<PAGE> 1
As filed with the Securities and Exchange Commission on January 22, 1998
Registration No. 33-488/811-4416
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
POST-EFFECTIVE AMENDMENT NO. 40 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 39 [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):
[ ] immediately upon filing pursuant to paragraph (b)
[X] 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
=================================
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The purpose of this post-effective amendment is to update certain
policies of the Registrant and to register B shares of the National Tax Exempt
Fund.
<PAGE> 3
CROSS REFERENCE SHEET
---------------------
National Tax Exempt Fund
<TABLE>
<CAPTION>
Form N-1A Part A Item Prospectus Caption
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<S> <C> <C>
1. Cover Page....................................... Cover Page
2. Synopsis......................................... Expense Table
3. Condensed Financial
Information...................................... Yield and Performance
Information
4. General Description of
Registrant....................................... 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
Agreements
8. Redemption Repurchase............................ How to Purchase and Redeem Shares
9. Pending Legal Proceedings........................ Inapplicable
</TABLE>
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National Tax Exempt Fund
<PAGE> 5
- - Shares of Armada Funds are not bank deposits or obligations of, or guaranteed
or endorsed or otherwise supported by, National City Bank, National Asset
Management Corporation, their parent company or any of their affiliates 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 Bank and National Asset Management Corporation serve as
investment advisers to Armada Funds for which they receive an investment
advisory fee. Past performance is not indicative of future performance, and the
investment return will fluctuate, so that you may have a gain or loss when you
sell your shares.
No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the offering
made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Trust
or its Distributor. This Prospectus does not constitute an offering by the Trust
or by the Distributor in any jurisdiction in which such offering may not
lawfully be made.
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TABLE OF CONTENTS
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Page
----
INTRODUCTION.............................................................. 6
EXPENSE TABLE............................................................. 7
INVESTMENT OBJECTIVES AND POLICIES........................................ 9
INVESTMENT LIMITATIONS.................................................... 14
YIELD AND PERFORMANCE INFORMATION......................................... 15
PRICING OF SHARES......................................................... 18
HOW TO PURCHASE AND REDEEM SHARES......................................... 19
DISTRIBUTION AND SERVICING ARRANGEMENTS................................... 34
DIVIDENDS AND DISTRIBUTIONS............................................... 35
TAXES..................................................................... 35
MANAGEMENT OF THE TRUST................................................... 37
DESCRIPTION OF THE TRUST AND ITS SHARES................................... 40
CUSTODIAN AND TRANSFER AGENT.............................................. 43
EXPENSES.................................................................. 44
MISCELLANEOUS............................................................. 44
<PAGE> 7
Subject to Completion - Dated January 22, 1998
Information contained herein pertaining to B shares of the Armada
National Tax Exempt Fund is subject to completion or amendment. A post-effective
amendment to the registration statement relating to, among other things, the
public issuance of B shares of the Armada National Tax Exempt Fund has been
filed with the Securities and Exchange Commission. B shares of the Armada
National Tax Exempt Fund may not be sold nor may offers to buy B shares of this
Fund be accepted prior to the time the post-effective amendment to the
registration statement becomes effective. This prospectus shall not constitute
an offer to sell or the solicitation of an offer to buy nor shall there be any
sale of B shares of the Armada National Tax Exempt Fund in any State in which
such offer, solicitation or sale would be unlawful prior to the registration or
qualification under the securities law of any such State.
ARMADA FUNDS
OAKS, PENNSYLVANIA 19456 IF YOU PURCHASED YOUR SHARES
through NatCity
Investments, Inc., 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).
This Prospectus describes shares of the National Tax Exempt Fund
(the "Fund") of Armada Funds (the "Trust").
NATIONAL TAX EXEMPT FUND'S investment objective is to provide as
high a level of current interest income exempt from federal income tax as
is consistent with relative stability of principal. The Fund normally
invests in tax-exempt obligations having average remaining maturities of
20 years or less.
The net asset value per share of the Fund will fluctuate as the
value of its investment portfolio changes in response to changing market
prices and other factors.
National City Bank ("National City" or the "Adviser") serves as
investment adviser to the Fund.
SEI Investments Distribution Co. (the "Distributor") serves as the
Trust's sponsor and distributor. The Fund pays a fee to the Distributor for
distributing its shares. See "Distribution Agreement."
This Prospectus sets forth concisely the information about the Fund
that a prospective investor should consider before investing. Investors should
carefully read this Prospectus and retain it for future reference. Additional
information about the Fund, contained in a Statement of Additional Information,
has been filed with the Securities and Exchange Commission ("SEC") and is
available upon request without charge by contacting the Trust at its telephone
number or address shown above. The Statement of Additional Information bears the
same date as this Prospectus and is incorporated by reference in its entirety
into this Prospectus.
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SHARES OF THE TRUST ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED OR OTHERWISE SUPPORTED BY, NATIONAL CITY BANK, ITS
PARENT COMPANY OR ANY OF ITS AFFILIATES, AND ARE NOT FEDERALLY INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY
GOVERNMENTAL AGENCY OR STATE. INVESTMENT IN THE TRUST INVOLVES RISKS, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
___________, 1998
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INTRODUCTION
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The Trust is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"). The Fund
consists of a pool of assets with investment objectives and policies as
described below under "Investment Objectives and Policies." The Fund is
classified as a diversified investment fund under the 1940 Act.
Shares of the Fund have been classified into three separate classes --
Retail shares, B shares and Institutional shares. Retail shares, B shares and
Institutional shares represent equal pro rata interests in the investments held
in the 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, Retail
shares and B shares are sold through selected broker-dealers and other financial
intermediaries to individual or institutional customers and are sold subject to
a front-end sales charge. B shares are sold with a contingent deferred sales
charge (back-end charge) imposed on a sliding schedule when such shares are
redeemed.
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EXPENSE TABLE
<TABLE>
<CAPTION>
==================================================================================================================
National Tax Exempt National Tax Exempt
Retail National Tax Exempt Institutional
Shares(1) B Shares(1) Shares
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Charge
Imposed on Purchases(2)............ 4.75% None None
Sales Charge Imposed
on Reinvested Dividends............ None None None
Deferred Sales Charge(3)........... None 5.00% None
Redemption Fee....................... None None None
Exchange Fee....................... None None None
- ------------------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses
(as a percentage of average net
assets)
Management Fees...................... .55% .55% .55%
12b-1Fees(5,6)....................... .06% .75% .06%
Other Expenses(4).................... .53% .53% .28%
Total Fund Operating
Expenses (after fee waivers)(4,6).. 1.14% 1.83% .89%
====== ===== ======
==================================================================================================================
- ---------------------
1 The Trust has implemented plans imposing shareholder servicing fees
with respect to Retail shares and B shares of the Fund. 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 Retail shares or B shares in consideration for the payment of up to
.25% (on an annualized basis) of the net asset value of such Retail
shares or B shares of the Fund. For further information concerning
these plans, see "Distribution and Servicing Arrangements".
2 A reduced sales charge may be available. See "How to Purchase and
Redeem Shares - Reduced Sales Charges Applicable to Purchases of Retail
Shares."
3 This amount applies to redemptions during the first year. The deferred
sales charge decreases to 4.0%, 4.0%, 3.0%, 2.0% and 1.0% for
redemptions made during the second through sixth years, respectively.
No deferred sales charge is charged after the sixth year. For more
information, see "How to Purchase and Redeem Shares - Sales Charges
Applicable to Purchases of B Shares."
4 As of the date of this Prospectus, the Fund had not commenced
investment operations, and therefore the other expenses for this Fund
are estimates only
5 The Funds have in effect a 12b-1 Plan for the Retail and
Institutional classes of shares pursuant to which the Fund's Retail and
Institutional 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 Fund's B class of shares, pursuant to which the Fund's B
shares may bear fees in an amount of up to .75% of average daily net
assets. As a result of the payment of sales charges and 12b-1 fees,
long-term shareholders may pay more than the economic equivalent of the
maximum sales charges permitted by the National Association of
Securities Dealers, Inc. ("NASD"). The NASD has adopted rules which
generally limit the aggregate sales charges and payments under the
Trust's 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 If the maximum distribution fee permitted under the Retail and
Institutional 12b-1 Plan were imposed, Total Fund Operating Expenses
would be 1.18% and .93% for the Fund's Retail and Institutional shares,
respectively.
</TABLE>
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EXAMPLE
For example, you would pay the following expenses on a hypothetical $1,000
investment, assuming: (1) a 5% annual return (a hypothetical return required by
SEC regulations); and (2) the redemption of your investment at the end of the
following time periods:
<TABLE>
<CAPTION>
1 Year 3 Years
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<S> <C> <C>
National Tax Exempt Retail Shares(1).............. $60 $82
National Tax Exempt B Shares(2).................... $69 $98
National Tax Exempt Institutional Shares $ 9 $28
</TABLE>
- ----------------
1 Assumes deduction at time of purchase of maximum applicable front-end
sales charge.
2 Assumes deduction of maximum applicable contingent deferred sales
charge.
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE GREATER
OR LESS THAN THOSE SHOWN.
The purpose of this Expense Table is to assist an investor in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly. For more complete descriptions of these costs and
expenses, see "Management of the Trust" and "Distribution Agreement" in this
Prospectus. Any fees that are charged by affiliates of the advisers or other
institutions directly to their customer accounts for services related to
investments in shares of the Fund are in addition to and not reflected in the
fees and expenses described above.
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INVESTMENT OBJECTIVES AND POLICIES
The Fund's investment objective may be changed without a vote
of shareholders, although the Board of Trustees would only change the Fund's
objective upon 30 days' notice to shareholders. There can be no assurance that
the Fund will achieve its objective. See "Investment Objectives and Policies" in
the Statement of Additional Information for further information on the
investments in which the Fund may invest.
NATIONAL TAX EXEMPT FUND
The investment objective of the Fund is to provide as high a
level of current interest income exempt from federal income tax as is consistent
with relative stability of principal. The Fund seeks to achieve its objective by
investing substantially all of its assets in a portfolio 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 interest on which, in the opinion of
counsel issued on the date of the issuance thereof, is exempt from regular
federal income tax ("Municipal Bonds").
Under normal market conditions, at least 80% of the value of
the Fund's total assets will be invested in Municipal Bonds. 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
"Miscellaneous"). The Fund may hold uninvested cash reserves pending investment,
during temporary defensive periods. There is no percentage limitation on the
amount of assets which may be held uninvested during temporary defensive
periods; however, uninvested cash reserves will not earn income. See "Other
Investment Policies of the Fund."
Although the Fund's average weighted maturity will vary in
light of current market and economic conditions, the comparative yields on
instruments with different maturities, and other factors, [the Fund anticipates
that Municipal Bonds it acquires will normally have average remaining maturities
of 20 years or less].
Although the Fund may invest 25% or more of its net assets in
(i) Municipal Bonds whose issues are in the same state, (ii) Municipal Bonds the
interest on which is paid solely from revenues of similar projects, and (iii)
private activity bonds (described below), it does not presently intend to do so
unless in the opinion of its advisers the investment is warranted. To the extent
that the Fund's assets are invested in Municipal Bonds that are payable from the
revenues of similar projects or are
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<PAGE> 13
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.
A fundamental risk associated with any fund that invests in
fixed income securities is the risk that the value of the Fund's holdings will
vary inversely with changes in prevailing interest rates. Debt securities with
longer maturities, which tend to produce higher yields, are subject to
potentially greater capital appreciation and depreciation than obligations with
shorter maturities. The market value of the Fund's investments will change in
response to changes in interest rates and the relative financial strength of
each issuer. During periods of falling interest rates, the values of long-term
fixed income securities generally rise. Conversely, during periods of rising
interest rates the values of such securities generally decline. Changes in the
financial strength of an issuer or changes in the ratings of any particular
security may also affect the value of these investments. Fluctuations in the
market value of fixed income securities subsequent to their acquisitions will
not affect cash income from such securities but will be reflected in the Fund's
net asset value.
OTHER INVESTMENT POLICIES OF THE FUND
Types of Municipal Bonds
The two principal classifications of Municipal Bonds which may
be held by the Fund are "general obligation" securities and "revenue"
securities. General obligation securities are secured by the issuer's pledge of
its full faith, credit and taxing power for the payment of principal and
interest. Revenue 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. Any private activity
bonds (including industrial development bonds) held by the Fund are in most
cases revenue securities and 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 Bonds" 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 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
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<PAGE> 14
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 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 Bonds purchased by the Fund may include variable and
floating rate instruments (described below). The Fund may also acquire zero
coupon obligations, which have greater price volatility than coupon obligations
and which will not result in the payment of interest until maturity.
Ratings Criteria
The Fund invests in Municipal Bonds which at the time of
purchase are rated the following or higher: "BBB" by Standard and Poor's Ratings
Group ("S&P"), Fitch Investors Service, Inc. ("Fitch"), Duff & Phelps Credit
Rating Co. ("Duff"), IBCA, Inc. ("IBCA"), or Moody's Investors Service, Inc.
("Moody's") in the case of bonds; "SP-2" by S&P, "F-2" by Fitch, "Duff 2" by
Duff, "A2" by IBCA, or "MIG-2" ("VMIG-2" for variable rate demand notes) by
Moody's in the case of notes; or "A-2" by S&P, "F-2" by Fitch, "Duff 2" by Duff,
"A2" by IBCA, or "Prime-2" by Moody's in the case of tax-exempt commercial
paper. Securities that are unrated at the time of purchase will be determined to
be of comparable quality by the Fund's advisers pursuant to guidelines approved
by the Trust's Board of Trustees. The applicable ratings are more fully
described in the Appendix to the Statement of Additional Information.
