adviser is
authorized to negotiate and pay higher brokerage commissions in exchange for
research services rendered by broker-dealers. Subject to this consideration,
broker-dealers who provide supplemental investment research to the Adviser may
receive orders for transactions by a 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 Funds. 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.
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<PAGE> 78
Portfolio securities will not be purchased from or sold to the
Trust'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 Trust will not give preference to
its Adviser's correspondents with respect to such transactions, securities,
savings deposits, repurchase agreements and reverse repurchase agreements. Under
certain circumstances, the Trust may be at a disadvantage because of these
limitations compared with the portfolios of other investment companies with
similar objectives that are not subject to such limitations.
The Trust is required to identify any securities of its "regular
brokers or dealers" that it has acquired during its most recent fiscal year. At
May 31, 1998, (a) the Money Market Fund had entered into repurchase transactions
with: Prudential Bache Securities; (b) the Government Fund had entered into
repurchase transactions with: Prudential Bache Securities and Goldman Sachs; (c)
the Treasury Fund had entered into repurchase transactions with Goldman Sachs;
and (d) the Tax Exempt Fund had entered into repurchase transactions with
Goldman Sachs.
Investment decisions for each 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 a
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 a Fund or the size of the position obtained
or sold by such Fund. In connection therewith, and to the extent permitted by
law and by the Advisory Agreements, the Adviser may aggregate the securities to
be sold or purchased for a Fund with those to be sold or purchased for other
investment companies or advisory clients.
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. The financial statements, as
of and for the period ended May 31, 1998, for the Money Market, Government,
Treasury, Tax Exempt and Pennsylvania Tax Exempt Funds, which are incorporated
by reference in this Statement of Additional Information, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report referred
to under "Financial Statements," and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The financial statements for periods or years prior to May 31,
1997 with respect to the Predecessor Fund, which are incorporated by reference
in this Statement of Additional
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<PAGE> 79
Information, were audited by PricewaterhouseCoopers LLP, independent accountants
for the Predecessor Fund, whose report dated July 26, 1996, expressed an
unqualified opinion on such financial statements, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
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 the legality of
the shares offered hereby. Squire, Sanders & Dempsey, L.L.P. with offices at
4900 Key Center, 127 Public Square, Cleveland, Ohio 44114-1304 act as special
Ohio tax counsel for the Trust and have reviewed the sections of this Statement
of Additional Information entitled "Special Risk Considerations Regarding
Investment in Ohio Municipal Securities" and "Additional Information Concerning
Taxes - Tax Exempt Fund, Pennsylvania Tax Exempt Fund and Ohio Municipal Fund"
and the Prospectus entitled "Taxes - Ohio Taxes."
STANDARDIZED YIELD QUOTATIONS
"Yields," as described in the Prospectus, are calculated according
to formulas prescribed by the SEC. The standardized seven-day yield for a class
of Fund shares is computed by determining the net change, exclusive of capital
changes, in the value of a hypothetical pre-existing account in the class having
a balance of one share at the beginning of the period, subtracting a
hypothetical charge reflecting deductions from shareholder accounts, dividing
the difference by the value of the account at the beginning of the base period
to obtain the base period return, and then multiplying the base period return by
(365/7). The net change in the value of an account in a class includes the value
of additional shares purchased with dividends from the original share, and
dividends declared on both the original share and any such additional shares,
net of all fees, other than nonrecurring account or sales charges, that are
charged to all shareholder accounts in proportion to the length of the base
period and the class' mean or median account size. The capital changes to be
excluded from the calculation of the net change in account value are realized
gains and losses from the sale of securities and unrealized appreciation and
depreciation. The "effective yield" for a class of Fund shares is computed by
compounding the unannualized base period return (calculated as above) by adding
1 to the base period return, raising the sum to a power equal to 365 divided by
7, and subtracting 1 from the result.
The Tax Exempt, Pennsylvania Tax Exempt and Ohio Municipal Funds'
"tax-equivalent yields" are computed by dividing the portion of those Funds'
yields (calculated as above) that is exempt from federal income tax by one minus
a stated federal income tax rate (using 39.6% tax bracket) and adding that
figure to that portion, if any, of the respective Fund's yield that is not
exempt from federal income tax.
For the seven-day period ended May 31, 1998, the yields of the A
and I shares of the Money Market Fund, Government Fund, Treasury Fund, Tax
Exempt Fund and Pennsylvania Tax Exempt Fund were 5.07% and 5.21%, 4.95% and
5.12%, 4.55% and 4.69%, 3.42% and 3.57%, and 3.44% and 3.60%, respectively, and
their respective effective yields were 5.20% and 5.34%, 5.07% and 5.25%, 4.65%
and 4.80%, 3.48% and 3.64%, and 3.50% and 3.67%, respectively. For the seven-day
period ended May 31, 1998, the yield of the B shares of the Money Market Fund
was 4.38%.
-35-
<PAGE> 80
For the Tax Exempt and Pennsylvania Tax Exempt Funds, the
tax-equivalent effective yields (assuming a 39.6% federal tax rate in the case
of both Funds and a 2.8% Pennsylvania tax rate in the case of the Pennsylvania
Tax Exempt Fund) for their A and I shares for the seven-day period ended May 31,
1998 were 5.76% and 6.03%, and 6.08% and 6.37%, respectively.
The current yield for each class of shares in a Fund may be
obtained by calling the Trust at the telephone number provided on the cover
page. Quoted yields are not indicative of future yields. Yields will depend upon
factors such as fund maturity, the Fund's expenses and the types of instruments
held by the Fund.
The Funds 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 a Fund investment are
reinvested by being paid in additional Fund shares, any future income or capital
appreciation of a 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 Funds 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 a 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 a 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 a Fund. The Funds may also include in Materials charts, graphs
or drawings which compare the investment objective, return potential, relative
stability and/or growth possibilities of the Funds 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 a Fund and/or other mutual funds. Materials may include a discussion
of certain attributes or benefits to be derived by an investment in a 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
-36-
<PAGE> 81
The Trust 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. With respect to the
Money Market, Government, Treasury, Tax Exempt and Pennsylvania Tax Exempt
Funds, all organization expenses are or were 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 a 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 a Fund's net asset value, assets belonging to a
particular Fund are charged with the liabilities in respect of that Fund.
As of September 3, 1998, the following bank subsidiaries of
National City Corporation held of record 5% or more of the outstanding I shares
of the Money Market, Government, Treasury, Tax Exempt and Pennsylvania Tax
Exempt Funds acting as agent or custodian for their customers, but did not own
such shares beneficially:
<TABLE>
<CAPTION>
Percentage of Outstanding
I Shares
---------
Government Treasury Pennsylvania
Money Money Money Tax Tax
Market Market Market Exempt Exempt
Fund Fund Fund Fund Fund
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
National City Bank,
Northeast N/A N/A 14.86% N/A N/A
One Cascade Plaza
Akron, OH 44308
National City Bank of Kentucky 12.07% 36.61% N/A 12.16% N/A
National City Tower
101 South Fifth Street
Louisville, KY 40202
National City Bank of Indiana 7.71% 6.78% 25.65% 11.87% N/A
101 W. Washington Street
Indianapolis, IN 46255
National City Bank of Pennsylvania 13.45% 8.39% 5.31% N/A 98.85%
400 Fourth Avenue
Pittsburgh, PA 15222
</TABLE>
-37-
<PAGE> 82
<TABLE>
<S> <C> <C> <C> <C> <C>
National City Trust Co. N/A N/A N/A N/A N/A
1401 Forum Way, Suite 503
West Palm Beach, FL 33401
National City Bank of Dayton N/A N/A N/A 10.44% N/A
Gem Plaza, 6 N. Main
Dayton, OH 45412
National City Bank of Columbus N/A 13.75% 17.26% 21.53% N/A
155 East Broad Street
Columbus, OH 43251
National City Bank, Northwest 5.10% N/A N/A N/A N/A
405 Madison Avenue
Toledo, OH 43603
National City Bank, Cleveland 43.04% 27.70% 26.20% 33.78% N/A
1900 East Ninth Street
Cleveland, OH 44114
</TABLE>
-38-
<PAGE> 83
As of August 24, 1998, the following persons owned of record 5
percent or more of the shares of the Funds of the Trust:
Tax Exempt Money Market Fund (A)
<TABLE>
<CAPTION>
OUTSTANDING SHARES PERCENTAGE
<S> <C> <C>
Wheat First Securities 108,038,997.8800 57.25%
P.O. Box 6629
Glen Allen, VA 23058-6629
National City Bank 67,863,610.7700 35.96%
FBO PCG/Retail Sweep Customers
770 W. Broad Street, Location 16-0347
Columbus, OH 43222-1419
</TABLE>
Pennsylvania Tax Exempt Money Market Fund (A)
<TABLE>
<CAPTION>
OUTSTANDING SHARES PERCENTAGE
<S> <C> <C>
FBO Corporate Autosweep Customers 18,855,000.0000 50.54%
c/o National City Bank of PA
300 Fourth Street 2-191
Pittsburgh, PA 15278-0001
National City Bank of Pennsylvania 15,433,964.9200 41.37%
FBO PCG/Retail Sweep Customers
Cash Management Operations
770 W. Broad Street 16-0347
Columbus, OH 43222-1419
</TABLE>
Treasury Money Market Fund (A)
<TABLE>
<CAPTION>
OUTSTANDING SHARES PERCENTAGE
<S> <C> <C>
Triple S Plastics Georgetown 2,931,931.03 23.27%
Cont. Fund
Attn: John Crandle,
Commercial Loans
108 E. Michigan Avenue
Kalamazoo, MI 49007-3966
Wheat First Securities 7,855,936.3300 61.91%
P.O. Box 6629
Glen Allen, VA 23058-6629
Warner Theatre Preservation 1,124,715.9300 8.86%
Trust Corp.
P.O. Box 1645
Erie, PA 16507-0645
National City Bank 938,723.8900 7.40%
FBO PCG/Retail Sweep Customers
770 W. Broad St. Location 16-0347
Columbus, OH 43222-1419
AFSCME Benefit Trust 1,327,262.86 10.53%
P.O. Box 845
Springfield, IL 62705-0845
</TABLE>
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<PAGE> 84
Government Money Market Fund (A)
<TABLE>
<CAPTION>
OUTSTANDING SHARES PERCENTAGE
<S> <C> <C>
FBO Corporate Autosweep Customers 176,545,000.0000 70.70%
c/o National City Bank of PA
300 Fourth Street 2-191
Pittsburgh, PA 15278-0001
Wheat First Securities 61,699,149.4900 24.71%
P.O. Box 6629
Glen Allen, VA 23058-6629
</TABLE>
Money Market Fund (A)
<TABLE>
<CAPTION>
OUTSTANDING SHARES PERCENTAGE
<S> <C> <C>
Wheat First Securities 544,366,016.2000 61.90%
P.O. Box 6629
Glen Allen, VA 23058-6629
FBO Corporate Autosweep 193,624,000.0000 22.02%
Customers
c/o National City Bank of PA
300 Fourth Street 2-191
Pittsburgh, PA 15278-0001
National City Bank 85,189,000.0000 9.69%
FBO PCG/Retail Sweep Customer
770 W. Broad St. Location 16-0347
Columbus, OH 43222-1419
</TABLE>
Money Market Fund (B)
<TABLE>
<CAPTION>
OUTSTANDING SHARES PERCENTAGE
<S> <C> <C>
SEI Trust Company 66,967.2600 86.94%
Custodian for the IRA Rollover
of Robert W. Best
6518 Calais Circle
Indianapolis, IN 46220
SEI Trust Company 5,220.4100 6.78%
Custodian for the IRA of Jack Lewis
10099 Meadville Street, Lot 31
Cranesville, PA 16410-9331
</TABLE>
-40-
<PAGE> 85
Money Market Fund (I)
<TABLE>
<CAPTION>
OUTSTANDING SHARES PERCENTAGE
<S> <C> <C>
National City Bank 630,002,110.7400 32.78%
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 241,476,961.1300 12.56%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 167,416,829.7800 8.71%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 162,642,942.2400 8.46%
Operations Center
Attn: Trust Operations Funds
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 150,021,104.6500 7.81%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
Whitelaw & Co. 102,236,665,9200 5.32%
Daily Valuation Account - Disc.
Attn: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
</TABLE>
-41-
<PAGE> 86
Government Money Market Fund (I)
<TABLE>
<CAPTION>
OUTSTANDING SHARES PERCENTAGE
<S> <C> <C>
National City Bank 332,743,009.8100 32.67%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 West 150th Street
Cleveland, OH 44135-1389
National City Bank 249,617,228.6400 24.51%
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 108,703,096.1400 10.67%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 97,577,104.8500 9.58%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 55,288,943.6600 5.43%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 51,117,940.6200 5.02%
Operations Center
Attn: Trust Operations Funds
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
</TABLE>
Treasury Money Market Fund (I)
-42-
<PAGE> 87
<TABLE>
<CAPTION>
OUTSTANDING SHARES PERCENTAGE
<S> <C> <C>
National City Bank 135,747,303.9800 29.65%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 128,142,434.3000 27.99%
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 55,565,055.3600 12.14%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 52,354,843.0800 11.43%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 46,747,667.3100 10.21%
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
</TABLE>
Tax Exempt Money Market Fund (I)
<TABLE>
<CAPTION>
OUTSTANDING SHARES PERCENTAGE
<S> <C> <C>
National City Bank 146,256,900.9000 33.61%
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
</TABLE>
-43-
<PAGE> 88
<TABLE>
<S> <C> <C>
National City Bank 88,933,741.4400 20.43%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland,, OH 44135-1389
National City Bank 53,897,152.5800 12.38%
Operations Center
Attn: Trust Operations Funds
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 51,260,620.9400 11.78%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 27,657,685.5400 6.35%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 22,188,595.8300 5.10%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
</TABLE>
Pennsylvania Tax Exempt Money Market Fund (I)
<TABLE>
<CAPTION>
OUTSTANDING SHARES PERCENTAGE
<S> <C> <C>
National City Bank 103,347,114.9900 99.55%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
</TABLE>
-44-
<PAGE> 89
FINANCIAL STATEMENTS
The audited financial statements contained in the annual report to
shareholders for the fiscal year ended May 31, 1998 are hereby incorporated
herein by reference. Copies of the Funds' annual reports may be obtained by
calling the Trust at 1-800-622-FUND (3863) or by writing to the Trust, One
Freedom Valley Drive, Oaks, Pennsylvania 19456.
-45-
<PAGE> 90
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's ("S&P") commercial paper rating is a current
assessment of the likelihood of timely payment of debt having an original
maturity of no more than 365 days. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category indicating
that the obligor's capacity to meet its financial commitment on the obligation
is strong. Within this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its financial
commitment on the obligation on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
"B" - Obligations are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and are
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
"D" - The "D" rating, unlike other ratings, is not prospective;
rather, it is used only where a default has actually occurred--and not where a
default is only expected. S&P changes ratings to "D" either:
- On the day an interest and/or principal payment is due and is
not paid. An exception is made if there is a grace period and
S&P believes that a payment will be made, in which case the
rating can be maintained; or
- Upon voluntary bankruptcy filing or similar action. An
exception is made if S&P expects that debt service payments
will continue to be made on a specific issue. In the absence
of a payment default or bankruptcy filing, a technical
default (i.e., covenant violation) is not sufficient for
assigning a "D" rating.
A-1
<PAGE> 91
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effect of industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses the highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
A-2
<PAGE> 92
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"D-3" - Debt possesses satisfactory liquidity and other protection
factors qualify issues as investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch IBCA short-term ratings apply to debt obligations that have
time horizons of less than 12 months for most obligations, or up to three years
for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This designation
indicates a satisfactory capacity for timely payment of financial commitments,
but the margin of safety is not as great as in the case of the higher ratings.
"F3" - Securities possess fair credit quality. This designation
indicates that the capacity for timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
"B" - Securities possess speculative credit quality. this
designation indicates minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
"C" - Securities possess high default risk. This designation
indicates that the capacity for meeting financial commitments is solely reliant
upon a sustained, favorable business and economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
A-3
<PAGE> 93
"TBW-1" - This designation represents Thomson BankWatch's highest
category and indicates a very high likelihood that principal and interest will
be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's lowest
rating category and indicates that the obligation is regarded as non-investment
grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating assigned
by Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
A-4
<PAGE> 94
"BB" - An obligation rated "BB" is less vulnerable to nonpayment
than other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to the obligor's inadequate capacity to meet its financial commitment on the
obligation.
"B" - An obligation rated "B" is more vulnerable to nonpayment
than obligations rated "BB", but the obligor currently has the capacity to meet
its financial commitment on the obligation. Adverse business, financial or
economic conditions will likely impair the obligor's capacity or willingness to
meet its financial commitment on the obligation.
"CCC" - An obligation rated "CCC" is currently vulnerable to
nonpayment, and is dependent upon favorable business, financial and economic
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable to
non-payment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - The "D" rating, unlike other ratings, is not prospective;
rather, it is used only where a default has actually occurred--and not where a
default is only expected. S&P changes ratings to "D" either:
- On the day an interest and/or principal payment is due and is
not paid. An exception is made if there is a grace period and
S&P believes that a payment will be made, in which case the
rating can be maintained; or
- Upon voluntary bankruptcy filing or similar action. An
exception is made if S&P expects that debt service payments
will continue to be made on a specific issue. In the absence
of a payment default or bankruptcy filing, a technical
default (i.e., covenant violation) is not sufficient for
assigning a "D" rating.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk--such
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as interest-only or principal-only mortgage securities and obligations with
unusually risky interest terms, such as inverse floaters.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are
to be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations, (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operating experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a
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mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
its generic rating category.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality.
The risk factors are negligible, being only slightly more than for risk-free
U.S. Treasury debt.
"AA" - Debt is considered to be of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below-average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when due.
Debt rated "B" possesses the risk that obligations will not be met when due.
Debt rated "CCC" is well below investment grade and has considerable uncertainty
as to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA,"
"A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. These ratings denote the lowest expectation of investment risk
and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is very unlikely to be adversely
affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high
credit quality. These ratings denote a very low expectation of investment risk
and indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.
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"A" - Bonds considered to be investment grade and of high credit
quality. These ratings denote a low expectation of investment risk and indicate
strong capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to adverse changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good credit
quality. These ratings denote that there is currently a low expectation of
investment risk. The capacity for timely payment of financial commitments is
adequate, but adverse changes in circumstances and in economic conditions are
more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings indicate
that there is a possibility of credit risk developing, particularly as the
result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings
indicate that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable business and
economic environment.
"CCC", "CC", "C" - Bonds have high default risk. Capacity for
meeting financial commitments is reliant upon sustained, favorable business or
economic developments. "CC" ratings indicate that default of some kind appears
probable, and "C" ratings signal imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not
meeting obligations and are extremely speculative. "DDD" designates the highest
potential for recovery on these securities, and "D" represents the lowest
potential for recovery.
To provide more detailed indications of credit quality, the Fitch
IBCA ratings from and including "AA" to "B" may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within these major rating
categories.
Thomson BankWatch assesses the likelihood of an untimely repayment
of principal or interest over the term to maturity of long term debt and
preferred stock which are issued by United States commercial banks, thrifts and
non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation indicates that the ability to repay
principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis, with limited incremental risk compared
to issues rated in the highest category.
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"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents the lowest investment-grade
category and indicates an acceptable capacity to repay principal and interest.
Issues rated "BBB" are more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
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"MIG-1"/"VMIG-1" - This designation denotes best quality. There is
present strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality, with
margins of protection ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality,
with all security elements accounted for but lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt
instruments in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
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FORM N-1A
Part C - Other Information
Item 24. Financial Statements and Exhibits
A. Financial Statements
1. Included in Part A of the Registration Statement are the following
audited financial statements:
(a) Financial Highlights for the Money Market Fund for the fiscal
years ended May 31, 1989, 1990, 1991, 1992, 1993, 1994, 1995,
1996, 1997 and 1998;
(b) Financial Highlights for the Government Money Market Fund for
the fiscal years ended May 31, 1989, 1990, 1991, 1992, 1993,
1994, 1995, 1996, 1997 and 1998;
(c) Financial Highlights for the Treasury Money Market Fund for
the period from June 16, 1994 (commencement of operations) to
May 31, 1995, and the fiscal years ended May 31, 1996, 1997
and 1998;
(d) Financial Highlights for the Tax Exempt Money Market Fund for
the period from July 20, 1988 (commencement of operations) to
May 31, 1989, and the fiscal years ended May 31, 1990, 1991,
1992, 1993, 1994, 1995, 1996, 1997 and 1998; and
(e) Financial Highlights for the Pennsylvania Tax Exempt Money
Market Fund for the period from August 8, 1994 (commencement
of operations) to April 30, 1995, the fiscal year ended April
30, 1996, the period from May 1, 1996 to May 31, 1996 and the
fiscal years ended May 31, 1997 and 1998.
2. Incorporated by reference in Part B of the Registration Statement
are the following audited financial statements contained in the
Annual Report of Registrant for the fiscal year ended May 31, 1998:
(a) For the Money Market Fund, Government Money Market Fund,
Treasury Money Market Fund, Tax Exempt Money Market Fund and
Pennsylvania Tax Exempt Money Market Fund:
Portfolio of Investments - May 31, 1998.
Statement of Assets and Liabilities - May 31, 1998.
Statement of Operations - for the year ended May 31, 1998.
Statement of Changes in Net Assets - for the year ended May
31, 1998.
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Notes to Financial Statements.
B. Exhibits
1. Declaration of Trust dated January 28, 1986 is incorporated herein
by reference to Exhibit 1 to Post-Effective Amendment No. 1 to
Registrant's Registration Statement filed on December 16, 1986 ("PEA
No. 1").
(a) Amendment No. 1 to Declaration of Trust is incorporated herein
by reference to Exhibit 1(a) to Post-Effective Amendment No. 6
to Registrant's Registration Statement filed on August 1, 1989
("PEA No. 6").
(b) Amendment No. 2 to Declaration of Trust is incorporated herein
by reference to Exhibit 1(b) to Post-Effective Amendment No.
23 to Registrant's Registration Statement filed on May 11,
1995 ("PEA No. 23").
(c) Certificate of Classification of Shares reflecting the
creation of the Tax Exempt Portfolio (Trust) as filed with the
Office of Secretary of State of Massachusetts on October 16,
1989 is incorporated herein by reference to Exhibit 1(c) to
Post-Effective Amendment No. 26 to Registrant's Registration
Statement filed on May 15, 1996 ("PEA No. 26").
(d) Certificate of Classification of Shares reflecting the
creation of Special Series 1 in the Money Market, Government,
Treasury, Tax Exempt, Equity, Bond and Ohio Tax Exempt
Portfolios as filed with the Office of Secretary of State of
Massachusetts on December 11, 1989 is incorporated herein by
reference to Exhibit 1(d) to PEA No. 26.
(e) Certificate of Classification of Shares reflecting the
creation of Special Series 1 in the Money Market, Government,
Treasury, Tax Exempt, Equity, Bond and Ohio Tax Exempt
Portfolios as filed with the Office of the Secretary of State
of Massachusetts on September 12, 1990 is incorporated herein
by reference to Exhibit 1(e) to PEA No. 26.
(f) Certificate of Classification of Shares reflecting the
creation of Class L and Class L-Special Series 1 shares, Class
M and Class M-Special Series 1, Class N and Class N-Special
Series 1, Class O and Class O-Special Series 1, and Class P
and Class P-Special Series 1 representing interests in the
National Tax Exempt Portfolio, Equity Income Portfolio, Mid
Cap Regional Equity Portfolio, Enhanced Income Fund and Total
Return Advantage Fund, respectively, as filed with the Office
of Secretary of State of Massachusetts on June 30, 1994 is
incorporated herein by reference to Exhibit 1(e) to PEA No.
26.
(g) Certificate of Classification of Shares reflecting the
creation of Class Q and Class Q-Special Series 1 shares, Class
R and Class R-Special Series 1, Class S and
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Class S-Special Series 1 shares, and Class T and Class
T-Special Series 1 shares representing interests in the
Pennsylvania Tax Exempt, Intermediate Government, GNMA and
Pennsylvania Municipal Funds, respectively, as filed with the
Office of the Secretary of State of Massachusetts on September
10, 1996 is incorporated herein by reference to Exhibit 1(g)
to Post-Effective Amendment No. 33 to Registrant's
Registration Statement filed on April 11, 1997 ("PEA No. 33").