Stand-by Commitments
The Fund may acquire stand-by commitments with respect to
Municipal Bonds held in its fund. Under a stand-by commitment, a dealer agrees
to purchase at the Fund's option specified Municipal Bonds at a specified price.
Stand-by commitments acquired by the Fund must be of high quality as determined
by any Rating Agency, or, if not rated, must be of comparable quality as
determined by the Fund's advisers. The Fund acquires stand-by commitments solely
to facilitate liquidity and does not intend to exercise its rights thereunder
for trading purposes.
Variable and Floating Rate Obligations
The Fund may purchase variable and floating rate obligations
(including variable amount master demand notes) which are unsecured instruments
that permit the indebtedness thereunder
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<PAGE> 15
to vary and provide for periodic adjustments in the interest rate. 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, the Fund may demand
payment of principal and accrued interest at a time specified in the instrument
or may resell them to a third party. Such obligations may be backed by bank
letters of credit or guarantees issued by banks, other financial institutions or
the U.S. Government, its agencies or instrumentalities. The quality of any
letter of credit or guarantee will be rated high quality or, if unrated, will be
determined to be of comparable quality by the Fund's advisers. In the event an
issuer of a variable or floating rate obligation defaulted on its payment
obligation, the Fund might be unable to dispose of the instrument because of the
absence of a secondary market and could, for this or other reasons, suffer a
loss to the extent of the default.
Certificates of Participation
The Fund may purchase Municipal Bonds 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 such Fund invests will be
subject to the same quality rating standards applicable to Municipal Bonds.
Certificates of participation may be purchased from a bank, broker-dealer or
other financial institution. The lease payments and other rights under the lease
provide for and secure the payments on the certificates. Lease obligations may
be limited by law, municipal charter or the duration or nature of the
appropriation for the lease. In particular, lease obligations may be subject to
periodic appropriation. If the entity does not appropriate funds for future
lease payments, the entity cannot be compelled to make such payments.
Furthermore, a lease may provide that the certificate trustee cannot accelerate
lease obligations upon default; in such event, the trustee would only be able to
enforce lease payments as they became due. In the event of a default or failure
of appropriation, it is unlikely that the trustee would be able to obtain an
acceptable substitute source of payment.
When-Issued Securities
The Fund may purchase securities on a "when-issued" or delayed
delivery basis. These transactions are arrangements in which the 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 when delivery takes place. The Fund
expects that commitments to purchase when-issued securities will not exceed 25%
of the value of its total assets under normal
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<PAGE> 16
market conditions. The Fund does 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, the 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 Objective, and Policies" in the Statement of
Additional Information.
Securities of Other Investment Companies
Subject to 1940 Act limitations and pursuant to applicable SEC
requirements, the Fund may invest in securities issued by other investment
companies (including other investment companies advised by the advisers) which
invest in high-quality, short-term debt securities and which determine their net
asset value per share based on the amortized cost or penny-rounding method. As a
shareholder of another investment company, the Fund would bear, along with other
shareholders, its pro rata portion of that company's expenses, including
advisory fees. These expenses would be in addition to the advisory and other
expenses that the Fund bears directly in connection with its own operations.
Investment companies in which the Fund may invest may also impose a sales or
distribution charge in connection with the purchase or redemption of their
shares and other types of commissions or charges. Such charges will be payable
by the Fund and, therefore, will be borne indirectly by its shareholders.
Illiquid Securities
The Fund will not knowingly invest more than 15% of the value
of its net assets in securities that are illiquid. Illiquid securities would
generally include repurchase agreements and GICs with notice/termination dates
in excess of seven days and certain securities which are subject to trading
restrictions because they are not registered under the Securities Act of 1933,
as amended (the "1933 Act").
The Fund may purchase securities which are not registered
under the 1933 Act but which can be sold to "qualified institutional buyers" in
accordance with Rule 144A under the 1933 Act. Any such security will not be
considered illiquid so long as it is determined by the Board of Trustees or the
Fund's advisers, acting under guidelines approved and monitored by the Board,
that an adequate trading market exists for that security. This investment
practice could have the effect of increasing the level of illiquidity in the
Fund during any period that qualified institutional buyers become uninterested
in purchasing these restricted securities. The ability to sell to qualified
institutional buyers under Rule 144A is a recent development, and it is not
possible to predict how this market will develop. The
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<PAGE> 17
Board will carefully monitor any investment by the Fund in these securities.
Taxable Money Market Instruments
The Fund may invest, from time to time, a portion of its
assets for temporary defensive or other purposes in short-term money market
instruments, the income from which is subject to federal income tax ("Taxable
Money Market Instruments"). Taxable Money Market Instruments will not exceed 20%
of the total assets of the Fund and may include: obligations of the U.S.
Government and its agencies and instrumentalities; debt securities (including
commercial paper) of issuers having, at the time of purchase, a quality rating
within the highest rating category of S&P, Fitch, Duff, IBCA or Moody's;
certificates of deposit; bankers' acceptances; and repurchase agreements with
respect to such obligations. See "Risk Factors, Investment Objectives and
Policies - Taxable Money Market Instruments" in the Statement of Additional
Information for further information on these instruments.
INVESTMENT LIMITATIONS
The Fund is subject to a number of investment limitations. The
following investment limitations are matters of fundamental policy and may not
be changed with respect to the Fund without the affirmative vote of the Fund's
outstanding shares (as defined under "Miscellaneous"). (Other fundamental
investment limitations , as well as non-fundamental investment limitations, are
contained in the Statement of Additional Information under "Investment
Objectives and Policies.")
The Fund may not:
1. Purchase any securities which would cause 25% or more of
the value of its total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry, provided that:
(a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. government, (any state, territory
or possession of the United States, the District of Columbia or any of their
authorities, agencies, instrumentalities or political subdivisions) and
repurchase agreements secured by such 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;
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<PAGE> 18
(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
(d) personal credit and business credit businesses
will be considered separate industries.
2. Purchase securities of any one issuer, other than
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities if, immediately after such purchase, more than 5% of the value
of the Fund's total assets would be invested in such issuer or the Fund would
hold more than 10% of any class of securities of the issuer or more than 10% of
the outstanding voting securities of the issuer, except that up to 25% of the
value of the Fund's total assets may be invested without regard to such
limitations.
3. 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.
4. 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 Fund
treats 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.
Generally, if a percentage limitation is satisfied at the
time of investment, a later increase or decrease in such percentage resulting
from a change in the value of the 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 the Fund's yield and total return data for its Retail
shares, B shares and Institutional shares. The "yield" quoted in advertisements
refers to the income generated by an investment in a class of shares over a
30-day period identified in the advertisement.
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<PAGE> 19
This income is then "annualized." The amount of income generated by an
investment during a 30-day period is assumed to be earned and reinvested at a
constant rate and compounded semi-annually; the annualized income is then shown
as a percentage of the investment. The Fund's "tax-equivalent" yield for a class
of shares, which shows the level of taxable yield necessary to produce an
after-tax equivalent to the Fund's 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 at stated tax rates. The Fund's tax-equivalent yield for
a class of shares will always be higher than its yield.
The Fund calculates its total returns for each class of shares
on an "average annual total return" basis for various periods from the date they
commenced investment operations and for other periods as permitted under the
rules of the SEC. Average annual total return reflects the average annual
percentage change in value of an investment in the class over the measuring
period. Total returns for each class of shares may also be calculated on an
aggregate total return basis for various periods. Aggregate total return
reflects the total percentage change in value over the measuring period. The
methods of calculating total return reflect changes in the price of the shares
and assume that any dividends and capital gain distributions made by the Fund
with respect to a class during the period are reinvested in shares of that
class. When considering average total return figures for periods longer than one
year, it is important to note that the annual total return of a class for any
one year in the period might have been greater or less than the average for the
entire period. The Fund may also advertise, from time to time, the total returns
of one or more classes of shares on a year-by-year or other basis for various
specified periods by means of quotations, charts, graphs or schedules.
Investors may compare the performance of each class of shares
of the Fund to the performance of other mutual funds with comparable investment
objectives, to various mutual fund or market indices, and to data or rankings
prepared by independent services such as Lipper Analytical Services, Inc. or
other financial or industry publications that monitor the performance of mutual
funds. Comparisons may also be made to indices or data published in Money
Magazine, Forbes, Barron's, The Wall Street Journal, The New York Times,
Business Week, U.S.A. Today, CDA/Weisenberger, The American Banker, Morningstar,
Incorporated and other publications of a local, regional or financial industry
nature.
The performance of each class of shares of the Fund is based
on historical earnings and will fluctuate and is not intended to indicate future
performance. The investment return
-16-
<PAGE> 20
and principal value of an investment in a class will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. Performance data may not provide a basis for comparison with bank deposits
and other investments which provide a fixed yield for a stated period of time.
Changes in the net asset value of a class should be considered in ascertaining
the total return to shareholders for a given period. Yield and total return data
should also be considered in light of the risks associated with the Fund's
portfolio composition, quality, maturity, operating expenses and market
conditions. Any fees charged by financial institutions (as described in "How to
Purchase and Redeem Shares") are not included in the computation of performance
data but will reduce a shareholder's net return on his investment in the Fund.
Shareholders should note that the yields and total returns of
Retail shares and B shares will be lower than those of the Institutional shares
of the Fund because of the different distribution and/or servicing fees. The
yields and total returns of the B shares will be lower than those of the Retail
shares of the Fund due to the different distribution fees of the classes.
See "Distribution and Servicing Arrangements."
Further information about the performance of the Fund 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).
The Fund is a successor to a common trust fund previously
managed by National City Bank. Substantially all of the assets of the common
trust fund in question was transferred to the Fund (as indicated below) on
_________ 1998. Set forth below are certain performance data for the predecessor
common trust fund of the Fund. This performance information is deemed relevant
because this common trust fund was managed using the same investment objective,
policies and restrictions, and portfolio manager as those being used by the
Fund. However, this performance data is not necessarily indicative of the
future performance of the Fund.
-17-
<PAGE> 21
NATIONAL TAX EXEMPT FUND
PREDECESSOR
COMMON TRUST FUND
AVERAGE TOTAL RETURNS FOR
VARIOUS PERIODS
(UNAUDITED)
<TABLE>
<CAPTION>
Predecessor to the Predecessor to the Predecessor to the
National Tax Exempt Fund National Tax Exempt Fund National Tax Exempt Fund
Retail Shares Retail Shares B Shares
(assuming no sales (assuming sales (without deferred sales
charges)(1) charges)(2) charges)(3)
<S> <C> <C> <C>
Period Ended
Six Months.......... _____% _____% _____%
Periods Ended
One Year............ _____% _____% _____%
Three Years........ _____% _____% _____%
Five Years.......... _____% _____% _____%
<CAPTION>
Predecessor to the
National Tax Exempt Fund
B Shares Predecessor to the
(with maximum deferred National Tax Exempt Fund
sales charges)(4) Institutional Shares(5)
<S> <C> <C>
Period Ended
Six Months.......... _____% _____%
Periods Ended
One Year............ _____% _____%
Three Years........ _____% _____%
Five Years.......... _____% _____%
<FN>
1 The predecessor common trust fund is the Tax Exempt Fund for Personal
Trusts of National City Bank. The above information is the
average total return for the periods indicated assuming
reinvestment of all net investment income after taking into account
expenses of ___% of assets and assuming full waiver of the maximum
front-end sales charge.
2 The predecessor common trust fund is the Tax Exempt Fund for Personal
Trusts of National City Bank. The above information is the
average total return for the periods indicated assuming
reinvestment of all net investment income after taking into account
expenses of ___% of assets and assuming the maximum front-end sales
charge of 4.75%.
3 The predecessor common trust fund is the Tax Exempt Fund for Personal
Trusts of National City Bank. The above information is the average
total return for the periods indicated assuming reinvestment of all
net investment income after taking into account expenses of ____% of
assets and assuming a full waiver of the maximum contingent deferred
sales charge.
4 The predecessor common trust fund is the Tax Exempt Fund for Personal
Trusts of National City Bank. The above information is the average
total return for the periods indicated assuming reinvestment of all
net investment income after taking into account expenses of ____% of
assets and assuming the maximum contingent deferred sales charge.
5 The predecessor common trust fund is the Tax Exempt Fund for Personal
Trusts of National City Bank. The above information is the
average total return for the periods indicated assuming
reinvestment of all net investment income after taking into account
expenses of ___% of assets. Institutional shares are sold without a
sales charge.
</TABLE>
PRICING OF SHARES
For processing purchase and redemption orders, the net asset
value per share of the Fund is calculated on each business day as of the close
of trading of the New York Stock Exchange (the "Exchange"), generally 4:00 p.m.
Eastern time. Net asset value per share is determined on each business day,
except those holidays which the Exchange observes (currently New Year's Day, Dr.
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor 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.
-18-
<PAGE> 22
With respect to the Fund, investments in securities are valued
at their closing sales price if the principal market is an exchange. Other
securities, and temporary cash investments acquired more than 60 days from
maturity, are valued at the mean between quoted bid and asked prices. Such
valuations are provided by one or more independent pricing services when such
valuations are believed to reflect fair market value. When valuing securities,
pricing services consider institutional size trading in similar groups of
securities and any developments related to specific issues, among other things.