(h) Certificate of Classification of Shares reflecting the
creation of Class U and Class U-Special Series 1 shares, Class
V and Class V-Special Series 1 shares and Class W and Class
W-Special Series 1 shares representing interests in the
International Equity, Equity Index and Core Equity Funds,
respectively, as filed with the Office of the Secretary of
State of Massachusetts on June 27, 1997 is incorporated herein
by reference to Exhibit 1(h) to Post-Effective Amendment No.
35 to Registrant's Registration Statement filed on July 22,
1997 ("PEA No. 35").
(i) Certificate of Classification of Shares reflecting the
creation of Class X and Class X-Special Series 1 shares and
Class Y and Class Y-Special Series 1 shares representing
interests in the Small Cap Growth Fund and Real Return
Advantage Funds, respectively, as filed with the Office of the
Secretary of State of Massachusetts on June 27, 1997 is
incorporated herein by reference to Exhibit 1(i) to PEA No.
35.
(j) Certificate of Classification of Shares reflecting the
creation of Special Series 2 Shares representing interests in
the Money Market, Government Money Market, Treasury Money
Market, Tax-Exempt Money Market, Equity Growth, Equity Income,
Small Cap Value (formerly, the Mid Cap Regional), Enhanced
Income, Total Return Advantage, Intermediate Bond (formerly,
the Fixed Income), Ohio Tax-Exempt, National Tax-Exempt,
Pennsylvania Tax-Exempt, Bond (formerly, the "Intermediate
Government Fund"), GNMA, Pennsylvania Municipal, International
Equity, Equity Index, Core Equity, Small Cap Growth and Real
Return Advantage Funds is incorporated herein by reference to
Exhibit 1(j) to Post-Effective Amendment No. 38 to
Registrant's Registration Statement filed on December 18, 1997
("PEA No 38").
(k) Certificate of Classification of Shares reflecting the
creation of Class BB and Class BB-Special Series 1 shares in
the Ohio Municipal Money Market Fund, as filed with the Office
of the Secretary of State and with the City of Boston, Office
of the City Clerk on September 15, 1998.
2. Code of Regulations as approved and adopted by Registrant's Board of
Trustees on January 28, 1986 is incorporated herein by reference to
Exhibit 2 to Pre-Effective Amendment No. 2 to Registrant's
Registration Statement filed on January 30, 1986 ("Pre-Effective
Amendment No. 2").
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(a) Amendment No. 1 to Code of Regulations is incorporated herein
by reference to Exhibit 2(a) to PEA No. 6.
(b) Amendment No. 2 to Code of Regulations as approved and adopted
by Registrant's Board of Trustees on July 17, 1997 is
incorporated herein by reference to Exhibit 2(b) to PEA No.
35.
3. None.
4. (a) Specimen copy of share certificate for Class A units of
beneficial interest is incorporated herein by reference to
Exhibit 4(a) to Pre-Effective Amendment No. 2.
(b) Specimen copy of share certificate for Class A - Special
Series 1 units of beneficial interest is incorporated herein
by reference to Exhibit 4(b) to Post-Effective Amendment No.
13 to the Registrant's Registration Statement filed on July
27, 1990 ("PEA No. 13").
(c) Specimen copy of share certificate for Class B units of
beneficial interest is incorporated herein by reference to
Exhibit 4(b) to Pre-Effective Amendment No. 2.
(d) Specimen copy of share certificate for Class B - Special
Series 1 units of beneficial interest is incorporated herein
by reference to Exhibit 4(d) to PEA No. 13.
(e) Specimen copy of share certificate for Class C units of
beneficial interest is incorporated herein by reference to
Exhibit 4(c) to Pre-Effective Amendment No. 2.
(f) Specimen copy of share certificate for Class C - Special
Series 1 units of beneficial interest is incorporated herein
by reference to Exhibit 4(f) to PEA No. 13.
(g) Specimen copy of share certificates for Class D units of
beneficial interest is incorporated herein by reference to
Exhibit 4(d) to Pre-Effective Amendment No. 2.
(h) Specimen copy of share certificate for Class D - Special
Series 1 units of beneficial interest is incorporated hereby
by reference to Exhibit 4(h) to PEA No. 13.
(i) Specimen copy of share certificate for Class H units of
beneficial interest is incorporated herein by reference to
Exhibit 4(i) to Post-Effective Amendment No. 10 to
Registrant's Registration Statement filed on April 17, 1990
("PEA No. 10").
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(j) Specimen copy of share certificate for Class H - Special
Series 1 units of beneficial interest is incorporated herein
by reference to Exhibit 4(j) to PEA No. 10.
(k) Specimen copy of share certificate for Class I units of
beneficial interest is incorporated herein by reference to
Exhibit 4(k) to PEA No. 10.
(l) Specimen copy of share certificate for Class I - Special
Series 1 units of beneficial interest is incorporated herein
by reference to Exhibit 4(l) to PEA No. 10.
(m) Specimen copy of share certificate for Class K units of
beneficial interest is incorporated herein by reference to
Exhibit 4(m) to PEA No. 10.
(n) Specimen copy of share certificate for Class K - Special
Series 1 units of beneficial interest is incorporated herein
by reference to Exhibit 4(n) to PEA No. 10.
5. (a) Investment Advisory Agreement for the Money Market Portfolio,
Government Portfolio, Treasury Portfolio, Tax Exempt
Portfolio, Equity Portfolio, Bond Portfolio and Ohio Tax
Exempt Portfolio among Registrant, National City Bank,
BancOhio National Bank and First National Bank of Louisville
dated September 26, 1990 is incorporated herein by reference
to Exhibit 5(f) to Post-Effective Amendment No. 14 to
Registrant's Registration Statement filed on September 5, 1990
("PEA No. 14").
(b) Investment Advisory Agreement for the Money Market Portfolio
(Trust), Government Portfolio (Trust), Treasury Portfolio
(Trust) and Tax Exempt Portfolio (Trust) among Registrant,
National City Bank, BancOhio National Bank and First National
Bank of Louisville dated September 26, 1990 is incorporated
herein by reference to Exhibit 5(g) to PEA No. 14.
(c) Investment Advisory Agreement for the Enhanced Income Fund and
the Total Return Advantage Fund between Registrant and
National Asset Management Corporation dated July 5, 1994, is
incorporated herein by reference to Exhibit 5(h) to
Post-Effective Amendment No. 21 to Registrant's Registration
Statement filed on August 31, 1994 ("PEA No. 21").
(d) Investment Advisory Agreement for the Equity Income Portfolio
among Registrant, National City Bank, National City Bank,
Columbus and National City Bank, Kentucky dated June 30, 1994,
is incorporated herein by reference to Exhibit 5(i) to PEA No.
21.
(e) Investment Advisory Agreement for the Mid Cap Regional Equity
Portfolio between Registrant and National City Bank dated July
25, 1994, is incorporated herein by reference to Exhibit 5(j)
to PEA No. 21.
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(f) Investment Advisory Agreement for the National Tax Exempt
Portfolio among Registrant, National City Bank, National City
Bank, Columbus, National City Bank, Kentucky and National City
Bank, Indiana is incorporated herein by reference to Exhibit
5(l) to Post-Effective Amendment No. 20 to Registrant's
Registration Statement filed on February 11, 1994 ("PEA No.
20").
(g) Investment Advisory Agreement for the Pennsylvania Tax Exempt,
Intermediate Government, GNMA and Pennsylvania Municipal Funds
between Registrant and National City Bank dated September 9,
1996, is incorporated herein by reference to Exhibit 5(g) to
PEA No. 33.
(h) Investment Advisory Agreement for the Core Equity Fund between
Registrant and National Asset Management Corporation dated
July 31, 1997 is incorporated herein by reference to Exhibit
5(i) to Post-Effective Amendment No. 36 to Registrant's
Registration Statement filed on September 30, 1997 ("PEA No.
36").
(i) Investment Advisory Agreement for the Small Cap Growth, Equity
Index, Real Return Advantage and International Equity Funds
between Registrant and National City Bank dated July 31, 1997
is incorporated herein by reference to Exhibit 5(j) to PEA No.
36.
(j) Sub-Advisory Agreement between National City Bank and
Wellington Management Company, LLP with respect to the Small
Cap Growth Fund dated July 31, 1997 is incorporated herein by
reference to Exhibit 5(k) to PEA No. 36.
(k) Advisory Agreement for the Money Market, Treasury, Government,
Tax Exempt, Pennsylvania Tax Exempt, National Tax Exempt,
Fixed Income, GNMA, Intermediate Government, Equity Growth,
Equity Income, Mid Cap Regional, Ohio Tax Exempt and
Pennsylvania Municipal Funds between Registrant and National
City Bank is incorporated herein by reference to Exhibit 5(k)
to PEA No. 38.
(l) Advisory Agreement for the Enhanced Income and Total Return
Advantage Funds between Registrant and National Asset
Management Corporation is incorporated herein by reference to
Exhibit 5(l) to PEA No. 38.
(m) Advisory Agreement for the International Equity, Small Cap
Value, Small Cap Growth, Equity Index, Real Return Advantage,
Tax Managed Equity, Balanced Allocation, and Ohio Municipal
Money Market Funds between Registrant and National City Bank
dated April 9, 1998.
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6. (a) Distribution Agreement between Registrant and SEI Financial
Services Company, dated March 8, 1997, is incorporated herein
by reference to Exhibit 6 to PEA No. 33.
(b) Addendum to the Distribution Agreement between Registrant and
SEI Financial Services Company, dated November 19, 1997, is
incorporated herein by reference to Exhibit 6(b) to PEA No.
38.
7. None.
8. (a) Custodian Services Agreement between Registrant and National
City Bank, dated November 7, 1994, is incorporated herein by
reference to Exhibit 8(a) to Post-Effective Amendment No. 22
to Registrant's Registration Statement filed on December 30,
1994 ("PEA No. 22").
(b) Sub-Custodian Agreement between National City Bank and The
Bank of California, National Association, dated November 7,
1994, is incorporated herein by reference to Exhibit 8(a) to
PEA No. 22.
(c) Exhibit A to the Custodian Services Agreement between
Registrant and National City Bank dated July 31, 1997 is
incorporated herein by reference to Exhibit 8(c) to PEA No.
36.
(d) Form of Amended Exhibit A to the Custodian Services Agreement
between Registrant and National City Bank is incorporated
herein by reference to Exhibit 8(d) to PEA No. 41.
9. (a) Administration and Accounting Services Agreement between
Registrant and PFPC Inc., dated March 1, 1993 is incorporated
by reference to Exhibit 9(l) to Post-Effective Amendment No.
16 to Registrant's Registration Statement filed on March 1,
1993 ("PEA No. 16").
(b) Exhibit A to the Administration and Accounting Services
Agreement dated March 1, 1993 between Registrant and PFPC
Inc., dated July 31, 1997, is incorporated herein by reference
to Exhibit 9(b) to PEA No. 36.
(c) Transfer Agency and Service Agreement (the "Transfer Agency
Agreement") between Registrant and State Street Bank and Trust
Company, dated March 1, 1997, is incorporated herein by
reference to Exhibit 9(d) to PEA No. 33.
(d) Form of Addendum No. 1 to Amended and Restated Transfer Agency
and Dividend Disbursement Agreement between Registrant and
State Street Bank and Trust Company is incorporated herein by
reference to Exhibit 9(d) to PEA No. 41.
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(e) Revised Shareholder Services Plan and Servicing Agreement
adopted by the Board of Trustees on February 15, 1997, is
incorporated herein by reference to Exhibit 9(e) to PEA No.
33.
(f) Blue Sky Services Agreement between the Registrant and SEI
Fund Resources, dated December 2, 1996, is incorporated herein
by reference to Exhibit 9(f) to PEA No. 33.
10. (a) (1)Opinion and consent of Drinker Biddle & Reath LLP as
counsel to Registrant.
(b) Opinion of Squire, Sanders & Dempsey L.L.P.
11. (a) Consent of Drinker Biddle & Reath LLP.
(b) Consent of Squire, Sanders & Dempsey L.L.P.
(c) Consent of Ernst & Young L.L.P.
(d) Consent of PricewaterhouseCoopers LLP.
12. Inapplicable.
13. Purchase Agreements between Registrant and McDonald & Company
Securities, Inc. are incorporated herein by reference to Exhibit 13
to PEA No. 1.