Short-term investments with maturities of 60 days or less are generally valued
on the basis of amortized cost, unless the Trust's Board of Trustees determines
that this does not represent fair value. The net asset value per share of each
class of shares will fluctuate as the value of its investment portfolio changes.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by the
Trust's sponsor and distributor. The Distributor is a registered broker/dealer
with principal offices located in 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 Fund 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 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 Fund.
Dealers may not use sales of the Fund's shares to qualify for this compensation
to the extent such may be prohibited by the laws of
-19-
<PAGE> 23
any state or any self-regulatory agency, such as the National Association of
Securities Dealers, Inc.
PURCHASE OF RETAIL SHARES AND B SHARES
Retail shares of the Fund are sold subject to a front-end
sales charge. B shares of the Fund 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." Before choosing between Retail shares and B shares of
the Fund, investors should read "Characteristics of Retail Shares and B Shares"
and "Factors to Consider When Selecting Retail Shares or B Shares" below.
Retail shares and B shares are sold to the public
("Investors") primarily through financial institutions such as banks, brokers
and dealers. Investors may purchase Retail or B 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.
Investors purchasing shares of the Fund must specify at the time of investment
whether they are purchasing Retail shares or B shares.
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 agreement with the institution or contact it directly.) 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).
The minimum investment is $500 for the initial purchase of
Retail shares or B shares in the Fund. All subsequent investments for Retail
shares and B shares 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. We will not accept third-party checks under any
circumstance. Investments made in Retail shares or B shares through the Planned
Investment Program ("PIP"), a monthly savings program described below, are not
subject to the minimum initial and subsequent 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.
Under a PIP, Investors may add to their investment in Retail
shares or B shares of the Fund, in a consistent manner each month, with a
minimum amount of $50. Monies may be
-20-
<PAGE> 24
automatically withdrawn from a shareholder's checking or savings account
available through an Investor's financial institution and invested in additional
Retail shares at the Public Offering Price or B shares at the net asset value
next determined after an order is received by the Trust. An Investor may apply
for participation in a PIP by completing an application obtained through a
financial institution, such as banks, brokers, or dealers selling Retail shares
or B shares of the Fund, or by calling 1-800-622-FUND(3863). The program may be
modified or terminated by an Investor on 30 days written notice or by the Trust
at any time.
All shareholders of record will receive confirmations of share
purchases and redemptions. Financial institutions will be responsible for
transmitting purchase and redemption orders to the Trust's transfer agent, State
Street Bank and Trust Company
(the "Transfer Agent"), on a timely basis.
The Trust reserves the right to reject any purchase order.
SALES CHARGES APPLICABLE TO PURCHASES OF RETAIL SHARES
The Public Offering Price for Retail shares of the Fund is the
sum of the net asset value of the shares being purchased plus any applicable
sales charge per account, which is assessed as follows:
<TABLE>
<CAPTION>
As a % As a % Dealers'
of offering of net Reallowance
price per asset value as a % of
Amount of Transaction share per share offering price
- --------------------- ---------- ----------- --------------
<S> <C> <C> <C>
Less than $50,000.................. 4.75 5.00 4.50
$50,000 but less
than $100,000..................... 4.00 4.20 3.75
$100,000 but less
than $250,000..................... 3.75 3.90 3.50
---- ---- ----
$250,000 but less
than $500,000...................... 2.50 2.80 2.25
---- ---- ----
$500,000 but less
than $1,000,000................... 2.00 2.00 1.75
---- ---- ----
$1,000,000 or more.................. 0.00 0.00 0.00
</TABLE>
With respect to purchases of $1,000,000 or more of the Fund, the adviser may pay
from its own funds a fee of 1.00% of the amount invested to the financial
institution placing the purchase order.
-21-
<PAGE> 25
Under the 1933 Act, the term "underwriter" includes persons
who offer or sell for an issuer in connection with the distribution of a
security or have a direct or indirect participation in such undertaking, but
excludes persons whose interest is limited to a commission from an underwriter
or dealer not in excess of the usual and customary distributors' or sellers'
commission. The Staff of the SEC has expressed the view that persons who receive
90% or more of a sales load may be deemed to be underwriters within the meaning
of this definition. The Dealers' Reallowance may be changed from time to time.
No sales charge will be assessed on purchases of Retail shares
made by:
(a) trustees and officers of the Trust;
(b) directors, employees and participants in employee
benefit/retirement plans (annuitants) of National City Corporation or any of its
affiliates;
(c) the spouses, children, grandchildren, and parents of
individuals referred to in clauses (a) and (b) above;
(d) individuals investing in the Fund by way of a direct
transfer or a rollover from a qualified plan distribution where affiliates of
National City Corporation are serving as a trustee or agent, or certain
institutions having relationships with affiliates of National City Corporation;
(e) investors purchasing Fund shares through a payroll
deduction plan;
(f) investors investing in the Armada Plus account through
National City's Retirement Plan Services; and
(g) investors purchasing fund shares through "one-stop" mutual
fund networks.
REDUCED SALES CHARGES APPLICABLE TO PURCHASES OF RETAIL SHARES
The applicable sales charge may be reduced on purchases of
Retail shares of the Fund made under the Right of Accumulation or Letter of
Intent, as described below. To qualify for a reduced sales charge, Investors
must so notify their financial institutions or the Trust directly by calling
1-800-622-FUND(3863) at the time of purchase. Reduced sales charges may be
modified or terminated at any time and are subject to confirmation of an
Investor's holdings.
-22-
<PAGE> 26
Right of Accumulation
Investors may use their aggregate investments in Retail shares
in determining the applicable sales charge. An Investor's aggregate investment
in Retail shares is the total value (based on the higher of current net asset
value or any Public Offering Price originally paid) of:
(a) current purchases
(b) Retail shares that are already beneficially owned by the
Investor for which a sales charge has been paid
(c) Retail shares that are already beneficially owned by the
Investor which were purchased prior to July 22, 1990
(d) Retail shares purchased by dividends or capital gains that
are reinvested
If, for example, an Investor beneficially owns Retail shares
of the Fund with an aggregate current value of $90,000 and subsequently
purchases Retail shares of that Fund having a current value of $10,000, the
sales charge applicable to the subsequent purchase would be reduced to 2.75% of
the Public Offering Price.
Letter of Intent
An Investor may qualify for a reduced sales charge
immediately upon signing a nonbinding Letter of Intent stating the Investor's
intention to invest during the next 13 months a specified amount which, if made
at one time, would qualify for a reduced sales charge. The Letter of Intent
option is included on the account application which may be obtained from the
Investor's financial institution or directly from the Trust by calling
1-800-622-FUND(3863). If an Investor so elects, the 13 month period may begin up
to 30 days prior to the Investor's signing the Letter of Intent. The initial
investment under the Letter of Intent must be equal to at least 4.0% of the
amount indicated in the Letter of Intent. During the term of a Letter of Intent,
the Transfer Agent will hold Retail shares representing 4.0% of the amount
indicated in the Letter of Intent in escrow for payment of a higher sales charge
if the entire amount is not purchased.
Upon completing the purchase of the entire amount indicated in
the Letter of Intent, the escrowed shares will be released. If the entire amount
is not purchased within the 13 month period or is redeemed within one year from
the time of fulfillment, the Investor will be required to pay an amount equal to
the difference in the dollar amount of sales charge actually paid and the amount
of sales charge the Investor would have had
-23
<PAGE> 27
to pay on the aggregate purchases if the total of such purchases had been made
at a single time.
SALES CHARGES APPLICABLE TO PURCHASES OF B SHARES
B shares of the Fund are sold at their net asset value next
determined after a purchase order is received in good form by the Trust's
Distributor. Although Investors pay no front-end sales charge on purchases of 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 six years of purchase.
Broker- dealers and other organizations selling B shares to Investors will
receive commissions from the Distributor in connection with sales of B shares.
These commissions may be different than the reallowances or placement fees, if
any, paid to dealers in connection with sales of Retail shares.
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 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.......................................... 4.0%
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%
More than five, but less
than six.......................................... 1.0%
After six years.................................... None
</TABLE>
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<PAGE> 28
When an Investor redeems his 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.
For example, assume an Investor purchased 100 B shares at $10
a share (for a total cost of $1,000), three years later the shares have a net
asset value of $12 per share and during that time the investor acquired 10
additional shares through dividend reinvestment. If the Investor then makes one
redemption of 50 shares (resulting in proceeds of $600, 50 shares x $12 per
share), the first 10 shares redeemed will not be subject to the contingent
deferred sales charge because they were acquired through reinvestment of
dividends. With respect to the remaining 40 shares redeemed, the contingent
deferred sales charge is charged at $10 per share (because the original purchase
price of $10 per share is lower than the current net asset value of $12 per
share). Therefore, only $400 of the $600 such Investor received from selling his
shares will be subject to the contingent deferred sales charge, at a rate of
4.0% (the applicable rate in the third year after purchase). The proceeds from
the contingent deferred sales charge that the Investor may pay upon redemption
go to the Distributor, which may use such amounts to defray the expenses
associated with the distribution-related services involved in selling B shares.
The contingent deferred sales charge, along with ongoing distribution fees paid
with respect to B shares, enables those shares to be purchased without the
imposition of a front-end sales charge.
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 Retail 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
-25-
<PAGE> 29
(c) redemptions effected pursuant to the 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 Retail Shares and B Shares
The primary difference between Retail shares and B
shares lies in their sales charge structures and distribution
arrangements. An Investor should understand that the purpose and
function of the sales charge structures and distribution
arrangements for both Retail shares and B shares are the same.
Retail shares are sold at their net asset value plus a
front-end sales charge. This front-end sales charge may be reduced or waived in
some cases. Retail and Institutional shares are subject to ongoing distribution
fees at an annual rate of up to 0.10% of the Fund's average daily net assets
attributable to its Retail and Institutional shares.
B shares are sold at net asset value without an initial sales
charge. Normally, however, a deferred sales charge is paid if the shares are
redeemed within six years of investment. B shares are subject to ongoing
distribution fees at an annual rate of up to .75% of the Fund's average daily
net assets attributable to its B shares. These ongoing fees, which are higher
than those charged on Retail shares, will cause B shares to have a higher
expense ratio and pay lower dividends than Retail 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 Retail 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 Retail shares takes place at net asset value, as a result of
which an Investor
-26-
<PAGE> 30
receives dollar-for-dollar the same value of Retail shares as he 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 Retail 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 Retail shares of the Fund
on the same date.
Factors to Consider When Selecting Retail Shares or B Shares
Before purchasing Shares of the Fund, Investors should
consider whether, during the anticipated life of their investment in the Fund,
the accumulated distribution fees and potential contingent deferred sales
charges on B shares prior to conversion would be less than the initial sales
charge and accumulated distribution fees on Retail shares purchased at the same
time, and to what extent such differential would be offset by the higher yield
of Retail shares. In this regard, to the extent that the sales charge for Retail
shares is waived or reduced by one of the methods described above, investments
in Retail shares become more desirable. The Trust will refuse all purchase
orders for B shares of over $250,000.
Although Retail shares are subject to a distribution fee, they
are not subject to the higher distribution fee applicable to B shares. For this
reason, Retail shares can be expected to pay correspondingly higher dividends
per share. However, because initial sales charges are deducted at the time of
purchase, purchasers of Retail shares that do not qualify for waivers of or
reductions in the initial sales charge would have less of their purchase price
initially invested in the Fund than purchasers of B shares of the Fund.
As described above, purchasers of B shares will have more of
their initial purchase price invested. Any positive investment return on this
additional invested amount would partially or wholly offset the expected higher
annual expenses borne by B shares. Because the Fund's future returns cannot be
-27-
<PAGE> 31
predicted, there can be no assurance that this will be the case. Holders of B
shares would, however, own shares that are subject to higher annual expenses
and, for a six-year period, such shares would be subject to a contingent
deferred sales charge of up to 5.00% upon redemption, depending upon the year of
redemption. Investors expecting to redeem during this six-year period should
compare the cost of the contingent deferred sales charge plus the aggregate
annual B shares' distribution fees to the cost of the initial sales charge and
distribution fees on the Retail shares. Over time, the expense of the annual
distribution fees on the B shares may equal or exceed the initial sales charge,
if any, and annual distribution fees applicable to Retail shares. For example,
if net asset value remains constant, the aggregate distribution fees with
respect to B shares of the Fund would equal or exceed the initial sales charge
and aggregate distribution fees of Retail shares of the Fund approximately eight
years after the purchase. In order to reduce such fees of Investors that hold B
shares for more than eight years, B shares will be automatically converted to
Retail shares as described above at the end of such eight-year period.
PURCHASE OF INSTITUTIONAL SHARES
Institutional shares are sold primarily to banks and trust
companies which are affiliated with National City Corporation (the "Banks"),
customers that are large institutions, and investment advisers and financial
planners affiliated with National City ("RIAs") 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"). Institutional shares are sold
without a sales charge imposed by the Trust or the Distributor. However,
depending on the terms governing the particular account, the Banks or RIAs may
impose account charges such as account maintenance fees, compensating balance
requirements or other charges based upon account transactions, assets or income
which will have the effect of reducing the shareholder's net return on his
investment in the Fund. There is no minimum investment.