(a) Purchase Agreement between Registrant and McDonald & Company
Securities, Inc. with respect to the Tax Exempt Portfolio
dated July 19, 1988 is incorporated by reference to Exhibit
13(a) to Post-Effective Amendment No. 5 to Registrant's
Registration Statement filed on January 19, 1989 ("PEA No.
5").
(b) Purchase Agreement between Registrant and McDonald & Company
Securities, Inc. with respect to the Tax Exempt Portfolio
(Trust), dated October 17, 1989, is incorporated herein by
reference to Exhibit 13(b) to PEA No. 13.
(c) Purchase Agreement between Registrant and McDonald & Company
Securities, Inc. with respect to the Equity Portfolio and Bond
Portfolio, dated December 20, 1989, is incorporated herein by
reference to Exhibit 13(c) to PEA No. 13.
(d) Purchase Agreement between Registrant and McDonald & Company
Securities, Inc. with respect to the Ohio Tax Exempt
Portfolio, dated January 5, 1990, is incorporated herein by
reference to Exhibit 13(d) to PEA No. 13.
______________
1. To be filed under Rule 24f-2 as part of Registrant's Rule 24f-2 Notice.
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(e) Purchase Agreement between Registrant and Allmerica
Investments, Inc. with respect to the Enhanced Income Fund,
dated July 5, 1994, is incorporated herein by reference to
Exhibit 13(e) to PEA No. 21.
(f) Purchase Agreement between Registrant and Allmerica
Investments, Inc. with respect to the Equity Income Portfolio,
dated June 30, 1994, is incorporated herein by reference to
Exhibit 13(g) to PEA No. 21.
(g) Purchase Agreement between Registrant and Allmerica
Investments, Inc. with respect to the Mid Cap Regional Equity
Portfolio, dated July 25, 1994, is incorporated herein by
reference to Exhibit 13(h) to PEA No. 21.
(h) Purchase Agreement between Registrant and Allmerica
Investments, Inc. with respect to the Total Return Advantage
Fund, dated July 5, 1994, is incorporated herein by reference
to Exhibit 13(f) to PEA No. 21.
(i) Purchase Agreement between Registrant and Allmerica
Investments, Inc. with respect to the National Tax Exempt
Portfolio is incorporated herein by reference to Exhibit 13(e)
to PEA No. 20.
(j) Purchase Agreement between Registrant and 440 Financial
Distributors, Inc. with respect to the Pennsylvania Tax Exempt
Money Market Fund, dated September 6, 1996, is incorporated
herein by reference to Exhibit 13(j) to PEA No. 33.
(k) Purchase Agreement between Registrant and 440 Financial
Distributors, Inc. with respect to the Intermediate Government
Money Market Fund, dated September 6, 1996, is incorporated
herein by reference to Exhibit 13(k) to PEA No. 33.
(l) Purchase Agreement between Registrant and 440 Financial
Distributors, Inc. with respect to the GNMA Fund, dated
September 6, 1996, is incorporated herein by reference to
Exhibit 13(l) to PEA No. 33.
(m) Purchase Agreement between Registrant and 440 Financial
Distributors, Inc. with respect to the Pennsylvania Municipal
Fund, dated September 6, 1996, is incorporated herein by
reference to Exhibit 13(m) to PEA No. 33.
(n) Purchase Agreement between Registrant and SEI Investments
Distribution Co., ("SIDC") with respect to the Core Equity
Fund is incorporated herein by reference to Exhibit 13(n) to
PEA No. 36.
(o) Purchase Agreement between Registrant and SIDC with respect to
the International Equity Fund is incorporated herein by
reference to Exhibit 9(o) to PEA No. 36.
C-9
<PAGE> 109
(p) Form of Purchase Agreement between Registrant and SEI with
respect to the Equity Index Fund is incorporated herein by
reference to Exhibit 13(p) to PEA No. 33.
(q) Form of Purchase Agreement between Registrant and SEI with
respect to the Real Return Advantage Fund is incorporated
herein by reference to Exhibit 13(q) to PEA No. 33.
(r) Purchase Agreement between Registrant and SEI with respect to
the Small Cap Growth Fund is incorporated herein by reference
to Exhibit 13(r) to PEA No. 36.
(s) Form of Purchase Agreement between Registrant and SEI
Investments Distribution Co. with respect to Special Series 2
shares for each Fund is incorporated herein by reference to
Exhibit 13(s) to PEA No. 38.
(t) Form of Purchase Agreement between Registrant and SEI
Investments Distribution Co. with respect to the Aggressive
Allocation, Balanced Allocation and Conservative Allocation
Funds is incorporated herein by reference to Exhibit 13(t) to
PEA No. 41.
(u) Form of Purchase Agreement between Registrant and SEI
Investments Distribution Co. with respect to the Ohio
Municipal Money Market Fund.
14. None.
15. (a) Service and Distribution Plan for A (formerly, Retail)
and I (formerly, Institutional) Share Classes is incorporated
herein by reference to Exhibit 15(a) to PEA No. 38.
(b) B shares distribution and servicing plan is incorporated
herein by reference to Exhibit 15(b) to PEA No. 38.
16. (a) Schedules for Computation of Performance Quotations are
incorporated herein by reference to Exhibit 16 to
Post-Effective Amendment No. 15 to Registrant's Registration
Statement filed on September 18, 1992 ("PEA No. 15").
(b) Schedules for Computation of Performance Quotations for the
Treasury, Mid Cap Regional, Equity Growth and Equity Income
Portfolios and the Enhanced Income and Total Return Advantage
Funds and the Pennsylvania Tax Exempt, the Pennsylvania
Municipal, the Intermediate Government and the GNMA Funds are
incorporated herein by reference to Exhibit 16 to PEA No. 22.
17. (a) None.
18. Revised Plan Pursuant to Rule 18f-3 for Operation of a Triple-Class
System is incorporated herein by reference to Exhibit 18 to PEA No.
41.
C-10
<PAGE> 110
Item 25. Persons Controlled By or Under Common Control with Registrant
Registrant is controlled by its Board of Trustees.
McDonald & Company Securities, Inc. ("McDonald"), the former
distributor of Registrant, provided its initial capitalization.
Item 26. Number of Holders of Securities. The following information is as of
August 31, 1998:
<TABLE>
<CAPTION>
Total
Number of Record
Title of Class Holders I Shares A Shares B Shares
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A units of beneficial
interest (Money Market Fund) 85,457 18,096 67,356 5
Class B units of beneficial
interest (Government Money
Market Fund) 10,087 2,447 7,640 --
Class C units of beneficial
interest (Treasury Money
Market Fund) 2,638 2,251 387 --
Class D units of beneficial
interest (Tax Exempt Money
Market Fund) 5,136 2,136 3,000 0
Class H units of beneficial
interest (Equity Growth Fund) 9,972 8,612 1,331 29
Class I units of beneficial
interest (Intermediate Bond
Fund) 3,411 3,075 327 9
Class K units of beneficial
interest (Ohio Tax Exempt
Fund) 1,354 1,253 101 0
Class L units of beneficial
interest (National Tax Exempt
Fund) 740 738 1 1
Class M units of beneficial
interest (Equity Income Fund) 7,095 6,472 603 20
Class N units of beneficial
interest (Small Cap Value Fund) 6,301 4,880 1,385 36
Class O units of beneficial
interest (Enhanced Income
Fund) 527 499 28 0
</TABLE>
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<PAGE> 111
<TABLE>
<CAPTION>
Total
Number of Record
Title of Class Holders I Shares A Shares B Shares
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class P units of beneficial
interest (Total Return
Advantage Fund) 1,649 1,513 136 0
Class Q units of beneficial
interest (Pennsylvania Tax
Exempt Money Market Fund) 866 668 198 0
Class R units of beneficial
interest (Bond Fund) 6,924 6,861 54 9
Class S units of beneficial
interest (GNMA Fund) 3,216 2,945 271 0
Class T units of beneficial
interest (Pennsylvania Municipal
Fund) 391 383 8 0
Class U units of beneficial
interest (International Equity
Fund) 2,662 2,450 209 3
Class V units of beneficial
interest (Equity Index Fund) 132 132 0 0
Class W units of beneficial
interest (Core Equity Fund) 230 146 77 7
Class X units of beneficial
interest (Small Cap Growth
Fund) 990 793 194 3
Class Y units of beneficial
interest (Real Return Advantage
Fund) 0 0 0 0
Class Z units of beneficial
interest (Tax Managed Equity
Fund) 734 710 14 10
Class AA units of beneficial
interest (Balanced Allocation
Fund) 117 114 3 0
Class BB units of beneficial
interest (Ohio Municipal Money
Market Fund) 0 0 0 0
</TABLE>
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<PAGE> 112
Item 27. Indemnification
Indemnification of Registrant's principal underwriter, custodian and
transfer agent against certain losses is provided for, respectively, in Article
6 of the Distribution Agreement, incorporated by reference as Exhibit (6)
hereto, and Sections 12 and 6, respectively, of the Custodian Services and
Transfer Agency Agreements, incorporated by reference as Exhibits (8)(a) and
(9)(h) hereto. In Article 6 of the Distribution Agreement, the Trust agrees to
indemnify and hold harmless the Distributor and each of its directors and
officers and each person, if any, who controls the Distributor within the
meaning of Section 15 of the 1933 Act against any loss, liability, claim,
damages or expense (including the reasonable cost of investigating or defending
any alleged loss, liability, claim, damages or expense and reasonable counsel
fees and disbursements incurred in connection therewith), arising by reason of
any person acquiring any Shares, based upon the ground that the registration
statement, prospectus, Shareholder reports or other information filed or made
public by the Trust (as from time to time amended) included an untrue statement
of a material fact or omitted to state a material fact required to be stated or
necessary in order to make the statements made not misleading. However, the
Trust does not agree to indemnify the Distributor or hold it harmless to the
extent that the statements or omission was made in reliance upon, and in
conformity with, information furnished to the Trust by or on behalf of the
Distributor.
In addition, Section 9.3 of Registrant's Declaration of Trust dated
January 28, 1986, incorporated by reference as Exhibit (1) hereto, provides as
follows:
9.3 Indemnification of Trustees, Representatives and Employees. The
Trust shall indemnify each of its Trustees against all liabilities and
expenses (including amounts paid in satisfaction of judgments, in
compromise, as fines and penalties, and as counsel fees) reasonably
incurred by him in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal, in which
he may be involved or with which he may be threatened, while as a
Trustee or thereafter, by reason of his being or having been such a
Trustee except with respect to any matter as to which he shall have
been adjudicated to have acted in bad faith, willful misfeasance, gross
negligence or reckless disregard of his duties, provided that as to any
matter disposed of by a compromise payment by such person, pursuant to
a consent decree or otherwise, no indemnification either for said
payment or for any other expenses shall be provided unless the Trust
shall have received a written opinion from independent legal counsel
approved by the Trustees to the effect that if either the matter of
willful misfeasance, gross negligence or reckless disregard of duty, or
the matter of bad faith had been adjudicated, it would in the opinion
of such counsel have been adjudicated in favor of such person. The
rights accruing to any person under these provisions shall not exclude
any other right to which he may be lawfully entitled, provided that no
person may satisfy any right of indemnity or reimbursement hereunder
except out of the property of the Trust. The Trustees may make advance
payments in connection with the indemnification under this Section 9.3,
provided that the indemnified person shall have provided a secured
written undertaking to reimburse the Trust in the event it is
subsequently determined that he is not entitled to such
indemnification.
C-13
<PAGE> 113
The Trustees shall indemnify representatives and employees of the Trust
to the same extent that Trustees are entitled to indemnification
pursuant to this Section 9.3.
Section 12 of Registrant's Custodian Services Agreement provides as
follows:
12. Indemnification. The Trust, on behalf of each of the Funds, agrees
to indemnify and hold harmless the Custodian and its nominees from all
taxes, charges, expenses, assessments, claims and liabilities
(including, without limitation, liabilities arising under the 1933 Act,
the 1934 Act, the 1940 Act, the CEA, and any state and foreign
securities and blue sky laws, and amendments thereto), and expenses,
including (without limitation) reasonable attorneys' fees and
disbursements, arising directly or indirectly from any action which the
Custodian takes or does not take (i) at the request or on the direction
of or in reliance on the advice of the Fund or (ii) upon Oral or
Written Instructions. Neither the Custodian, nor any of its nominees,
shall be indemnified against any liability to the Trust or to its
shareholders (or any expenses incident to such liability) arising out
of the Custodian's or its nominees' own willful misfeasance, bad faith,
negligence or reckless disregard of its duties and obligations under
this Agreement.
In the event of any advance of cash for any purpose made by the
Custodian resulting from Oral or Written Instructions of the Trust, or
in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or
liabilities in respect of the Trust or any Fund in connection with the
performance of this Agreement, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful
misconduct, any Property at any time held for the account of the
relevant Fund or the Trust shall be security therefor.
Section 6 of Registrant's Transfer Agency Agreement provides as
follows:
6. Indemnification
6.1 The Bank shall not be responsible for, and the Fund shall on
behalf of the applicable Portfolio indemnify and hold the Bank
harmless from and against, any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liability arising
out of or attributable to:
(a) All actions of the Bank or its agents or subcontractors
required to be taken pursuant to this Agreement,
provided that such actions are taken in good faith and
without negligence or willful misconduct.
(b) The Fund's lack of good faith, negligence or willful
misconduct which arise out of the breach of any
representation or warranty of the Fund hereunder.
(c) The reliance on or use by the Bank or its agents or
subcontractors of information, records, documents or
services which (i) are received by the
C-14
<PAGE> 114
Bank or its agents or subcontractors, and (ii) have
been prepared, maintained or performed by the Fund or
any other person or firm on behalf of the Fund
including but not limited to any previous transfer
agent or registrar.
(d) The reliance on, or the carrying out by the Bank or its
agents or subcontractors of any instructions or
requests of the Fund on behalf of the applicable
Portfolio.
(e) The offer or sale of Shares in violation of any
requirement under the federal securities laws or
regulations or the securities laws or regulations of
any state that such Shares be registered in such state
or in violation of any stop order or other
determination or ruling by any federal agency or any
state with respect to the offer or sale of such Shares
in such state.
(f) The negotiations and processing of checks made payable
to prospective or existing Shareholders tendered to the
Bank for the purchase of Shares, such checks are
commonly known as "third party checks."
6.2 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect
to any matter arising in connection with the services to be
performed by the Bank tinder this Agreement, and the Bank and
its agents or subcontractors shall not be liable and shall be
indemnified by the Fund oil behalf of the applicable Portfolio
for any action taken or omitted by it in reliance upon such
instructions or upon the opinion of such counsel (provided such
counsel is reasonably satisfactory to the Fund). The Bank, its
agents and subcontractors shall be protected and indemnified in
acting upon any paper or document, reasonably believed to be
genuine and to have been signed by the proper person or
persons, or upon any instruction, information, data, records or
documents provided the Bank or its agents or subcontractors by
machine readable input, telex, CRT data entry or other similar
means authorized by the Fund, and shall not be held to have
notice of any change of authority of any person, until receipt
of written notice thereof from the Fund. The Bank, its agents
and subcontractors shall also be protected and indemnified in
recognizing stock certificates which are reasonably believed to
bear the proper manual or facsimile signatures of the officers
of the Fund, and the proper countersignature of any former
transfer agent or former registrar, or of a co-transfer agent
or co-registrar.
6.3 In the event either party is unable to perform its obligations
under the terms of this Agreement because of acts of God,
strikes, equipment or transmission failure or damage reasonably
beyond its control, or other causes reasonably beyond its
control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or
otherwise from such causes.
C-15
<PAGE> 115
6.4 In order that the indemnification provisions contained in this
Section 6 shall apply, upon the assertion of a claim for which
the Fund may be required to indemnify the Bank, the Bank shall
promptly notify the Fund of such assertion, and shall keep the
Fund advised with respect to all developments concerning such
claim. The Fund shall have the option to participate with the
Bank in the defense of such claim or to defend against said
claim in its own name or in the name of the Bank. The Bank
shall in no case confess any claim or make any compromise in
any case in which the Fund may be required to indemnify the
Bank except with the Fund's prior written consent.
Registrant has obtained from a major insurance carrier a directors' and
officers' liability policy covering certain types of errors and omissions. In no
event will Registrant indemnify any of its trustees, officers, employees or
agents against any liability to which such person would otherwise be subject by
reason of his willful misfeasance, bad faith or gross negligence in the
performance of his duties, or by reason of his reckless disregard of the duties
involved in the conduct of his office or under his agreement with Registrant.
Registrant will comply with Rule 484 under the Securities Act of 1933 and
Release No. 11330 under the Investment Company Act of 1940 in connection with
any indemnification.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a trustee, officer, or controlling person of Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
trustee, officer, or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 28. Business and Other Connections of Investment Adviser
(a) Investment Adviser: National City Investment Management Company
("IMC")
IMC performs investment advisory services for Registrant and certain
other investment advisory customers. IMC is an indirect wholly owned subsidiary
of National City Corporation (the "Corporation"). The Corporation recently
consolidated its mutual fund investment management operations under IMC, a
registered investment adviser. As of August 5, 1998, IMC assumed National City
Bank's rights, responsibilities, liabilities and obligations under its Advisory
Agreements with the Registrant relating to each of the Funds, its Sub-Advisory
Agreement with National Asset Management Corporation relating to the Core Equity
Fund, and its Sub-Administration Agreement with SEI Fund Resources relating to
each of the Funds. As of August 1, 1998, Wellington Management Company LLP (the
"sub-adviser") ceased serving as the sub-adviser to the Small Cap Growth Fund
under a sub-advisory agreement with National City Bank and the Small Cap Growth
Team of National City Bank's Asset Management Group began making the investment
decisions for the Fund.
To the knowledge of Registrant, none of the directors or officers of
IMC, except those set forth below, is or has been, at any time during the past
two calendar years, engaged in any other business, profession, vocation or
employment of a substantial nature, except that certain directors and officers
also hold various positions with, and engage in business for, the Corporation,
which owns all the outstanding stock of First of America Bank, N.A., which in
turn owns all the outstanding stock of IMC, or other subsidiaries of the
Corporation. Set forth below are the names and principal businesses of the
directors and certain of the senior executive officers of IMC who are engaged in
any other business, profession, vocation or employment of a substantial nature.
C-16
<PAGE> 116
NATIONAL CITY INVESTMENT MANAGEMENT COMPANY
<TABLE>
<CAPTION>
Position with
National
City
Investment
Management Other Business Type of
Name Company Connections Business
- ---- ------- ----------- --------
<S> <C> <C> <C>
Kathleen T. Barr Managing National City Bank Bank
Director, Sales
and Marketing
James R. Kirk Managing National City Bank Bank
Director,
Portfolio
Management
Robert M. Leggett Vice Chairman National City Bank Bank
of the Board,
President and
Managing
Director
Donald L. Ross Chief Investment National City Bank Bank
Officer and
Managing
Director
Harold B. Todd, Jr. Chairman of the Executive Vice Bank holding
Board and President, National company; Bank
Managing City Corporation; affiliate
Director Executive Vice
President,
Institutional Trust
and Asset Management,
National City Bank
</TABLE>
(b) Sub-Investment Adviser: National Asset Management Corporation
("NAM").
NAM performs sub-investment advisory services for the Registrant's Total Return
Advantage and Core Equity Funds.
C-17
<PAGE> 117
NAM is an investment adviser registered under the Investment Advisers
Act of 1940 (the "Advisers Act").
To the knowledge of Registrant, none of the directors or officers of
NAM, except those set forth below, is or has been at any time during the past
two calendar years engaged in any other business, profession, vocation or
employment of a substantial nature. Set forth below are the names and principal
business of the directors and certain of the senior executive officers of NAM
who are engaged in any other business, profession, vocation, or employment of a
substantial nature.
NATIONAL ASSET MANAGEMENT CORPORATION
<TABLE>
<CAPTION>
Position with Other
National Asset Business Type of
Name Management Connections Business
<S> <C> <C> <C>
William F. Chandler, Jr. Director, None
Managing Director
and Principal
Carl W. Hafele Director, None
Managing Director
and Principal
Michael C. Heyman Principal None
David B. Hiller Managing None
Director
and Principal
Stephen G. Mullins Principal None
Larry J. Walker Principal None
John W. Ferreby Principal None
Catherine R. Stodghill Senior Investment None
Manager
Erik N. Evans Investment None
Manager
Brent A. Bell Investment None
Manager
Randall T. Zipfel Manager, None
Information Systems
</TABLE>
Item 29. Principal Underwriter
(a) Furnish the name of each investment company (other than the
Registrant) for which each principal underwriter currently distributing
securities of the Registrant also acts as a principal underwriter,
distributor or investment advisor.
Registrant's distributor, SEI Investments Distribution Co.
("SIDC"), acts as distributor for:
<TABLE>
<S> <C>
SEI Daily Income Trust July 14, 1982
SEI Liquid Asset Trust November 29, 1982
SEI Tax Exempt Trust December 3, 1982
SEI Index Funds July 10, 1985
SEI Institutional Managed Trust January 22, 1987
SEI Institutional International Trust August 30, 1988
The Pillar Funds February 28, 1992
CUFUND May 1, 1992
STI Classic Funds May 29, 1992
PBHG Insurance Series Fund, Inc. April 1, 1997
Tip Institutional Funds January 1, 1998
Oak Associates Funds February 27, 1998
The Nevis Funds, Inc. June 29, 1998
The Parkstone Group of Funds September 14, 1998
First American Funds, Inc. November 1, 1992
First American Investment Funds, Inc. November 1, 1992
The Arbor Fund January 28, 1993
Boston 1784 Funds(R) June 1, 1993
The PBHG Funds, Inc. July 16, 1993
Morgan Grenfell Investment Trust January 3, 1994
The Achievement Funds Trust December 27, 1994
Bishop Street Funds January 27, 1995
CrestFunds, Inc. March 1, 1995
STI Classic Variable Trust August 18, 1995
ARK Funds November 1, 1995
</TABLE>
C-18
<PAGE> 118
<TABLE>
<S> <C>
Monitor Funds January 11, 1996
SEI Asset Allocation Trust April 1, 1996
TIP Funds April 30, 1996
SEI Institutional Investments Trust June 14, 1996
First American Strategy Funds, Inc. October 1, 1996
HighMark Funds February 15, 1997
Armada Funds March 8, 1997
Expedition Funds June 9, 1997
</TABLE>
SIDC provides numerous financial services to investment managers,
pension plan sponsors, and bank trust departments. These services
include portfolio evaluation, performance measurement and consulting
services ("Funds Evaluation") and automated execution, clearing and
settlement of securities transactions ("MarketLink").
(b) Furnish the information required by the following table with
respect to each director, officer or partner of each principal
underwriter named in the answer to Item 21 of Part B. Unless otherwise
noted, the principal business address of each director or officer is
Oaks, PA 19456.