It is the responsibility of the Banks, NAM and RIAs to
transmit their Customers' purchase orders to the Transfer Agent and to deliver
required funds on a timely basis, in accordance with the procedures stated
above. Institutional shares will normally be held of record by the Banks or
RIAs. Confirmations of share purchases and redemptions will be sent to the Banks
and RIAs. Beneficial ownership of Institutional shares will be recorded by the
Banks or RIAs and reflected in the account statements provided by them to their
Customers.
-28-
<PAGE> 32
The Trust reserves the right to reject any purchase order.
EFFECTIVE TIME OF PURCHASES
Purchase orders for shares of the Fund which are received by
the Transfer Agent prior to 4:00 p.m. (Eastern Time) on any business day are
priced according to the net asset value per share next determined after receipt
of the order plus any applicable sales charge (the "Public Offering Price").
Immediately available funds must be received by the Trust's custodian prior to
2:00 p.m. (Eastern Time) on the third business day following the receipt of such
order, at which time the order will be executed. If funds are not received by
such date, the order will not be accepted and notice thereof will be given to
the Bank or financial institution placing the order. Purchase orders for which
payment has not been received or accepted will be returned after prompt inquiry
to the sending Bank or institution.
REDEMPTION OF RETAIL SHARES AND B SHARES
Redemption orders are effected at the 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 financial institution.
REDEMPTION OF INSTITUTIONAL SHARES
Customers may redeem all or part of their Institutional shares
in accordance with instructions and limitations pertaining to their accounts at
the Banks or RIAs. It is the responsibility of the Banks or RIAs to transmit
redemption orders to the Transfer Agent and credit their Customers' accounts
with the redemption proceeds on a timely basis. Redemption orders are effected
at the net asset value per share next determined after receipt of the order by
the Transfer Agent. No charge for wiring redemption payments is imposed by the
Trust, although the Banks or RIAs may charge their Customers' accounts for
services. Information relating to such services and charges, if any, is
available from the Banks or RIAs.
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<PAGE> 33
If a Customer has agreed with a particular Bank to maintain a
minimum balance in his account at the Bank and the balance in such account falls
below that minimum, the Customer may be obliged to redeem all or part of his
Institutional shares to the extent necessary to maintain the required minimum
balance. Customers who have instructed that automatic purchases and redemptions
be made for their accounts receive monthly confirmations of share transactions.
WRITTEN REDEMPTION PROCEDURES
A shareholder 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
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<PAGE> 34
reasonable, including recording those instructions and requesting information as
to account registration (such as the name in which an account is registered, the
account number and recent transactions in the account). To the extent that the
Trust and its Transfer Agent fail to use reasonable procedures to verify the
genuineness of telephone instructions, they may be liable for such instructions
that prove to be fraudulent and unauthorized. In all other cases, shareholders
will bear the risk of loss for fraudulent telephone transactions. The Trust
reserves the right to refuse a telephone redemption if it believes it is
advisable to do so. Procedures for redeeming Retail shares 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 the Fund held on the Transfer
Agent's system. The Plan allows the shareholder to have a fixed minimum sum of
$250 distributed at regular intervals. The shareholder's account must have a
minimum value of $5,000 to be eligible for the Plan. Withdrawals will be reduced
by any applicable contingent deferred sales charge. Additional information
regarding this service may be obtained from an Investor's financial institution
or the Transfer Agent at 1-800-622-FUND(3863). Because automatic withdrawals of
B shares will be subject to the contingent deferred sales charge, it may not be
in the best interest of B shares shareholders to make systematic withdrawals.
OTHER REDEMPTION INFORMATION
When redeeming shares in the Fund, shareholders should
indicate whether they are redeeming Retail shares or B shares. In the event a
redeeming shareholder owns both Retail shares and B shares in the Fund, the
Retail 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 that has a value of less than $500 due to redemptions 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
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<PAGE> 35
collected, which could take up to 15 calendar days from the date of purchase. A
shareholder who anticipates the need for more immediate access to his investment
should purchase shares by Federal funds, bank wire, certified or cashier's
check. Financial institutions normally impose a charge in connection with the
use of bank wires, as well as certified checks, cashier's checks and Federal
funds.
Payment to Shareholders for shares redeemed will be made
within seven days after receipt of the request for redemption.
EXCHANGE PRIVILEGE APPLICABLE TO RETAIL SHARES AND B SHARES
The Trust offers an exchange program whereby Investors who
have paid a sales charge to purchase Retail shares of the Fund (a "load Fund")
may exchange those Retail shares for Retail shares of another load Fund, or
another investment fund offered by the Trust without the imposition of a sales
charge (each a "no load Fund") at the net asset value per share on the date of
exchange. As a result, no additional sales charge will be incurred with respect
to such an exchange. Shareholders may also exchange Retail shares of a no load
Fund for Retail shares of another no load Fund at the net asset value per share
without payment of a sales load. In addition, shareholders of a no load Fund may
exchange Retail shares for Retail shares of a load Fund subject to payment of
the applicable sales load. However, shareholders exchanging Retail shares of a
no load Fund which were received in a previous exchange transaction involving
Retail shares of a load Fund will not be required to pay an additional
sales charge upon notification of the reinvestment of the equivalent amount into
the Retail shares of a load Fund.
Shareholders who have purchased B shares of the 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).
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<PAGE> 36
Any Retail 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 Retail 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 prior to 4:00 p.m. (Eastern Time) will be
processed as of the close of business on the day of receipt; requests received
by the Transfer Agent after 4:00 p.m. (Eastern Time) will be processed on the
next Business Day. The Trust reserves the right to reject any exchange request.
During periods of unusual economic or market changes, telephone exchanges may be
difficult to implement. In such event, an Investor should mail the exchange
request to his financial institution, and an Investor who directly purchased
shares from the Trust should mail the exchange request to the Transfer Agent.
The exchange privilege may be modified or terminated at any time upon 60 days'
notice to shareholders.
SYSTEMATIC EXCHANGE PROGRAM APPLICABLE TO RETAIL SHARES AND B SHARES
Shares of the Fund may also be purchased through automatic
monthly deductions from a shareholder's account from any Armada money market
fund. Under a systematic exchange program, a shareholder enters an agreement to
purchase shares of one or more specified funds over a specified period of time,
and initially purchases shares of one Armada money market fund in an amount
equal to the total amount of the investment. On a monthly basis, a specified
dollar amount of shares of the Armada money market fund is exchanged for shares
of the Fund 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 Fund. This effect also can be achieved through the
systematic investment program described previously in this Prospectus. Because
purchases of Retail shares are subject to an initial sales charge, it may be
beneficial for an investor to execute a Letter of Intent in indicating an intent
to purchase Retail shares in connection with the systematic exchange program. A
shareholder may apply for participation in this program through his financial
institution or by calling 1-800-622-FUND(3863).
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<PAGE> 37
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 relating to the Institutional and Retail classes of shares ("Institutional
and Retail Plan") and a separate B Shares Distribution and Servicing Plan
relating to the B classes of shares ("B Shares Plan"). Under the Institutional
and Retail Plan, the Trust pays the following compensation to the Distributor
for services provided and expenses assumed in providing the Trust advertising,
marketing, prospectus printing and other distribution services : (i) an annual
base fee of $1,250,000, plus (ii) incentive fees related to asset growth. Such
compensation is payable monthly and accrued daily among the Institutional and
Retail classes of the Trust's investment funds with respect to which the
Distributor is distributing shares. In the case of the Fund, such compensation
shall not exceed .10% per annum of the average aggregate net assets of its
Institutional and Retail classes. 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
Institutional and Retail Plan. Such compensation is payable monthly and accrued
daily by the Fund's B shares only.
Although B shares are sold without an initial sales charge,
the Distributor pays a sales commission equal to 4.25% of the amount invested
(including a prepaid service fee of 0.25% of the amount invested) to dealers who
sell B shares. These commissions are not paid on exchanges from other Armada
funds or on sales to investors exempt from the contingent deferred sales charge.
Under the Shareholder Services Plan relating to the Fund's
Retail 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 Retail or B shares in consideration
for the payment of up to .25% (on an annualized basis) of the average daily net
asset value of such shares. Persons entitled to receive compensation for
servicing Retail or B shares may receive different compensation with respect to
those shares than with respect to Institutional shares in the same Fund.
Shareholder administrative services may include aggregating and processing
purchase and redemption orders, processing dividend payments from the Fund on
behalf of customers, providing information periodically to customers showing
their position in Retail or B shares, and providing sub- transfer agent services
or the information necessary for sub-
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<PAGE> 38
transfer agent services, with respect to Retail 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 Retail or B shares should read this Prospectus in light of
the terms and fees governing their accounts with financial institutions.
DIVIDENDS AND DISTRIBUTIONS
Dividends from the net investment income of the Fund are
declared daily and paid monthly. With respect to the Fund, net income for
dividend purposes consists of dividends, distributions and other income on the
Fund's assets, less the accrued expenses of the Fund. Any net realized capital
gains will be distributed at least annually. Dividends and distributions will
reduce the Fund's net asset value per share by the per share amount thereof.
Shareholders of the Fund 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 payment 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
The Fund intends to qualify as a separate "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). Such qualification generally relieves the Fund of liability for federal
income taxes to the extent its earnings are distributed in accordance with the
Code.
Qualification as a regulated investment company under the Code
for a taxable year requires, among other things, that the Fund distribute to its
shareholders an amount equal to at least the sum of 90% of its investment
company taxable income and 90% of its net tax-exempt interest income , if any,
for such year. In general, the Fund's investment company taxable income will be
the sum of its net investment income and the excess of any net short-term
capital gain for the taxable year over the net long-term capital loss, if any,
for such year. The Fund
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<PAGE> 39
intends to distribute substantially all of its investment company taxable income
and net tax-exempt income each taxable year. Such distributions by the Fund will
be taxable as ordinary income to their respective shareholders who are not
currently exempt from federal income taxes, whether such income is received in
cash or reinvested in additional shares. (Federal income taxes for distributions
to an IRA or to a qualified retirement plan are deferred under the Code.) For
corporate shareholders, the dividends received deduction will apply to such
distributions to the extent of the gross amount of qualifying dividends received
by the distributing Fund from domestic corporations for the taxable year.
Substantially all of the Fund's net realized long-term capital
gains, if any, will be distributed at least annually to Fund shareholders. The
Fund will generally have no tax liability with respect to such gains and the
distributions will be taxable to Fund shareholders who are not currently exempt
from federal income taxes as long-term capital gains, regardless of how long the
shareholders have held Fund shares and whether such gains are received in cash
or reinvested in additional shares.
Dividends declared in October, November or December of any
year payable to shareholders of record on a specified date before the end of the
year will be deemed to have been received by shareholders and paid by the Fund
on December 31 of such year in the event such dividends are actually paid during
January of the following year.
Prior to purchasing Fund shares , the impact of dividends or
distributions which are expected to be declared or have been declared, but not
paid, should be carefully considered. Any dividend or distribution declared
shortly after a purchase of shares prior to the record date will have the effect
of reducing the per share net asset value by the per share amount of the
dividend or distribution. All or a portion of such dividend or distribution,
although in effect a return of capital, may be subject to tax.
A taxable gain or loss may be realized by a shareholder upon
his redemption, transfer or exchange of Fund shares depending upon the tax basis
of such shares and their price at the time of redemption, transfer or exchange.
If a shareholder has held shares for six months or less and during that time
received a distribution taxable as a long-term capital gain, then any loss the
shareholder might realize on the sale of those shares will be treated as a
long-term loss to the extent of the
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<PAGE> 40
earlier capital gain distribution. Generally, a shareholder may include sales
charges incurred upon the purchase of Fund shares in his tax basis for such
shares for the purpose of determining gain or loss on a redemption, transfer or
exchange of such shares. However, if the shareholder effects an exchange of such
shares for shares of another Fund within 90 days of the purchase and is able to
reduce the sales charge applicable to the new shares (by virtue of the Trust's
exchange privilege), the amount equal to such reduction may not be included in
the tax basis of the shareholder's exchanged shares but may be included (subject
to this limitation) in the tax basis of the new shares.
Shareholders of the Fund will be advised at least annually as
to the federal income tax consequences of distributions made to them each year.
Shareholders are advised to consult their tax advisers concerning the
application of state and local taxes which may differ from federal tax
consequences described above.
The foregoing discussion is based on tax laws and regulations
which were in effect as of the date of this Prospectus; such laws and
regulations may be changed by legislative or administrative actions. The
foregoing summarizes some of the important tax considerations generally
affecting the Fund and its shareholders and is not intended as a substitute for
careful tax planning. Accordingly, potential investors should consult their tax
advisers with specific reference to their own tax situation.
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES
The business and affairs of the Trust are managed under the
direction of the Trust's Board of Trustees. The trustees of the Trust, their
addresses, principal occupations during the past five years, other affiliations,
and the compensation paid by the Trust and the fees and reimbursed expenses they
receive in connection with each meeting of the Board of Trustees they attend are
included in the Statement of Additional Information.
INVESTMENT ADVISER
National City serves as the investment adviser to the Fund.
National City provides trust and banking services to
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<PAGE> 41
individuals, corporations, and institutions, both nationally and
internationally, including investment management, estate and trust
administration, financial planning, corporate trust and agency, and personal and
corporate banking. National City is a member bank of the Federal Reserve System
and the Federal Deposit Insurance Corporation.