<TABLE>
<CAPTION>
Position and Office Positions and Offices
Name with Underwriter with Registrant
- ---- ---------------- ---------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman of the
Board of Directors --
Henry H. Greer Director --
Carmen V. Romeo Director --
Mark J. Held President & Chief Operating --
Officer
Gilbert L. Beebower Executive Vice President --
Richard B. Lieb Executive Vice President --
Dennis J. McGonigle Executive Vice President --
Robert M. Silvestri Chief Financial Officer & --
Treasurer
Carl A. Guarino Senior Vice President --
Larry Hutchison Senior Vice President --
Jack May Senior Vice President --
Hartland J. McKeown Senior Vice President --
Barbara J. Moore Senior Vice President --
Kevin P. Robins Senior Vice President & --
General Counsel & Secretary
Patrick K. Walsh Senior Vice President --
Robert Aller Vice President --
</TABLE>
C-19
<PAGE> 119
<TABLE>
<CAPTION>
Position and Office Positions and Offices
Name with Underwriter with Registrant
- ---- ---------------- ---------------
<S> <C> <C>
Gordon W. Carpenter Vice President --
Todd Cipperman Vice President & Assistant --
Secretary
S. Courtney E. Collier Vice President & Assistant --
Secretary
Robert Crudup Vice President & Managing --
Director
Barbara Doyne Vice President --
Jeff Drennen Vice President --
Vic Galef Vice President & Managing --
Director
Lydia A. Gavalis Vice President & Assistant --
Secretary
Greg Gettinger Vice President & Assistant --
Secretary
Kathy Heilig Vice President & --
Treasurer
Jeff Jacobs Vice President --
Samuel King Vice President --
Kim Kirk Vice President & Managing --
Director
John Krzeminski Vice President & Managing --
Director
Carolyn McLaurin Vice President & Managing --
Director
W. Kelso Morrill Vice President --
Mark Nagle Vice President --
Joanne Nelson Vice President --
Joseph M. O'Donnell Vice President & Assistant --
Secretary
Sandra K. Orlow Vice President & Assistant --
Secretary
Cynthia M. Parrish Vice President & Assistant
Secretary
Kim Rainey Vice President --
Rob Redican Vice President --
Maria Rinehart Vice President --
Mark Samuels Vice President & Managing --
Director
Steve Smith Vice President --
Daniel Spaventa Vice President --
</TABLE>
C-20
<PAGE> 120
<TABLE>
<CAPTION>
Position and Office Positions and Offices
Name with Underwriter with Registrant
- ---- ---------------- ---------------
<S> <C> <C>
Kathryn L. Stanton Vice President & Assistant Assistant Treasurer
Secretary
Lynda J. Striegel Vice President & Assistant --
Secretary
Lori L. White Vice President & Assistant --
Secretary
Wayne M. Withrow Vice President & Managing --
Director
</TABLE>
Item 30. Location of Accounts and Records
1. National City Investment Management Company, 1900 East Ninth
Street, Cleveland, Ohio, 44114-3484, and National City Bank,
Trust Operations, 4100 West 150th Street, Cleveland, Ohio
44135, (records relating to their functions as investment
adviser and custodian); and National Asset Management
Corporation, 101 South Fifth Street, Louisville, KY 40202.
2. SEI Investments Distribution Co., One Freedom Valley Drive,
Oaks, Pennsylvania 19456 (records relating to its function as
distributor, accounting agent and administrator).
3. 440 Financial Distributors, Inc., 290 Donald Lynch Boulevard,
Marlboro, Massachusetts 01752 (records relating to its former
functions as distributor).
4. Allmerica Investments, Inc., 440 Lincoln Street, Worcester,
Massachusetts 01653 (records relating to its former functions
as distributor).
5. Drinker Biddle & Reath LLP, 1345 Chestnut Street, Philadelphia,
Pennsylvania 19107-3496 (Registrant's Declaration of Trust,
Code of Regulations, and Minute Books).
6. PNC Bank, National Association, 17th and Chestnut Streets,
Philadelphia, Pennsylvania 19103 (records relating to its
former functions as custodian).
7. PFPC Inc., 400 Bellevue Parkway, Wilmington, Delaware 19809
(records relating to its former functions as accounting agent
and administrator).
8. State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110 (records relating to its function
as transfer agent).
C-21
<PAGE> 121
9. First Data Investor Services Group, Inc., 4400 Computer Drive,
Westboro, Massachusetts 02109 (records relating to its former
functions as transfer agent).
10. First Data Investor Services Group (formerly The Shareholder
Services Group, Inc. d/b/a 440 Financial) 4400 Computer Drive,
Westboro, Massachusetts 02109 (records relating to its former
functions as transfer agent).
11. Weiss, Peck & Greer, LLC, One New York Plaza, New York, New
York 10004 (records relating its former functions as
sub-adviser).
12. Wellington Management Company, LLP, 75 State Street, Boston,
Massachusetts 02109 (records relating to its former functions
as sub-adviser).
13. National Asset Management Corporation, 101 South Fifth Street,
Louisville, KY 40202 (records relating to its former functions
as investment adviser).
Item 31. Management Services
Inapplicable.
Item 32. Undertakings
Registrant undertakes to furnish each person to whom a prospectus is
delivered a copy of the Registrant's most recent annual report to shareholders,
upon request and without charge.
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<PAGE> 122
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, Registrant certifies that it
meets all of the requirements for effectiveness of this Post-Effective Amendment
No. 43 to its Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Post-Effective Amendment No. 43
to its Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Philadelphia, Commonwealth of
Pennsylvania, on the 15th day of September, 1998.
ARMADA FUNDS
Registrant
*Robert D. Neary
---------------------------------
Trustee and Chairman of the Board
Robert D. Neary
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 43 to Registrant's Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Carol L. Rooney Treasurer September 15, 1998
- ------------------------
Carol L. Rooney
*Leigh Carter Trustee September 15, 1998
- ------------------------
Leigh Carter
*John F. Durkott Trustee September 15, 1998
- ------------------------
John F. Durkott
*Robert J. Farling Trustee September 15, 1998
- ------------------------
Robert J. Farling
*Richard E. Furst Trustee September 15, 1998
- ------------------------
Richard W. Furst
*Gerald Gherlein Trustee September 15, 1998
- ------------------------
Gerald Gherlein
*Herbert Martens President and Trustee September 15, 1998
- ------------------------
Herbert Martens
* Robert D. Neary Trustee and Chairman September 15, 1998
- ------------------------ of the Board
Robert D. Neary
</TABLE>
C-23
<PAGE> 123
<TABLE>
<S> <C> <C>
* J. William Pullen Trustee September 15, 1998
- ------------------------
J. William Pullen
</TABLE>
*By: /s/ W. Bruce McConnel, III
--------------------------
W. Bruce McConnell, III
Attorney-in-Fact
C-24
<PAGE> 124
ARMADA FUNDS
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, Robert D.
Neary, hereby constitutes and appoints Herbert R. Martens, Jr. and W. Bruce
McConnel, III, his true and lawful attorneys, to execute in his name, place, and
stead, in his capacity as Trustee or officer, or both, of Armada Funds, the
Registration Statement and any amendments thereto and all instruments necessary
or incidental in connection therewith, and to file the same with the Securities
and Exchange Commission; and said attorneys shall have full power and authority
to do and perform in his name and on his behalf, in any and all capacities,
every act whatsoever requisite or necessary to be done in the premises, as fully
and to all intents and purposes as he might or could do in person, said acts of
said attorneys being hereby ratified and approved.
DATED: November 19, 1997
/s/ Robert D. Neary
- -------------------
Robert D. Neary
<PAGE> 125
ARMADA FUNDS
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, Leigh
Carter, hereby constitutes and appoints Herbert R. Martens, Jr. and W. Bruce
McConnel, III, his true and lawful attorneys, to execute in his name, place, and
stead, in his capacity as Trustee or officer, or both, of Armada Funds, the
Registration Statement and any amendments thereto and all instruments necessary
or incidental in connection therewith, and to file the same with the Securities
and Exchange Commission; and said attorneys shall have full power and authority
to do and perform in his name and on his behalf, in any and all capacities,
every act whatsoever requisite or necessary to be done in the premises, as fully
and to all intents and purposes as he might or could do in person, said acts of
said attorneys being hereby ratified and approved.
DATED: November 19, 1997
/s/ Leigh Carter
- ----------------
Leigh Carter
<PAGE> 126
ARMADA FUNDS
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, John F.
Durkott, hereby constitutes and appoints Herbert R. Martens, Jr. and W. Bruce
McConnel, III, his true and lawful attorneys, to execute in his name, place, and
stead, in his capacity as Trustee or officer, or both, of Armada Funds, the
Registration Statement and any amendments thereto and all instruments necessary
or incidental in connection therewith, and to file the same with the Securities
and Exchange Commission; and said attorneys shall have full power and authority
to do and perform in his name and on his behalf, in any and all capacities,
every act whatsoever requisite or necessary to be done in the premises, as fully
and to all intents and purposes as he might or could do in person, said acts of
said attorneys being hereby ratified and approved.
DATED: November 19, 1997
/s/ John F. Durkott
- -------------------
John F. Durkott
<PAGE> 127
ARMADA FUNDS
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, Richard W.
Furst, hereby constitutes and appoints Herbert R. Martens, Jr. and W. Bruce
McConnel, III, his true and lawful attorneys, to execute in his name, place, and
stead, in his capacity as Trustee or officer, or both, of Armada Funds, the
Registration Statement and any amendments thereto and all instruments necessary
or incidental in connection therewith, and to file the same with the Securities
and Exchange Commission; and said attorneys shall have full power and authority
to do and perform in his name and on his behalf, in any and all capacities,
every act whatsoever requisite or necessary to be done in the premises, as fully
and to all intents and purposes as he might or could do in person, said acts of
said attorneys being hereby ratified and approved.
DATED: November 19, 1997
/s/Richard W. Furst
- -------------------
Richard W. Furst
<PAGE> 128
ARMADA FUNDS
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, Robert J.
Farling, hereby constitutes and appoints Herbert R. Martens, Jr. and W. Bruce
McConnel, III, his true and lawful attorneys, to execute in his name, place, and
stead, in his capacity as Trustee or officer, or both, of Armada Funds, the
Registration Statement and any amendments thereto and all instruments necessary
or incidental in connection therewith, and to file the same with the Securities
and Exchange Commission; and said attorneys shall have full power and authority
to do and perform in his name and on his behalf, in any and all capacities,
every act whatsoever requisite or necessary to be done in the premises, as fully
and to all intents and purposes as he might or could do in person, said acts of
said attorneys being hereby ratified and approved.
DATED: November 19, 1997
/s/ Robert J. Farling
- ---------------------
Robert J. Farling
<PAGE> 129
ARMADA FUNDS
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, J. William
Pullen, hereby constitutes and appoints Herbert R. Martens, Jr. and W. Bruce
McConnel, III, his true and lawful attorneys, to execute in his name, place, and
stead, in his capacity as Trustee or officer, or both, of Armada Funds, the
Registration Statement and any amendments thereto and all instruments necessary
or incidental in connection therewith, and to file the same with the Securities
and Exchange Commission; and said attorneys shall have full power and authority
to do and perform in his name and on his behalf, in any and all capacities,
every act whatsoever requisite or necessary to be done in the premises, as fully
and to all intents and purposes as he might or could do in person, said acts of
said attorneys being hereby ratified and approved.
DATED: November 19, 1997
/s/ J. William Pullen
- ---------------------
J. William Pullen
<PAGE> 130
ARMADA FUNDS
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, Herbert R.
Martens, Jr. , hereby constitutes and appoints W. Bruce McConnel, III, his true
and lawful attorney, to execute in his name, place, and stead, in his capacity
as Trustee or officer, or both, of Armada Funds, the Registration Statement and
any amendments thereto and all instruments necessary or incidental in connection
therewith, and to file the same with the Securities and Exchange Commission; and
said attorney shall have full power and authority to do and perform in his name
and on his behalf, in any and all capacities, every act whatsoever requisite or
necessary to be done in the premises, as fully and to all intents and purposes
as he might or could do in person, said acts of said attorney being hereby
ratified and approved.
DATED: November 19, 1997
/s/ Herbert R. Martens, Jr.
- ---------------------------
Herbert R. Martens, Jr.
<PAGE> 131
ARMADA FUNDS
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, Gerald L.
Gherlein, hereby constitutes and appoints Herbert R. Martens, Jr. and W. Bruce
McConnel, III, his true and lawful attorneys, to execute in his name, place, and
stead, in his capacity as Trustee or officer, or both, of Armada Funds, the
Registration Statement and any amendments thereto and all instruments necessary
or incidental in connection therewith, and to file the same with the Securities
and Exchange Commission; and said attorneys shall have full power and authority
to do and perform in his name and on his behalf, in any and all capacities,
every act whatsoever requisite or necessary to be done in the premises, as fully
and to all intents and purposes as he might or could do in person, said acts of
said attorneys being hereby ratified and approved.
DATED: November 19, 1997
/s/ Gerald L. Gherlein
- ----------------------
Gerald L. Gherlein
<PAGE> 132
EXHIBIT INDEX
(1)(k) Certificate of Classification of Shares reflecting the creation
of Class BB and Class BB-Special Series 1 shares in the Ohio
Municipal Money Market Fund, as filed with the Office of the
Secretary of State and with the City of Boston, Office of the City
Clerk on September 15, 1998.
(5)(m) Advisory Agreement for the International Equity, Small Cap Value,
Small Cap Growth, Equity Index, Real Return Advantage, Tax
Managed Equity, Balanced Allocation and Ohio Municipal Money
Market Funds between Registrant and National City Bank dated
April 9, 1998.
(11)(a) Consent of Drinker Biddle & Reath LLP.