On December 31, 1997, the Trust Department of National City
had approximately $11.5 billion in assets under management, and approximately
$23.3 billion in total trust assets. The principal office of the investment
adviser is as follows:
National City Bank
1900 East Ninth Street
Cleveland, Ohio 44114
Subject to the general supervision of the Trust's Board of
Trustees and in accordance with the Fund's investment policies, the adviser has
agreed to manage the Fund, make decisions with respect to and place orders for
all purchases and sales of such Fund's securities, and maintain such Fund's
records relating to such purchases and sales.
The Fixed Income Team of National City's Asset Management
Group makes the investment decisions for the Fund. No individual person is
primarily responsible for making recommendations to the Asset Management Group.
Members of the team are:
- - Michael E. Santelli, CFA, Vice President and Director of the
Fixed Income Team, joined National City in 1995.
Previously, he spent a total of 4 years in the mortgage
research departments of Donaldson Lufkin and Jenrette and
Merrill Lynch. He specializes in the mortgage market.
- - Stephen P. Carpenter, Vice President, joined National City
in 1989. He was more than 23 years of investment experience
with expertise in the area of municipal bonds (taxable as
well as tax-free) and money market instruments.
- - Stanley F. Martinez, Investment Officer, joined National
City in 1996. Previously, he managed taxable money market
funds and short duration fixed income portfolios for
Mercantile-Safe Deposit & Trust. His focus is on short
duration investments across all fixed income sectors.
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<PAGE> 42
- - Douglas J. Carey, Investment Officer, joined National City in 1995.
Prior to joining National City, Mr. Carey was a graduate assistant for
the Economic Department of Miami University from August 1994 through
July 1995. He now specializes in the asset-backed sector.
- - Marilou C. Hitt, Assistant Vice President, has worked in National
City's Funds Management Trading Department since 1984. She has managed
short-term money market instruments for more than ten years. Her
responsibilities also include fixed income trading of government and
corporate securities.
- - Frederick W. "Ted" Ramsey, Vice President of the Fixed Income Research
Team, oversees the Fixed Income Team's credit and research area. His
experience includes 25 years in corporate banking and credit
administration, including 10 years as senior credit officer. In
addition to his responsibilities as head of credit research, Mr. Ramsey
serves as credit advisor on new investment opportunities and risk
management guidelines.
- - Barbara A. Nagy, Assistant Vice President, has been with National City
since 1982 where she worked in Commercial Lending credit research
before joining the Fixed Income Team in 1994. Ms. Nagy is experienced
in corporate and municipal credit research. Her investment
responsibilities include tax-free money market instruments.
- - Don M. McConnell, Research Analyst, joined National City in 1996. Mr.
McConnell has responsibility for evaluating portfolio risk measures as
well as fixed income sector relative valuation. His responsibilities
also include duration management of the funds.
For the services provided and expenses assumed pursuant to the
Advisory Agreement relating to the Fund, the adviser is entitled to receive an
advisory fee, computed daily and payable monthly, at the annual rate of .55% of
the average net assets of Fund. Shareholders should note that these fees are
higher than those payable by other investment companies. However, the Trust
believes that the fees are within the range of fees payable by investment funds
with comparable investment objectives and policies. The adviser may from time to
time waive all or a portion of their advisory fees to increase the net income of
the Fund available for distribution as dividends.
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<PAGE> 43
ADMINISTRATOR
PFPC Inc. ("PFPC"), located at 400 Bellevue Parkway,
Wilmington, Delaware 19809, serves as the administrator to the Funds. PFPC is an
indirect, wholly-owned subsidiary of PNC Bank Corp., a multi-bank holding
company.
Under its Administration and Accounting Services Agreement
with the Trust, PFPC has agreed to provide the following services with respect
to the Fund: statistical data, data processing services and accounting and
bookkeeping services; prepare tax returns and certain reports filed with the
SEC; assist in the preparation of reports to shareholders and the preparation of
the Trust's registration statement; maintain the required fidelity bond
coverage; calculate the Fund's net asset value per share, net income, and
realized capital gains (losses); and generally assist the Fund with respect to
all aspects of its administration and operation. PFPC is entitled to receive
with respect to the Fund an administrative fee, computed daily and paid monthly,
at the annual rate of .10% of the first $200,000,000 of its net assets, .075% of
the next $200,000,000 of its net assets, .045% of the next $200,000,000 of its
net assets and .02% of its net assets over $600,000,000 and is entitled to
be reimbursed for its out-of-pocket expenses incurred on behalf
of the Fund.
DESCRIPTION OF THE TRUST AND ITS SHARES
The Trust was organized as a Massachusetts business trust on
January 28, 1986. The Trust is a series fund authorized to issue 61 separate
classes or series of shares of beneficial interest ("shares"). Three of these
classes or series, which represent interests in the National Tax Exempt Fund
(Class L , Class L - Special Series 1 and Class L - Special Series 2). Class L
shares constitute the Institutional class or series of shares; Class L - Special
Series 1 shares constitute the Retail class or series of shares; and Class L -
Special Series 2 shares constitute the B class or series of shares. The other
Funds of the Trust are:
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
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<PAGE> 44
(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)
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)
Equity Growth Fund
(Class H, Class H - Special Series 1 and Class H
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)
Pennsylvania Tax Exempt Money Market Fund
(Class Q and Class Q - Special Series 1)
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)
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<PAGE> 45
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)
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)
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
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<PAGE> 46
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 Retail 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 being or having been a shareholder and not
because of his acts or omissions or some other reason.
The Trust does not presently intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The
Trust's Code of Regulations provides that special meetings of shareholders shall
be called at the written request of shareholders entitled to cast at least 10%
of the votes entitled to be cast at such meeting. Such meeting may be called by
shareholders to consider the removal of one or more trustees. Shareholders will
receive shareholder communication assistance with respect to such matter as
required by the 1940 Act.
CUSTODIAN AND TRANSFER AGENT
National City Bank serves as the custodian of the Trust's
assets. State Street Bank and Trust Company serves as
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<PAGE> 47
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. The Fund bears its own expenses
incurred in its operations including: taxes; interest; fees (including fees paid
to its trustees and officers); SEC fees; state securities qualification fees;
costs of preparing and printing prospectuses for regulatory purposes and for
distribution to existing shareholders; expenses related to the distribution 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. The Fund also pays for brokerage fees and commissions in
connection with the purchase of its portfolio securities.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and
annual financial statements audited by independent accountants.
Pursuant to Rule 17f-2, as National City Bank serves the Trust
as both the custodian and an investment adviser, a procedure has been
established requiring three annual verifications, two of which are to be
unannounced, of all investments held pursuant to the Custodian Services
Agreement, to be conducted by the Trust's independent auditors.
As used in this Prospectus, a "vote of the holders of a
majority of the outstanding shares" of the Trust or 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.
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<PAGE> 48
The portfolio managers of the Fund 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).
-45-
<PAGE> 49
ARMADA FUNDS
------------
Board of Trustees
- -----------------
Robert D. Neary Robert J. Farling
Chairman Retired Chairman, President and
Retired Co-Chairman, Ernst & Young Executive Officer, Centerior Energy
Director: Director:
Cold Metal Products, Inc. Republic Engineered Steels
Zurn Industries, Inc.
Herbert R. Martens, Jr. Richard W. Furst, Dean
President Professor of Finance and Dean
Executive Vice President, Carol Martin Gatton College of Business
National City Corporation and Economics, University of Kentucky
Chairman, President and Director:
Chief Executive Officer, Foam Design, Inc.
Officer, NatCity The Seed Corporation
Investments, Inc.
Leigh Carter Gerald L. Gherlein
Retired President and Executive Vice President and General
Chief Operating Officer Counsel, Eaton Corporation
B.F. Goodrich Company Trustee:
Director: Meridia Health System
Acromed Corporation WVIZ Educational Television
Kirtland Capital Corporation
Morrison Products
John F. Durkott J. William Pullen
President and Chief President and Chief Executive Officer,
Operating Officer, Whayne Supply Company
Kittle's Home Furnishing's
Center, Inc.
-46-
<PAGE> 50
- -ARMADA FUNDS
Investment Adviser
Affiliate of National
City Corporation
National City Bank
1900 East Ninth Street
Cleveland, Ohio 44114
<PAGE> 51
CROSS REFERENCE SHEET
---------------------
National Tax Exempt Fund
<TABLE>
<CAPTION>
Statement of Additional
Form N-1A Part B Item Information Caption
- --------------------- -----------------------
<S> <C> <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............. Investment Objectives
and Policies
5. Management of Registrant....................... Trustees and Officers
6. Control Persons and Principal.................. Description of Shares
Holders of Securities
7. Investment Advisory and
Other Services................................. Advisory,
Administration,
Distribution, Custodian
Services and Transfer
Agency Agreements
8. Brokerage Allocation and Other
Practices...................................... 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> 52
Subject to Completion - Dated January 22, 1998
Information contained herein pertaining to B shares of the Armada
National Tax Exempt Fund is subject to completion or amendment. A post-effective
amendment to the registration statement relating to, among other things, B
shares of the Armada National Tax Exempt Fund has been filed with the Securities
and Exchange Commission. B shares of the Armada National Tax Exempt Fund may not
be sold nor may offers to buy B shares of this Fund be accepted prior to the
time the post-effective amendment to the registration statement becomes
effective. This Statement of Additional Information does not constitute a
prospectus.
ARMADA FUNDS
Statement of Additional Information
___________, 1998
National Tax Exempt Fund
This Statement of Additional Information is not a prospectus but should be read
in conjunction with the current Prospectus for the above Fund of Armada
Funds (the "Trust"), dated _______, 1998 (the "Prospectus"). A copy of the
Prospectus may be obtained by calling or writing the Trust at 1-800-622-FUND
(3863), Oaks, Pennsylvania 19456.
<PAGE> 53
TABLE OF CONTENTS
Page
STATEMENT OF ADDITIONAL INFORMATION.............................. 1
INVESTMENT OBJECTIVES AND POLICIES............................... 1
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION................... 7
DESCRIPTION OF SHARES............................................ 10
ADDITIONAL INFORMATION CONCERNING TAXES.......................... 12
TRUSTEES AND OFFICERS............................................ 15
ADVISORY, ADMINISTRATION, DISTRIBUTION, CUSTODIAN
SERVICES AND TRANSFER AGENCY AGREEMENTS ......................... 20
SHAREHOLDER SERVICES PLANS....................................... 23
PORTFOLIO TRANSACTIONS........................................... 24
AUDITORS......................................................... 25
COUNSEL.......................................................... 26
YIELD AND PERFORMANCE INFORMATION................................ 26
MISCELLANEOUS.................................................... 30
APPENDIX A....................................................... A-1
-i-
<PAGE> 54
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
National Tax Exempt Fund (the "Fund"). The information contained in this
Statement of Additional Information expands upon matters discussed in the
Prospectus. No investment in shares of the Fund should be made without first
reading the Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
----------------------------------
ADDITIONAL INFORMATION ON FUND MANAGEMENT
- -----------------------------------------
Further information on the adviser's investment management
strategies, techniques, policies and related matters may be included from time
to time in advertisements, sales literature, communications to shareholders and
other materials. See also, "Performance Information" below.
Attached to this Statement of Additional Information is
Appendix A which contains descriptions of the rating symbols used by S&P, Fitch,
Duff, IBCA and Moody's for securities which may be held by the Fund.
MUNICIPAL BONDS
- ---------------
As described in the Prospectus, the two principal
classifications of Municipal Bonds consist of "general obligation" and "revenue"
issues, and the Fund may include "moral obligation" issues, which are normally
issued by special purpose authorities. Municipal Bonds 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.
There are, of course, variations in the quality of Municipal
Bonds both within a particular classification and between classifications, and
the yields on Municipal Bonds depend upon a variety of factors, including the
financial condition of the issuer, the 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 Bonds. It should be emphasized, however, that
ratings are general and are not absolute standards of quality, and Municipal
Bonds with the same maturity, interest rate and rating may have different yields
while Municipal Bonds of the same maturity and interest rate with different
ratings may have the same yield. Subsequent to its purchase by the Fund, an
issue of Municipal Bonds may cease to be rated or its rating may
-1-
<PAGE> 55
be reduced below the minimum rating required for purchase by the Fund. The
Fund's adviser will consider such an event in determining whether the Fund
should continue to hold the obligation.
The payment of principal and interest on most Municipal Bonds
purchased by the Fund will depend upon the ability of the issuers to meet their
obligations. An issuer's obligations under its Municipal Bonds 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 Bonds may be materially adversely
affected by litigation or other conditions.
Certain Municipal Bonds held by the Fund 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 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. The Fund may, from time to time, invest more
than 25% of its assets in Municipal Bonds covered by insurance policies.
STAND-BY COMMITMENTS
- --------------------
The Fund may acquire stand-by commitments (also known as put
options) with respect to Municipal Bonds held in its fund. The Fund expects that
stand-by commitments will generally be available without the payment of any
direct or indirect consideration. However, if necessary or advisable, the Fund
may pay for a stand-by commitment either separately in cash or by paying a
higher price portfolio securities which are acquired subject to the commitment
(thus reducing the yield to maturity otherwise available for the same
securities). The Fund will not acquire a stand-by commitment unless immediately
after the acquisition, not more than 5% of the Fund's total assets will be
invested in instruments subject to a demand feature, or in stand-by commitments,
with the same institution.
The Fund's right to exercise stand-by commitments will be
unconditional and unqualified. A stand-by commitment will be transferable by the
Fund only with the underlying Municipal Bonds which may be sold to a third party
at any time. Until the Fund
-2-
<PAGE> 56
exercises its stand-by commitment, it owns the securities in its fund which are
subject to the commitment.
The amount payable to the Fund upon its exercise of a stand-by
commitment will normally be (i) the Fund's acquisition cost of the Municipal
Bonds (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 Fund
values the underlying Municipal Bonds on an amortized cost basis. Accordingly,
the amount payable by a dealer upon exercise of a stand-by commitment will
normally be substantially the same as the fund value of the underlying Municipal
Bonds.
The Fund intends to enter into stand-by commitments only with
dealers, banks and broker-dealers which, in the advisers' opinion, present
minimal credit risks. The Fund's reliance upon the credit of these dealers,
banks and broker-dealers will be secured by the value of the underlying
Municipal Bonds that are subject to the commitment. Thus, the risk of loss to
the Fund 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 Fund may purchase Municipal Bonds 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 a Fund
may be required subsequently to place additional assets in the separate account
in order to ensure that the value of the account remains equal to the amount of
the Fund's commitment, marked to market daily. It is likely that the Fund's net
assets will fluctuate to a greater degree when it sets aside portfolio
securities to cover such purchase commitments than when it sets aside cash.
Because a Fund will set aside cash or liquid assets to satisfy its purchase
commitments in the manner described, the Fund's liquidity and ability to manage
its fund might be affected in the event its commitments to purchase when-issued
securities ever exceeded 25% of the value of its total assets.
When the Fund engages in when-issued transactions, it relies
on the seller to consummate the trade. Failure of the seller to do so may result
in the Fund's incurring a loss or
-3-
<PAGE> 57
missing an opportunity to obtain a price considered to be advantageous.
SECURITIES OF OTHER INVESTMENT COMPANIES
- ----------------------------------------
The Fund may invest in securities issued by other investment
companies (including other investment companies advised by the adviser) which
invest in high quality, short term debt securities and which determine their net
asset value per share based on the amortized cost or penny-rounding method. The
Fund 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.
TAXABLE MONEY MARKET INSTRUMENTS
- --------------------------------
The Fund may invest in various Taxable Money Market
Instruments such as bank obligations, commercial paper, guaranteed investment
contracts ("GICs") repurchase agreements and U.S.
Government Obligations.
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 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 include commercial paper and other short term
promissory notes issued by corporations (including variable and floating rate
instruments). In addition, the Fund may invest in Canadian Commercial Paper
("CCP"), which is commercial paper issued by a Canadian corporation or a
Canadian counterpart of a U.S. corporation, and in Europaper, which is U.S.
dollar denominated commercial paper of a foreign issuer. The Fund may also
acquire zero coupon obligations, which have greater price volatility than
-4-
<PAGE> 58
coupon obligations and which will not result in the payment of interest until
maturity.
The Fund may make limited investments in GICs issued by U.S.
insurance companies. The Fund will purchase a GIC only when the adviser have
determined, under guidelines established by the Board of Trustees, that the GIC
presents minimal credit risks to the Fund and is of comparable quality to
instruments that are rated high quality by one or more Rating Agencies.
Securities held by the Fund may be subject to repurchase
agreements. Under the terms of a repurchase agreement, the Fund purchases
securities from financial institutions such as banks and broker-dealers which
the Fund's adviser deem creditworthy under guidelines approved by the Board of
Trustees, subject to the seller's agreement to repurchase such securities at a
mutually agreed-upon date and price. The repurchase price generally equals the
price paid by the Fund plus interest negotiated on the basis of current short
term rates, which may be more or less than the rate on the underlying portfolio
securities. The seller under a repurchase agreement will be required to maintain
the value of collateral held pursuant to the agreement at not less than the
repurchase price (including accrued interest). If the seller were to default on
its repurchase obligation or become insolvent, the Fund holding such obligation
would suffer a loss to the extent that the proceeds from a sale of the
underlying portfolio securities were less than the repurchase price under the
agreement, or to the extent that the disposition of such securities by the Fund
were delayed pending court action. Although there is no controlling legal
precedent confirming that a Fund would be entitled, as against a claim by such
seller or its receiver or trustee in bankruptcy, to retain the underlying
securities, the Board of Trustees of the Trust believes that, under the regular
procedures normally in effect for custody of a Fund's securities subject to
repurchase agreements and under federal laws, a court of competent jurisdiction
would rule in favor of the Trust if presented with the question. Securities
subject to repurchase agreements will be held by the Trust's custodian or
another qualified custodian or in the Federal Reserve/Treasury book-entry
system. Repurchase agreements are considered to be loans by a Fund under the
1940 Act.
The Fund may purchase obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities. Some of these obligations
are supported by the full faith and credit of the U.S. Treasury, such as
obligations issued by the Government National Mortgage Association. Others, such
as those of the Export-Import Bank of the United States, are supported by the
right of the issuer to borrow from the U.S. Treasury; others, such as those of
the Federal National Mortgage Association, are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; and still
others, such as those of the Student Loan Marketing Association, are supported
only by the
-5-
<PAGE> 59
credit of the agency or instrumentality issuing the obligation. No assurance can
be given that the U.S. Government would provide financial support to U.S.
Government-sponsored agencies or instrumentalities if it is not obligated to do
so by law. The Fund will invest in the obligations of such agencies or
instrumentalities only when the adviser believe that the credit risk with
respect thereto is minimal.
ADDITIONAL INVESTMENT LIMITATIONS
- ---------------------------------
In addition to the investment limitations disclosed in the
Prospectus, the Fund is subject to the following investment limitations which
may be changed with respect to the Fund only by a vote of the holders of a
majority of the Fund's outstanding shares (as defined under "Miscellaneous" in
the Prospectus).
The Fund may not:
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.
2. Invest in commodities, except that as consistent with its
investment objective and policies the 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.
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 Fund is subject to the following non-
fundamental limitations, which may be changed without the vote of shareholders:
The Fund may not:
1. Acquire any other investment company or investment company
security except in connection with a merger, consolidation, reorganization or
acquisition of assets or where otherwise permitted under the 1940 Act.
-6-
<PAGE> 60
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 the
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)
the Fund may obtain short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities.
4. Purchase securities of companies for the purpose of
exercising control .
5. Invest more than 15% of its net assets in illiquid
securities.
The Fund does not intend to purchase securities while its
outstanding borrowings (including reverse repurchase agreements) are in excess
of 5% of its total assets. Securities held in escrow or in separate accounts in
connection with the Fund's investment practices are not deemed to be pledged for
purposes of this limitation.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
----------------------------------------------
Shares in the Trust are sold on a continuous basis by SEI
Investments Distribution Co. (the "Distributor"), which has agreed to use
appropriate efforts to solicit all purchase orders. The issuance of shares is
recorded on the books of the Trust. To change the commercial bank or account
designated to receive redemption proceeds, a written request must be sent to an
investor's financial institution at its principal office. Such requests must be
signed by each shareholder, with each signature guaranteed by a U.S. commercial
bank or trust company or by a member firm of a national securities exchange.
Guarantees must be signed by an authorized signatory and "Signature Guaranteed"
must appear with the signature. An investor's financial institution may request
further documentation from corporations, executors, administrators, trustees or
guardians, and will accept other suitable verification arrangements from foreign
investors, such as consular verification.
The Trust may suspend the right of redemption or postpone the
date of payment for 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)
-7-
<PAGE> 61
the SEC has by order permitted such suspension; or (d) an emergency exists as
determined by the SEC.
As described in the Prospectus, Institutional shares of the
Fund are sold to certain qualified investors at their net asset value without a
sales charge. Retail shares of the Fund are sold to public investors at the
public offering price based on the Fund's net asset value plus a front-end load
or sales charge as described in the Prospectus. B shares of the Fund 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 sales load or contingent deferred sales charge imposed
for shares acquired through the reinvestment of dividends or distributions on
such shares.
Automatic investment programs such as the monthly savings
program ("Program") described in the Prospectus offered by the Fund permit an
investor to use "dollar cost averaging" in making investments. Under this
Program, an agreed upon fixed dollar amount is invested in Fund shares at
predetermined intervals. This may help investors to reduce their average cost
per share because the Program results in more shares being purchased during
periods of lower share prices and fewer shares during periods of higher share
prices. In order to be effective, dollar cost averaging should usually be
followed on a sustained, consistent basis. Investors should be aware, however,
that dollar cost averaging results in purchases of shares regardless of their
price on the day of investment or market trends and does not ensure a profit,
protect against losses in a declining market, or prevent a loss if an investor
ultimately redeems his shares at a price which is lower than their purchase
price. An investor may want to consider his financial ability to continue
purchases through periods of low price levels. From time to time, in
advertisements, sales literature, communications to shareholders and other
materials ("Materials"), the Trust may illustrate the effects of dollar cost
averaging through use of or comparison to an index such as the S&P 500 Index.
OFFERING PRICE PER RETAIL SHARE OF THE FUND
- -------------------------------------------
An illustration of the computation of the offering price per
Retail share of the Fund, based on the estimated value of the Fund's net assets
and number of outstanding shares on its commencement date, is as follows:
-8-
<PAGE> 62
NATIONAL TAX EXEMPT FUND*
-------------------------
<TABLE>
<CAPTION>
<S> <C>
Net Assets of Retail Shares........................................................................... $10,000,000
Outstanding Retail Shares................................................................................1,000,000
Net Asset Value Per Share
($10,000,000 / 1,000,000).................................................................................. $10.00
Sales Charge, 4.75% of
offering price (5.00% of
net asset value per share)................................................................................. $.50
Offering to Public......................................................................................... $10.50
<FN>
* Amounts are estimated as the Fund has not commenced operations.
</TABLE>
-9-
<PAGE> 63
EXCHANGE PRIVILEGE
- ------------------
Investors may exchange all or part of their Retail 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.
By use of the exchange privilege, the Investor authorizes the
Transfer Agent's financial institution to act on telephonic or written
instructions from any person representing himself or herself to be the
shareholder and believed by the Transfer Agent or the financial institution to
be genuine. The Investor or his financial institution must notify the Transfer
Agent of his prior ownership of Retail shares and account number. The Transfer
Agent's records of such instructions are binding.
DESCRIPTION OF SHARES
---------------------
The Trust is a Massachusetts business trust. The Trust's
Declaration of Trust authorizes the Board of Trustees to issue an unlimited
number of shares of beneficial interest and to classify or reclassify any
unissued shares of the Trust into one or more additional classes or series by
setting or changing in any one or more respects their respective preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption. Pursuant to
such authority, the Board of Trustees has authorized the issuance of 61
classes or series of shares. Three of these classes or series, which represent
interests in the National Tax Exempt Fund (Class L , Class L - Special Series 1
and Class L Special Series 2) are described in this Statement of Additional
Information and the related Prospectus.
Shares have no preemptive rights and only such conversion or
exchange rights as the Board of Trustees may grant in its discretion. When
issued for payment as described in the Prospectus, the Trust's shares will be
fully paid and non-assessable. In the event of a liquidation or dissolution of
the Trust or an individual Fund, shareholders of 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.
-10-
<PAGE> 64
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
Institutional and Retail shares of an investment fund will be entitled to vote
on matters submitted to a vote of shareholders (if 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 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
-11-
<PAGE> 65
any action described in this paragraph unless the proposed action has been
disclosed in writing to the fund's shareholders at least 30 days prior thereto.
ADDITIONAL INFORMATION CONCERNING TAXES
---------------------------------------
The following summarizes certain additional tax considerations
generally affecting the Trust and its shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Trust or its shareholders or possible legislative changes, and
the discussion here and in the Prospectus is not intended as a substitute for
careful tax planning. Potential investors should consult their tax advisers with
specific reference to their own tax situation.
As described above and in the Prospectus, the Fund is designed
to provide investors with tax-exempt interest income. The Fund is not intended
to constitute a balanced investment program and is not designed for investors
seeking capital appreciation or maximum tax-exempt income irrespective of
fluctuations in principal. Shares of the Fund 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 Fund's dividends being tax-exempt.
The policy of the Fund is to pay each year as federal
exempt-interest dividends substantially all the Fund's Municipal Bond interest
income net of certain deductions. In order for the Fund 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 its fund 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 a Fund cannot exceed the excess of the
amount of interest exempt from tax under Section 103 of the Code received by the
Fund during the taxable year over any amounts disallowed as deductions under
Sections 265 and 171(a)(2) of the Code. The percentage of total dividends paid
by the Fund with respect to any taxable year which qualifies as federal exempt-
interest dividends will be the same for all shareholders receiving dividends
from the Fund with respect to such year.
Shareholders are advised to consult their tax adviser with
respect to whether exempt-interest dividends would retain the exclusion under
Section 103(a) if the shareholder would be treated
-12-
<PAGE> 66
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 Fund.
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 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 Fund shares is not deductible for federal income tax purposes if the
Fund distributes 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.
Each Fund of the Trust will be treated as a separate corporate
entity under the Code and intends to qualify as a regulated investment company.
In order to qualify for tax treatment as a regulated investment company under
the Code, the Fund must satisfy, in addition to the distribution requirement
described in the Prospectus and above, certain requirements with respect to the
source of its income during a taxable year. At least 90% of the gross income of
the Fund must be derived from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stocks, securities
or foreign currencies, and other income (including but not limited to gains from
options, futures, or forward contracts) derived with respect to the Fund's
business of investing in such stock, securities or currencies. The Treasury
Department may by regulation exclude from qualifying income foreign currency
gains which are not directly related to the Fund's principal business of
investing in stock or securities, or options and futures with respect to stock
or securities. Any income derived by the Fund from a partnership or trust is
treated as derived with respect to the Fund's business of investing in stock,
securities or currencies only to the extent that such income is attributable to
items of income which would have been qualifying income if realized by the Fund
in the same manner as by the partnership or trust.