(11)(b) Consent of Squire, Sanders & Dempsey L.L.P.
(11)(c) Consent of Ernst & Young L.L.P.
(11)(d) Consent of PricewaterhouseCoopers LLP
(17)(a) Financial Data Schedule as of May 31, 1998 for the Money Market
Fund (I Shares).
(b) Financial Data Schedule as of May 31, 1998 for the Money Market
Fund (A Shares).
(c) Financial Data Schedule as of May 31, 1998 for the Money Market
Fund (B Shares).
(d) Financial Data Schedule as of May 31, 1998 for the Government
Money Market Fund (I Shares).
(e) Financial Data Schedule as of May 31, 1998 for the Government
Money Market Fund (A Shares).
(f) Financial Data Schedule as of May 31, 1998 for the Treasury Money
Market Fund (I Shares).
(g) Financial Data Schedule as of May 31, 1998 for the Treasury Money
Market Fund (A Shares).
(h) Financial Data Schedule as of May 31, 1998 for the Tax Exempt
Money Market Fund (I Shares).
(i) Financial Data Schedule as of May 31, 1998 for the Tax Exempt
Money Market Fund (A Shares).
(j) Financial Data Schedule as of May 31, 1998 for the Pennsylvania
Tax Exempt Money Market Fund (I Shares).
<PAGE> 133
(k) Financial Data Schedule as of May 31, 1998 for the Pennsylvania
Tax Exempt Money Market Fund (A Shares).
-2-
<PAGE> 1
Exhibit 1 (k)
ARMADA FUNDS ("ARMADA")
(A MASSACHUSETTS BUSINESS TRUST)
CERTIFICATE OF CLASSIFICATION OF SHARES
I, W. Bruce McConnel, III, do hereby certify as follows:
(1) That I am the duly elected Secretary of Armada Funds
("Armada");
(2) That in such capacity I have examined the records of
actions taken by the Board of Trustees of Armada;
(3) That the Board of Trustees of Armada duly adopted the
following resolutions at the Regular Meeting of the Board of Trustees held on
May 29, 1998:
CREATION OF NEW SERIES OF SHARES
1. CREATION OF CLASS BB AND CLASS BB-SPECIAL SERIES 1 SHARES
REPRESENTING INTERESTS IN THE OHIO MUNICIPAL MONEY MARKET
FUND.
RESOLVED, that pursuant to Section 5.1 of Armada's Declaration
of Trust, an unlimited number of authorized, unissued and unclassified
shares of beneficial interest in Armada (no par value) be, and hereby
are, classified into an additional class of shares designated as Class
BB shares of beneficial interest;
FURTHER RESOLVED, that pursuant to Section 5.1 of the
Declaration of Trust of the Trust, an unlimited number of authorized,
unissued and unclassified shares of beneficial interest in Armada (no
par value) be, and hereby are, classified and designated as Class
BB-Special Series 1 shares;
FURTHER RESOLVED, that all consideration received by Armada
for the issue or sale of Class BB shares and Class BB-Special Series 1
shares shall be invested and reinvested with the consideration received
by Armada for the issue and sale of all other shares of beneficial
interest in Armada now or hereafter designated as Class BB shares of
beneficial interest (irrespective of whether said shares have been
designated as part of a series of said class and, if so designated as
part of a series, irrespective of the particular series designation),
together with all income, earnings, profits and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation
thereof, any funds or payments derived from any reinvestment of such
proceeds in whatever form the same may be, and any
<PAGE> 2
general assets of Armada allocated to Class BB shares, Class BB-Special
Series 1 shares or such other shares by the Board of Trustees in
accordance with the Trust's Declaration of Trust, and each Class BB
share and Class BB-Special Series 1 share shall share equally with each
such other share in such consideration and other assets, income,
earnings, profits and proceeds thereof, including any proceeds derived
from the sale, exchange or liquidation thereof, and any assets derived
from any reinvestment of such proceeds in whatever form;
FURTHER RESOLVED, that each Class BB share and each Class
BB-Special Series 1 share shall be charged in proportion to their
respective net asset values with each other share of beneficial
interest in Armada now or hereafter designated as a Class BB share of
beneficial interest (irrespective of whether said share has been
designated as part of a series of said class and, if so designated as
part of a series, irrespective of the particular series designation)
with the expenses and liabilities of Armada in respect of Class BB
shares, Class BB-Special Series 1 shares or such other shares and in
respect of any general expenses and liabilities of Armada allocated to
Class BB shares, Class BB-Special Series 1 shares or such other shares
by the Board of Trustees in accordance with the Declaration of Trust,
except that to the extent permitted by rule or order of the Securities
and Exchange Commission and as may be from time to time determined by
the Board of Trustees:
(a) only the Class BB-Special Series 1 shares shall bear:
(i) the expenses and liabilities of payments to
institutions under any agreements entered into by or
on behalf of Armada which provide for services by the
institutions exclusively for their customers who
beneficially own such shares; (ii) the expenses and
liabilities arising from transfer agency services
that are directly attributable to Class BB-Special
Series 1 shares; and (iii) such other expenses and
liabilities as the Board of Trustees may from time to
time determine are directly attributable to such
shares and which should therefore be borne solely by
Class BB-Special Series 1 shares;
(b) only the Class BB shares shall bear: (i) the expenses
and liabilities arising from transfer agency services
that are directly attributable to Class BB shares;
and (ii) such other expenses and liabilities as the
Board of Trustees may from time to time determine are
directly attributable to such shares and which should
therefore be borne solely by Class BB shares;
- 2 -
<PAGE> 3
(c) no Class BB-Special Series 1 shares shall bear the
expenses and liabilities described in subparagraph
(b) above; and
(d) no Class BB shares shall bear the expenses and
liabilities described in subparagraph (a) above.
FURTHER RESOLVED, that except as otherwise provided by these
resolutions, each Class BB share and each Class BB-Special Series 1
share shall have all the preferences, conversion and other rights,
voting powers, restrictions, limitations, qualifications and terms and
conditions of redemption as set forth in the Declaration of Trust and
shall also have the same preferences, conversion and other rights,
voting powers, restrictions, limitations, qualifications and terms and
conditions of redemption as each other share of beneficial interest in
Armada now or hereafter designated as a Class BB share of beneficial
interest (irrespective of whether said share has been designated as
part of a series of said class and, if so designated as part of a
series, irrespective of the particular series designation), except to
the extent permitted by rule or order of the Securities and Exchange
Commission, on any matter that pertains to the agreements or expenses
and liabilities described in clause (a) of the immediately preceding
resolution (or to any plan or other document adopted by Armada relating
to said agreements, expenses or liabilities) and is submitted to a vote
of shareholders of Armada, only Class BB-Special Series 1 shares shall
be entitled to vote, except that: (i) if said matter affects shares of
beneficial interest in Armada other than Class BB-Special Series 1
shares, such other affected shares of beneficial interest in Armada
shall also be entitled to vote, and in such case Class BB-Special
Series 1 shares shall be voted in the aggregate together with such
other affected shares and not by class or series except where otherwise
required by law or permitted by the Board of Trustees of Armada; and
(ii) if said matter does not affect Class BB-Special Series 1 shares,
said shares shall not be entitled to vote (except where otherwise
required by law or permitted by the Board of Trustees) even though the
matter is submitted to a vote of the holders of shares of beneficial
interest in Armada other than Class BB-Special Series 1 shares.
- 3 -
<PAGE> 4
IDENTIFICATION OF SHARES WITH FUND.
RESOLVED, that Armada's classes or series of shares shall
represent interests in the investment fund of Armada as follows:
Class of Shares Investment Fund
--------------- ---------------
Class BB Ohio Municipal Money
Market Fund
Class BB-Special Series 1
AUTHORIZATION OF ISSUANCE OF SHARES TO INVESTORS.
RESOLVED, that the appropriate officers of Armada be, and each of
them hereby is, authorized, at any time after the effective date and
time of Post-Effective Amendment No. 42 to Armada's Registration
Statement relating to the Ohio Municipal Money Market Fund to issue and
redeem from time to time Class BB shares and Class BB-Special Series 1
shares representing interests in the Ohio Municipal Money Market Fund,
in accordance with the Registration Statement under the Securities Act
of 1933, as the same may from time to time be amended, and the
requirements of Armada's Declaration of Trust and applicable law, and
that such shares, when issued for the consideration described in such
amended Registration Statement, shall be validly issued, fully paid and
non-assessable by Armada.
IMPLEMENTATION OF RESOLUTIONS.
RESOLVED, that the officers of Armada be, and each of them
hereby is, authorized and empowered to execute, seal, and deliver any
and all documents, instruments, papers and writings, including but not
limited to, any instrument to be filed with the State Secretary of the
Commonwealth of Massachusetts or the Boston City Clerk, and to do any
and all other acts, including but not limited to, changing the
foregoing resolutions upon advice of Counsel prior to filing said any
and all documents, instruments, papers, and writings, in the name of
Armada and on its behalf, as may be necessary or desirable in
connection with or in furtherance of the foregoing resolutions, such
determination to be conclusively evidenced by said officers taking any
such actions.
- 4 -
<PAGE> 5
(4) That the foregoing resolutions remain in full force and
effect as of the date hereof.
/s/ W. BRUCE MCCONNEL, III
--------------------------------
W. Bruce McConnel, III
Dated: May 29, 1998
Subscribed and sworn to before
me this 29th day of May, 1998
/s/ GEORGEANNA GRIFFITH
- -----------------------------
Notary Public
- 5 -
<PAGE> 1
Exhibit 5 (M)
ARMADA FUNDS
ADVISORY AGREEMENT
AGREEMENT made as of April 9, 1998 between ARMADA FUNDS, a Massachusetts
business trust, located in Oaks, Pennsylvania (the "Trust") and NATIONAL CITY
BANK, located in Cleveland, Ohio (the "Adviser").
WHEREAS, the Trust is registered as an open-end, management investment
company under the Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Trust desires to retain the Adviser as investment adviser
to the International Equity, Small Cap Value, Small Cap Growth, Equity Index,
Real Return Advantage, Tax Managed Equity, Balanced Allocation, and Ohio
Municipal Money Market Funds (individually, a "Fund" and collectively, the
"Funds");
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed among the parties hereto as follows:
1. Delivery of Documents. The Adviser acknowledges that it has received
copies of each of the following:
(a) The Trust's Declaration of Trust, as filed with the
State Secretary of the Commonwealth of Massachusetts
on January 29, 1986 and all amendments thereto (such
Declaration of Trust, as presently in effect and as
it shall from time to time be amended, is herein
called the "Declaration of Trust");
(b) The Trust's Code of Regulations, and amendments
thereto (such Code of Regulations, as presently in
effect and as it shall from time to time be amended,
is herein called the "Code of Regulations");
(c) Resolutions of the Trust's Board of Trustees
authorizing the appointment of the Adviser and
approving this Agreement;
(d) The Trust's Notification of Registration on Form N-8A
under the 1940 Act as filed with the Securities and
Exchange Commission ("SEC") on September 26, 1985 and
all amendments thereto;
1
<PAGE> 2
(e) The Trust's Registration Statement on Form N-1A under
the Securities Act of 1933, as amended ("1933 Act")
(File No. 33-488) and under the 1940 Act as filed
with the SEC on September 26, 1985 and all amendments
thereto; and
(f) The Trust's most recent prospectuses and statements
of additional information with respect to the Funds
(such prospectuses and statements of additional
information, as presently in effect and all
amendments and supplements thereto are herein called
individually, a "Prospectus", and collectively, the
"Prospectuses").
The Trust will furnish the Adviser from time to time with
execution copies of all amendments of or supplements to the foregoing.
2. Services. The Trust hereby appoints the Adviser to act as investment
adviser to the Funds for the period and on the terms set forth in this
Agreement. Intending to be legally bound, the Adviser accepts such
appointment and agrees to furnish the services required herein to the
Funds for the compensation hereinafter provided.
Subject to the supervision of the Trust's Board of Trustees,
the Adviser will provide a continuous investment program for each Fund,
including investment research and management with respect to all
securities and investments and cash equivalents in each Fund. The
Adviser will determine from time to time what securities and other
investments will be purchased, retained or sold by each Fund. The
Adviser will provide the services under this Agreement in accordance
with each Fund's investment objective, policies, and restrictions as
stated in the Prospectus and resolutions of the Trust's Board of
Trustees applicable to such Fund.