-13-
<PAGE> 67
The Trust will designate any distribution of long-term capital
gains of the Fund as a capital gain dividend in a written notice mailed to
shareholders within 60 days after the close of the Trust's taxable year.
Shareholders should note that, upon the sale or exchange of the Fund's shares,
if the shareholder has not held such shares for at least six months, any loss on
the sale or exchange of those shares will be treated as long-term capital loss
to the extent of the capital gain dividends received with respect to the shares.
A 4% non-deductible excise tax is imposed on regulated
investment companies that fail to currently distribute an amount equal to
specified percentages of their ordinary taxable income and capital gain net
income (excess of capital gains over capital losses). The Fund intends to make
sufficient distributions or deemed distributions of its ordinary taxable income
and capital gain net income each calendar year to avoid liability for this
excise tax.
If for any taxable year the Fund does not qualify for federal
tax treatment as a regulated investment company, all of the Fund's taxable
income will be subject to federal income tax at regular corporate rates without
any deduction for distributions to its shareholders. In such event, dividend
distributions (including amounts derived from interest on Municipal Bonds) would
be taxable as ordinary income to the Fund's shareholders to the extent of the
Fund's current and accumulated earnings and profits, and would be eligible for
the dividends received deduction for corporations.
The Fund may be required in certain cases to withhold and
remit to the United States Treasury 31% of taxable dividends or
-14-
<PAGE> 68
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 the 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, the 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 the Fund and its shareholders under such laws may differ
from their treatment under federal income tax laws. Shareholders are advised to
consult their tax adviser concerning the application of state and local taxes.
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:
-15-
<PAGE> 69
<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 Retired Co-Chairman of
32980 Creekside Drive and Trustee Ernst & Young, April 1984-
Pepper Pike, OH 44124 September 1993; Director,
Age 64 Cold Metal Products, Inc.,
since March 1994;
Director, Zurn Industries,
Inc. (building products
and construction
services), since June
1995.
Herbert R. Martens, Jr.* President and Trustee Executive Vice President,
c/o NatCity Investments, Inc. National City Corporation
1965 East Sixth Street (bank holding company),
Cleveland, OH 44114 since July 1997; Chairman,
Age 45 President and Chief
Executive Officer, NatCity
Investments, Inc., since
July 1995 (investment
banking); President and
Chief Executive Officer,
Raffensberger, Hughes &
Co. from 1993 until 1995
(broker-dealer);
President, Reserve Capital
Group, from 1990 until
1993.
Leigh Carter* Trustee Retired President and
13901 Shaker Blvd., #6B Chief Operating Officer,
Cleveland, OH 44120 B.F. Goodrich Company,
Age 72 August 1986 to September
1990; Director, Adams
Express Company
(closed-end investment
company), April 1982 to
December 1997; Director,
Acromed Corporation;
(producer of spinal
implants), since June
1992; 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.
</TABLE>
-16-
<PAGE> 70
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
POSITION WITH DURING PAST 5 YEARS
NAME AND ADDRESS THE TRUST AND OTHER AFFILIATIONS
- ---------------- ------------- ----------------------
<S> <C> <C>
John F. Durkott Trustee President and Chief
8600 Allisonville Road Operating Officer,
Indianapolis, IN 46250 Kittle's Home Furnishings
Age 53 Center, Inc., since
January 1982; partner,
Kittles Bloomington
Property Company, since
January 1981; partner,
KK&D (Affiliated Real
Estate Companies of
Kittle's Home Furnishings
Center), since January
1989.
Robert J. Farling Trustee Retired Chairman,
1608 Balmoral Way President and Chief
Westlake, OH 44145 Executive Officer,
Age 62 Centerior Energy (electric
utility), March 1992 to
October 1997; Director,
National City Corporation
(bank holding company)
until October 1997;
Director, Republic
Engineered Steels, since
October 1997.
Richard W. Furst, Dean Trustee Professor of Finance and
600 Autumn Lane Dean, Carol Martin Gatton
Lexington, KY 40502 College of Business and
Age 59 Economics, University of
Kentucky, since 1981;
Director, The Seed
Corporation (restaurant
group), since 1990;
Director; Foam Design,
Inc., (manufacturer of
industrial and commercial
foam products), since
1993.
Gerald L. Gherlein Trustee Executive Vice-President
3679 Greenwood Drive and General Counsel, Eaton
Pepper Pike, OH 44124 Corporation, since 1991
Age 59 (global manufacturing);
Trustee, Meridia Health
System (four hospital
health system); Trustee,
WVIZ Educational
Television (public
television).
</TABLE>
-17-
<PAGE> 71
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
POSITION WITH DURING PAST 5 YEARS
NAME AND ADDRESS THE TRUST AND OTHER AFFILIATIONS
- ---------------- ------------- ----------------------
<S> <C> <C>
J. William Pullen Trustee President and Chief
Whayne Supply Company Executive Officer, Whayne
1400 Cecil Avenue Supply Co. (engine and
P.O. Box 35900 heavy equipment
Louisville, KY 40232-5900 distribution), since 1986;
Age 58 President and Chief
Executive Officer,
American Contractors
Rentals & Sales (rental
subsidiary of Whayne
Supply Co.), since 1988.
W. Bruce McConnel, III Secretary Partner of the law firm
Philadelphia National Drinker Biddle & Reath
Bank Building LLP, Philadelphia,
1345 Chestnut Street Pennsylvania.
Suite 1100
Philadelphia, PA 19107
Age 54
Neal J. Andrews Treasurer Vice President and
PFPC Inc. Director of Investment
400 Bellevue Parkway Accounting, PFPC Inc.,
Wilmington, DE 19809 since 1992; prior thereto,
Age 32 Senior Auditor, Price
Waterhouse, LLP.
- --------------------
<FN>
* Messrs. Carter and Martens are considered by the Trust to be "interested
persons" of the Trust as defined in the 1940 Act.
</TABLE>
W. Bruce McConnel, III, Esq., Secretary of the Trust, is a
partner of the law firm Drinker Biddle & Reath LLP, which receives fees as
counsel to the Trust. Neal J. Andrews, Treasurer of the Trust, is employed by
PFPC Inc., which receives fees as Administrator to the Trust.
Each trustee receives an annual fee of $7,500 plus $2,500
for each Board meeting attended and reimbursement of expenses incurred in
attending meetings. The Chairman of the Board is entitled to receive an
additional $2,500 per annum for services in such capacity. For the year ended
May 31, 1997, the Trust's trustees and officers as a group received aggregate
fees of $125,000. The trustees and officers of the Trust own less than 1% of
the shares of the Trust.
-18-
<PAGE> 72
The following table summarizes the compensation for each of
the Trustees of the Trust for the fiscal year ended May 31, 1997:
<TABLE>
<CAPTION>
Pension or
Retirement
Benefits Accrued Total
Aggregate as Part of Estimated Compensation
Name of Compensation the Trust's Approval Benefits from the
Person, Position from the Trust Expenses Upon Retirement Trust
---------------- -------------- -------- --------------- -----
<S> <C> <C> <C> <C>
Robert D. Neary, $18,750 $0 $0 $18,750
Chairman and Trustee
Thomas R. Benua, Jr., $17,500 $0 $0 $17,500
Trustee*
Leigh Carter, Trustee $17,500 $0 $0 $17,500
John F. Durkott, Trustee $17,500 $0 $0 $17,500
Robert J. Farling, Trustee ** ** ** **
Richard W. Furst, Trustee $17,500 $0 $0 $17,500
Gerald L. Gherlein, Trustee ** ** ** **
Herbert R. Martens, Jr., ** ** ** **
President and Trustee
J. William Pullen, Trustee $17,500 $0 $0 $17,500
Richard B. Tullis, Trustee* $18,750 $0 $0 $18,750
</TABLE>
SHAREHOLDER AND TRUSTEE LIABILITY
- ---------------------------------
Under Massachusetts law, shareholders of a business trust may,
under certain circumstances, be held personally liable as partners for the
obligations of the trust. However, the Trust's Declaration of Trust provides
that shareholders shall not be subject to any personal liability for the acts or
obligations of the Trust, and that every note, bond, contract, order, or other
undertaking made by the Trust shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Declaration of Trust
provides for indemnification out of the trust property of any shareholder held
personally liable solely by
- --------
* Mr. Benua resigned as trustee as of July 17, 1997. Mr. Tullis
resigned as trustee as of November 19, 1997.
* Messrs. Farling, Gherlein and Martens were not Trustees of the
Trust during the fiscal year ended May 31, 1997.
-19-
<PAGE> 73
reason of his being or having been a shareholder and not because of his acts or
omissions or some other reason. The Declaration of Trust also provides that the
Trust shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Trust, and shall satisfy any
judgment thereon. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which the Trust
itself would be unable to meet its obligations.
The Declaration of Trust states further that no trustee,
officer, or agent of the Trust shall be personally liable for or on account of
any contract, debt, tort, claim, damage, judgment or decree arising out of or
connected with the administration or preservation of the trust estate or the
conduct of any business of the Trust; nor shall any trustee be personally liable
to any person for any action or failure to act except by reason of his own bad
faith, willful misfeasance, gross negligence, or reckless disregard of his
duties as trustee. The Declaration of Trust also provides that all persons
having any claim against the trustees or the Trust shall look solely to the
trust property for payment. With the exceptions stated, the Declaration of Trust
provides that a trustee is entitled to be indemnified against all liabilities
and expense, reasonably incurred by him in connection with the defense or
disposition of any proceeding in which he may be involved or with which he may
be threatened by reason of his being or having been a trustee, and that the
trustees, have the power, but not the duty, to indemnify officers and employees
of the Trust unless any such person would not be entitled to indemnification had
he been a trustee.
ADVISORY, ADMINISTRATION, DISTRIBUTION, CUSTODIAN
SERVICES AND TRANSFER AGENCY AGREEMENTS
-------------------------------------------------
ADVISORY AGREEMENTS
- --------------------
National City serves as investment adviser to the Fund. The
adviser is an affiliate of National City Corporation, a bank holding company
with $52 billion in assets, and headquarters in Cleveland, Ohio and nearly 900
branch offices in four states. Through its subsidiaries, National City
Corporation has been managing investments for individuals, pension and
profit-sharing plans and other institutional investors for over 75 years and
currently manages over $41 billion in assets. From time to time, the advisers
may voluntarily waive fees or reimburse the Trust for expenses.
The Advisory Agreement provides that the adviser shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Trust in connection with the performance of the Advisory Agreement, except a
loss resulting from a breach of fiduciary duty with respect to the receipt of
compensation for
-20-
<PAGE> 74
services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the adviser in the performance of their duties or from
reckless disregard by them of their duties and obligations thereunder. In
addition, National City has undertaken in the Advisory Agreement to maintain its
policy and practice of conducting its Trust Department independently of its
Commercial Departments.
The Advisory Agreement with National City was approved by the
sole shareholder of the Fund on the date it commenced operations. Unless sooner
terminated, the Advisory Agreement will continue in effect with respect to the
Fund until September 30, 1998 and from year to year thereafter, subject to
annual approval by the Trust's Board of Trustees, or by a vote of a majority of
the outstanding shares of the Fund (as defined in the Fund's Prospectus) and a
majority of the trustees who are not parties to the Agreement or interested
persons (as defined in the 1940 Act) of any party by votes cast in person at a
meeting called for such purpose. The Advisory Agreement may be terminated by the
Trust or the advisers on 60 days written notice, and will terminate immediately
in the event of its assignment.
ADMINISTRATION AND ACCOUNTING SERVICE AGREEMENT
- -----------------------------------------------
PFPC serves as the administrator and accounting agent to the
Trust. The services provided as administrator and accounting agent and current
fees are described in the Prospectus.
DISTRIBUTION PLANS AND RELATED AGREEMENT
- ----------------------------------------
The Distributor acts as distributor of the Fund's shares
pursuant to its Distribution Agreement with the Trust as described in the
Prospectus. Shares are sold on a continuous basis.
Pursuant to Rule 12b-1 of the 1940 Act, the Trust has adopted
a Service and Distribution Plan for Retail and Institutional shares (the "Retail
and Institutional 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
Institutional and Retail shares, or B shares, respectively. As required by Rule
12b-1, the Trust's Distribution Plans and related Distribution Agreements 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 agreements. In compliance with the Rule, the
trustees
-21-
<PAGE> 75
requested and evaluated information they thought necessary to an informed
determination of whether the Distribution Plans and related agreements 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 agreements 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 either 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
the 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 Retail and Institutional Shares Plan provides that each
fund will compensate the Distributor for distribution expenses related to the
distribution of Institutional and Retail shares in an amount not to exceed .10%
per annum of the average aggregate net assets of such shares. The Retail and
Institutional Plan provides that the Trust will pay the Distributor an annual
base fee of $1,250,000 plus incentive fees based upon asset growth payable
monthly and accrued daily by all of the Trusts's investment funds with respect
to the Institutional and Retail 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 such class's average net assets. Distribution
expenses payable 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.