3. Subcontractors. It is understood that the Adviser may from time to
time employ or associate with itself such person or persons as the
Adviser may believe to be particularly fitted to assist in the
performance of this Agreement; provided, however, that the compensation
of such person or persons shall be paid by the Adviser and that the
Adviser shall be as fully responsible to the Trust for the acts and
omissions of any subcontractor as it is for its own acts and omissions.
Without limiting the generality of the foregoing, it is agreed that
investment advisory service to any Fund may be provided by a
subcontractor agreeable to the Adviser and approved in accordance with
the provisions of the 1940 Act. Any such sub-advisers are hereinafter
referred to as the "Sub-Advisers." In the event that any Sub-Adviser
appointed hereunder is terminated, the Adviser
2
<PAGE> 3
may provide investment advisory services pursuant to this Agreement to
the Fund involved without further shareholder approval. Notwith-
standing the employment of any Sub-Adviser, the Adviser shall in all
events: (a) establish and monitor general investment criteria and
policies for each Fund; (b)review investments in each Fund on a
periodic basis for compliance with its investment objective, policies
and restrictions as stated in the Prospectus; (c) review periodically
any Sub-Adviser's policies with respect to the placement of orders for
the purchase and sale of portfolio securities; (d) review, monitor,
analyze and report to the Board of Trustees on the performance of any
Sub-Adviser; (e) furnish to the Board of Trustees or any Sub-Adviser,
reports, statistics and economic information as may be reasonably
requested; and (f) recommend, either in its sole discretion or in
conjunction with any Sub-Adviser, potential changes in investment
policy. Pursuant to this paragraph, on the date hereof, the Adviser has
entered into a Sub-Advisory Agreement with Wellington Management
Company, LLP with respect to the Small Cap Growth Fund.
4. Covenants by Adviser. The Adviser agrees with respect to the
services provided to each Fund that it:
(a) will comply with all applicable Rules and Regulations
of the SEC and will in addition conduct its
activities under this Agreement in accordance with
other applicable law;
(b) will use the same skill and care in providing such
services as it uses in providing services to similar
fiduciary accounts for which it has investment
responsibilities;
(c) will not make loans to any person to purchase or
carry shares in the Funds, or make interest-bearing
loans to the Trust or the Funds;
(d) will maintain a policy and practice of conducting its
investment management activities independently of the
Commercial Departments of all banking affiliates. In
making investment recommendations for the Funds,
personnel will not inquire or take into consideration
whether the issuers (or related supporting
institutions) of securities proposed for purchase or
sale for the Funds' accounts 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 Funds;
(e) will place orders pursuant to its investment
3
<PAGE> 4
determinations for the Funds either directly with the
issuer or with any broker or dealer. In selecting
brokers or dealers for executing portfolio
transactions, the Adviser will use its best efforts
to seek on behalf of the Trust and each Fund the best
overall terms available. In assessing the best
overall terms available for any transaction the
Adviser shall consider all factors it deems relevant,
including the breadth of the market in the security,
the price of the security, the financial condition
and execution capability of the broker or dealer, and
the reasonableness of the commission, if any, both
for the specific transaction and on a continuing
basis. In evaluating the best overall terms
available, and in selecting the broker or dealer to
execute a particular transaction, the Adviser may
also consider the brokerage and research services (as
those terms are defined in Section 28(e) of the
Securities Exchange Act of 1934, as amended) provided
to any Fund and/or other accounts over which the
Adviser or any affiliate of the Adviser exercises
investment discretion. The Adviser is authorized,
subject to the prior approval of the Board, to
negotiate and pay to a broker or dealer who provides
such brokerage and research services a commission for
executing a portfolio transaction for any Fund which
is in excess of the amount of commission another
broker or dealer would have charged for effecting
that transaction if, but only if, the Adviser
determines in good faith that such commission was
reasonable in relation to the value of the brokerage
and research services provided by such broker or
dealer viewed in terms of that particular transaction
or in terms of the overall responsibilities of the
Adviser with respect to the accounts as to which it
exercises investment discretion. In no instance will
fund securities be purchased from or sold to the
Adviser, any Sub-Adviser, SEI Investments
Distribution Co. ("SEI") (or any other principal
underwriter to the Trust) or an affiliated person of
either the Trust, the Adviser, Sub-Adviser, or SEI
(or such other principal underwriter) unless
permitted by an order of the SEC or applicable rules.
In executing portfolio transactions for any Fund, the
Adviser may, but shall not be obligated to, to the
extent permitted by applicable laws and regulations,
aggregate the securities to be sold or purchased with
those of other Funds and its other clients where such
aggregation is not inconsistent with the policies set
forth in the Trust's registration statement.
4
<PAGE> 5
In such event, the Adviser will allocate the
securities so purchased or sold, and the expenses
incurred in the transaction, in the manner it
considers to be the most equitable and consistent
with its fiduciary obligations to the Funds and such
other clients;
(f) will maintain all books and records with respect to
the securities transactions for the Funds and furnish
the Trust's Board of Trustees such periodic and
special reports as the Board may request; and
(g) will treat confidentially and as proprietary
information of the Trust all records and other
information relative to the Funds and prior, present
or potential shareholders, and will not use such
records and information for any purpose other than
performance of its responsibilities and duties
hereunder (except after prior notification to and
approval in writing by the Trust, which approval
shall not be unreasonably withheld and may not be
withheld and will be deemed granted where the Adviser
may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to
divulge such information by duly constituted
authorities, or when so requested by the Trust).
5. Services Not Exclusive. The services furnished by the Adviser
hereunder are deemed not to be exclusive, and the Adviser shall be free
to furnish similar services to others so long as its services under
this Agreement are not impaired thereby.
6. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Adviser hereby agrees that all records which it
maintains for the Trust are the property of the Trust and further
agrees to surrender promptly to the Trust any of such records upon the
Trust's request. The Adviser further agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act the records required to be
maintained by Rule 31a-1 under the 1940 Act.
7. Expenses. During the term of this Agreement, the Adviser will pay
all expenses incurred by it in connection with its activities under
this Agreement other than the cost of securities (including brokerage
commissions, if any) purchased for the Funds.
8. Compensation. For the services provided and the expenses assumed
pursuant to this Agreement, the Trust will
5
<PAGE> 6
pay the Adviser from the assets belonging to the Funds and the Adviser
will accept as full compensation therefor fees, computed daily and paid
monthly, at the following annual rates: 1.15% of the average daily net
assets of the International Equity Fund; 1.00% of the average daily net
assets of each of the Small Cap Value Fund and the Small Cap Growth
Fund; .35% of the average daily net assets of each of the Equity Index
Fund, the Real Return Advantage Fund and the Ohio Municipal Money
Market Fund; and .75% of the average daily net assets of each of the
Tax Managed Equity Fund and the Balanced Allocation Fund.
The fee attributable to each Fund shall be the several (and
not joint or joint and several) obligation of each Fund.
9. Limitation of Liability. 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 this Agreement, except a
loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Adviser
in the performance of its duties or from reckless disregard by it of
its obligations and duties under this Agreement.
10. Duration and Termination. This Agreement will become effective with
respect to each Fund upon approval of this Agreement by vote of a
majority of the outstanding voting securities of each such Fund, and,
unless sooner terminated as provided herein, shall continue in effect
until September 30, 1999. Thereafter, if not terminated, this Agreement
shall continue in effect with respect to a particular Fund for
successive twelve month periods ending on September 30, provided such
continuance is specifically approved at least annually (a) by the vote
of a majority of those members of the Trust's Board of Trustees who are
not interested persons of any party to this Agreement, cast in person
at a meeting called for the purpose of voting on such approval, and (b)
by the Trust's Board of Trustees or by vote of a majority of the
outstanding voting securities of the Fund. Notwithstanding the
foregoing, this Agreement may be terminated as to any Fund at any time,
without the payment of any penalty, by the Trust (by the Trust's Board
of Trustees or by vote of a majority of the outstanding voting
securities of the particular Fund), or by the Adviser on 60 days'
written notice. This Agreement will immediately terminate in the event
of its assignment. (As used in this Agreement, the terms "majority of
the outstanding voting securities," "interested persons" and
"assignment" shall have the same meaning of such terms in the 1940
Act.)
6
<PAGE> 7
11. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of
the change, waiver, discharge or termination is sought. No amendment of
this Agreement shall be effective with respect to a Fund until approved
by vote of a majority of the outstanding voting securities of that
Fund.
12. Miscellaneous. The Adviser expressly agrees that notwithstanding
the termination of or failure to continue this Agreement with respect
to a particular Fund, the Adviser shall continue to be legally bound to
provide the services required herein for the other Funds for the period
and on the terms set forth in this Agreement. The captions in this
Agreement are included for convenience of reference only and in no way
define or delimit any of the provisions hereof or otherwise affect
their construction or effect. If any provision of this Agreement shall
be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected
thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall
be governed by Delaware law.
13. Names. The names "ARMADA FUNDS" and "Trustees of ARMADA FUNDS"
refer respectively to the Trust created and the Trustees, as trustees
but not individually or personally, acting from time to time under a
Declaration of Trust dated January 28, 1986 which is hereby referred to
and a copy of which is on file at the office of the State Secretary of
the Commonwealth of Massachusetts and the principal office of the
Trust. The obligations of "ARMADA FUNDS" entered into in the name or on
behalf thereof by any of the Trustees, representatives or agents are
made not individually, but in such capacities, and are not binding upon
any of the Trustees, shareholders, or representatives of the Trust
personally, but bind only the Trust property, and all persons dealing
with any class of shares of the Trust must look solely to the Trust
property belonging to such class for the enforcement of any claims
against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
SIGNATURES OMITTED
7
<PAGE> 1
Exhibit 11(a)
CONSENT OF COUNSEL
------------------
We hereby consent to the use of our name and to the reference to
our Firm under the caption "Counsel" in the Statements of Additional Information
that are included in Post-Effective Amendment No. 43 to the Registration
Statement on Form N-1A under the Investment Company Act of 1940, as amended, of
Armada Funds. This consent does not constitute a consent under Section 7 of the
Securities Act of 1933, and in consenting to the use of our name and the
references to our Firm under such caption we have not certified any part of the
Registration Statement and do not otherwise come within the categories of
persons whose consent is required under Section 7 or the rules and regulations
of the Securities and Exchange Commission thereunder.
/s/ Drinker Biddle & Reath LLP
------------------------------
DRINKER BIDDLE & REATH LLP
Philadelphia, Pennsylvania
September 15, 1998
<PAGE> 1
Exhibit 11(b)
[SQUIRE, SANDERS & DEMPSEY LETTERHEAD]
September 15, 1998
Armada Funds
4400 Computer Drive
Westborough, MA 01581
Re: Armada Funds (Municipal Money Market Fund)
Post-Effective Amendment No. 43 -- Consent of Counsel
-----------------------------------------------------
We hereby consent to use of our name and to the reference to our Firm
under caption "Counsel" in the Statement of Additional Information included in
Post-Effective Amendment No. 43 to the Registration Statement (No. 33-488) on
Form N-1A under the Securities Act of 1933, as amended, of Armada Funds.
/s/ Squire, Sanders & Dempsey L.L.P.
<PAGE> 1
EXHIBIT 11(C)
Consent of Ernst & Young LLP, Independent Auditors
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectus and "Auditors" in the Statement of Additional
Information and to the incorporation by reference in Post-Effective Amendment
Number 43 to the Registration Statement (Form N-1A No. 33-488/811-4416) of
Armada Funds of our reports dated July 20, 1998, included in the May 31, 1998
Annual Reports to Shareholders of the Armada Funds Money Market Series.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
September 14, 1998
<PAGE> 1
Exhibit 11(d)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in Post-Effective Amendment No. 43
to the Registration Statement of Armada Funds on Form N-1A (File No. 33-488) of
our report dated July 26, 1996, on our audit of the financial statements and
financial highlights of the Inventor Funds, Inc. - Pennsylvania Tax-Exempt
Market Fund (the "Predecessor Fund"), which report is included in the Annual
Report to Shareholders for the year ended April 30, 1996 and the period ended
May 31, 1996. We also consent to the reference to our Firm under the caption
"Financial Highlights" in the Prospectus and "Auditors" in the Statement of
Additional Information.
/s/ PricewaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, PA 19103
September 15, 1998
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