The Distribution Plans have been approved by the Board of
Trustees, and will continue in effect for successive one year periods provided
that such continuance is specifically approved by (1) the vote of a majority of
the trustees who are not parties to either Plan or interested persons of any
such party and who have
-22-
<PAGE> 76
no direct or indirect financial interest in either Plan and (2) the vote of a
majority of the entire Board of Trustees.
CUSTODIAN SERVICES AND TRANSFER AGENCY AGREEMENTS
- -------------------------------------------------
National City Bank serves as the Trust's custodian with
respect to the Fund. Under its Custodian Services Agreement, National City Bank
has agreed to: (i) maintain a separate account or accounts in the name of the
Fund; (ii) hold and disburse portfolio securities on account of the Fund; (iii)
collect and make disbursements of money on behalf of the Fund; (iv) collect and
receive all income and other payments and distributions on account of the Fund's
portfolio securities; (v) respond to correspondence by security brokers and
others relating to its duties; and (vi) make periodic reports to the Board of
Trustees concerning the Fund's operations. National City Bank is authorized to
select one or more banks or trust companies to serve as sub-custodian on behalf
of the Fund, provided that it shall remain responsible for the performance of
all of its duties under the Custodian Services Agreement and shall hold the Fund
harmless from the acts and omissions of any bank or trust company serving as
sub-custodian. The Fund reimburses National City Bank for its direct and
indirect costs and expenses incurred in rendering custodial services, except
that the costs and expenses borne by the Fund in any year may not exceed $.225
for each $1,000 of average gross assets of the Fund.
State Street Bank and Trust Company (the "Transfer Agent")
serves as the Trust's transfer agent and dividend disbursing agent with respect
to the Fund. Under its Transfer Agency Agreement, it has agreed to: (i) issue
and redeem shares of the Fund; (ii) transmit all communications by the Fund to
its shareholders of record, including reports to shareholders, dividend and
distribution notices and proxy materials for meetings of shareholders; (iii)
respond to correspondence by security brokers and others relating to its duties;
(iv) maintain shareholder accounts; and (v) make periodic reports to the Board
of Trustees concerning the Fund's operations. The Transfer Agent sends each
shareholder of record a 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 the Fund.
SHAREHOLDER SERVICES PLANS
--------------------------
As stated in the Prospectus, the Trust has implemented the
Shareholder Services Plan for Retail shares and the B Shares Plan for the Fund's
shares. Pursuant to these plans, the Trust may enter into agreements with
financial institutions
-23-
<PAGE> 77
pertaining to the provision of administrative services to their customers who
are the beneficial owners of Retail shares or B shares in consideration for the
payment of up to .25% (on an annualized basis), of the net asset value of such
shares. Such services may include: (i) aggregating and processing purchase and
redemption requests from customers; (ii) providing customers with a service that
invests the assets of their accounts in Retail or B shares; (iii) processing
dividend payments from the Fund; (iv) providing information periodically to
customers showing their position in Retail or B shares; (v) arranging for bank
wires; (vi) responding to customer inquiries relating to the services performed
with respect to Retail 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 Agreement with the Trust, National
City is responsible for making decisions with respect to and placing orders for
all purchases and sales of portfolio securities for the Fund. The adviser
purchases portfolio securities either directly from the issuer or from an
underwriter or dealer making a market in the securities involved. Purchases from
an underwriter of portfolio securities include a commission or concession paid
by the issuer to the underwriter and purchases from dealers serving as market
makers may include the spread between the bid and asked price. Transactions on
stock exchanges involve the payment of negotiated brokerage commissions. There
is generally no stated commission in the case of securities traded in the
over-the-counter market, but the price includes an undisclosed commission or
mark-up.
While the advisers generally seek competitive spreads or
commissions, they 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 advisers in their best judgment and in a manner
deemed fair and reasonable to shareholders. Under the current Advisory
Agreement, 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 the
Fund. Information so received is in addition to and not in lieu of services
required to be performed by the adviser and does not reduce the fees payable to
the adviser by the Fund. Such information may be useful to the adviser in
serving both the
-24-
<PAGE> 78
Trust and other clients, and, similarly, supplemental information obtained by
the placement of business of other clients may be useful to the adviser in
carrying out its obligations to the Trust.
Portfolio securities will not be purchased from or sold to the
Trust's adviser, Distributor, or any "affiliated person" (as such term is
defined under the 1940 Act) of any of them acting as principal, except to the
extent permitted by the SEC. In addition, the Fund will not give preference to
its adviser's correspondents with respect to such transactions, securities,
savings deposits, repurchase agreements and reverse repurchase agreements.
While serving as advisers to the Fund, National City has
agreed to maintain its policy and practice of conducting its Trust Department
independently of their Commercial Department. In making investment
recommendations for the Trust, Trust Department personnel will not inquire or
take into consideration whether the issuer of securities proposed for purchase
or sale for the Trust's account are customers of the Commercial Department. In
dealing with commercial customers, the Commercial Department will not inquire or
take into consideration whether securities of those customers are held by the
Trust.
Investment decisions for the Fund are made independently from
those for the other Funds and for other investment companies and accounts
advised or managed by the adviser. Such other Funds, investment companies and
accounts may also invest in the same securities as the Fund. When a purchase or
sale of the same security is made at substantially the same time on behalf of
the Fund and another investment company or account, the transaction will be
averaged as to price, and available investments allocated as to amount, in a
manner which the adviser believes to be equitable to the Fund and such other
investment company or account. In some instances, this investment procedure may
adversely affect the price paid or received by the Fund or the size of the
position obtained or sold by the Fund. In connection therewith, and to the
extent permitted by law and by the current Advisory Agreement, the adviser may
aggregate the securities to be sold or purchased for the Fund with those to be
sold or purchased for other investment companies or 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.
-25-
<PAGE> 79
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.
YIELD AND PERFORMANCE INFORMATION
---------------------------------
Since the Fund has not commenced operations, yield and
performance information has not been calculated. Nevertheless, the Fund's
"yield" described in the Prospectus is calculated by dividing the Fund's net
investment income per share earned during a 30-day period (or another period
permitted by the rules of the SEC) by the net asset value per share on the last
day of the period and annualizing the result on a semi-annual basis by adding
one to the quotient, raising the sum to the power of six, subtracting one from
the result and then doubling the difference. The Fund's net investment income
per share earned during the period is based on the average daily number of
shares outstanding during the period entitled to receive dividends and includes
dividends and interest earned during the period minus expenses accrued for the
period, net of reimbursements. This calculation can be expressed as follows:
a-b RAISED TO THE 6TH POWER
Yield = 2 [(----) - 1]
cd+1
Where: a = dividends and interest earned during the
period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends.
d = maximum offering price per share on the
last day of the period.
For the purpose of determining net investment income earned
during the period (variable "a" in the formula), the Fund calculates interest
earned on debt obligations held in its fund by computing the yield to maturity
of each obligation held by it based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
business day of each 30-day period, or, with respect to obligations purchased
during the 30-day period, the purchase price (plus actual accrued interest)
-26-
<PAGE> 80
and dividing the result by 360 and multiplying the quotient by the market value
of the obligation (including actual accrued interest) in order to determine the
interest income on the obligation for each day of the subsequent 30-day period
that the obligation is in the Fund. The maturity of an obligation with a call
provision is the next call date on which the obligation reasonably may be
expected to be called or, if none, the maturity date.
Interest earned on tax-exempt obligations that are issued
without original issue discount and have a current market discount is calculated
by using the coupon rate of interest instead of the yield to maturity. In the
case of tax-exempt obligations that are issued with original issue discount but
which have discounts based on current market value that exceed the then-
remaining portion of the original issue discount (market discount), the yield to
maturity is the imputed rate based on the original issue discount calculation.
On the other hand, in the case of tax-exempt obligations that are issued with
original issue discount but which have discounts based on current market value
that are less than the then-remaining portion of the original issue discount
(market premium), the yield to maturity is based on the market value.
Expenses accrued for the period (variable "b" in the formula)
include all recurring fees charged by the Fund to all shareholder accounts in
proportion to the length of the base period and the Fund's mean (or median)
account size. Undeclared earned income will be subtracted from the net asset
value per share (variable "d" in the formula). Undeclared earned income is the
net investment income which, at the end of the 30-day base period, has not been
declared as a dividend, but is reasonably expected to be and is declared as a
dividend shortly thereafter. For applicable sales charges, see "How to Purchase
and Redeem Shares -- Sales Charges Applicable to Purchases of Retail Shares" in
the Prospectus.
The Fund computes its average annual total returns by
determining the average annual compounded rate of return during specified
periods that would equate the initial amount invested to the ending redeemable
value of such investment by dividing the ending redeemable value of a
hypothetical $1,000 initial payment by $1,000 and raising the quotient to a
power equal to one divided by the number of years (or fractional portion
thereof) covered by the computation and subtracting one from the result. This
calculation can be expressed as follows:
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<PAGE> 81
ERV RAISED TO THE 1/nTH POWER
T = [(-----) - 1]
P
Where: T = average annual total return
ERV = ending redeemable value at the end of the
period covered by the computation of a
hypothetical $1,000 payment made at the
beginning of the period
P = hypothetical initial payment of $1,000
n = period covered by the computation, expressed
in terms of years
The Fund computes its aggregate total returns by determining
the aggregate rates of return during specified periods that likewise equate the
initial amount invested to the ending redeemable value of such investment. The
formula for calculating aggregate total return is as follows:
ERV
(-----) -1
P
The calculations of average annual total return and aggregate
total return assume the reinvestment of all dividends and capital gain
distributions on the reinvestment dates during the period and include all
recurring fees charged to all shareholder accounts, assuming an account size
equal to the Fund's mean (or median) account size for any fees that vary with
the size of the account. The maximum sales load and other charges deducted from
payments are deducted from the initial $1,000 payment (variable "P" in the
formula). The ending redeemable value (variable "ERV" in each formula) is
determined by assuming complete redemption of the hypothetical investment and
the deduction of all nonrecurring charges at the end of the measuring period
covered by the computation.
The Fund may also from time to time include in Materials a
total return figure that is not calculated according to the formulas set forth
above in order to compare more accurately the Fund's performance with other
measures of investment return. For example, in comparing the Fund's total return
with data published by Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc. or Weisenberger Investment Company Service, or with the
performance of an index, the Fund may calculate its aggregate total return for
the period of time specified in the advertisement or communication by assuming
the investment of $10,000 in shares and assuming the reinvestment of each
dividend or other
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<PAGE> 82
distribution at net asset value on the reinvestment date. Percentage increases
are determined by subtracting the initial value of the investment from the
ending value and by dividing the remainder by the beginning value. The Fund does
not, for these purposes, deduct from the initial value invested any amount
representing sales charges. The Fund will, however, disclose the maximum sales
charge and will also disclose that the performance data do not reflect sales
charges and that inclusion of sales charges would reduce the performance quoted.
The Fund may also from time to time include discussions or
illustrations of the effects of compounding in Materials. "Compounding" refers
to the fact that, if dividends or other distributions on a Fund investment are
reinvested by being paid in additional Fund shares, any future income or capital
appreciation of the Fund would increase the value, not only of the original Fund
investment, but also of the additional Fund shares received through
reinvestment. As a result, the value of the Fund investment would increase more
quickly than if dividends or other distributions had been paid in cash.
In addition, the Fund may also include in Materials
discussions and/or illustrations of the potential investment goals of a
prospective investor, investment management strategies, techniques, policies or
investment suitability of the Fund, high-quality investments, economic
conditions, the relationship between sectors of the economy and the economy as a
whole, various securities markets, the effects of inflation and historical
performance of various asset classes, including but not limited to, stocks,
bonds and Treasury securities. From time to time, Materials may summarize the
substance of information contained in shareholder reports (including the
investment composition of the Fund), as well as the views of the adviser as to
current market, economic, trade and interest rate trends, legislative,
regulatory and monetary developments, investment strategies and related matters
believed to be of relevance to the Fund. The Fund may also include in Materials
charts, graphs or drawings which compare the investment objective, return
potential, relative stability and/or growth possibilities of the Fund and/or
other mutual funds, or illustrate the potential risks and rewards of investment
in various investment vehicles, including but not limited to, stocks, bonds,
Treasury securities and shares of the Fund and/or other mutual funds. Materials
may include a discussion of certain attributes or benefits to be derived by an
investment in the Fund and/or other mutual funds (such as value investing,
market timing, dollar cost averaging, asset allocation, constant ratio transfer,
automatic accounting rebalancing, the advantages and disadvantages of investing
in tax-deferred and taxable investments), shareholder profiles and hypothetical
investor scenarios, timely information on financial management, tax and
retirement planning and investment alternatives to certificates of deposit and
other financial instruments. Such Materials may include symbols, headlines or
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<PAGE> 83
other material which highlight or summarize the information discussed in more
detail therein.
MISCELLANEOUS
-------------
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. All organization
expenses are being amortized on the straight-line method over a period of five
years from the date of commencement of operations.
As used in the Prospectus, "assets belonging to the Fund"
means the consideration received by the Trust upon the issuance of shares in
that 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 the
Fund. In determining the Fund's net asset value, assets belonging to the Fund
are charged with the liabilities in respect of that Fund.
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<PAGE> 84
APPENDIX A
----------
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - This designation represents 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.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - Debt is less vulnerable to non-payment 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" - Debt is more vulnerable to non-payment 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" - Debt is currently vulnerable to non-payment, 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
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economic conditions, the obligor is not likely to have the capacity to meet its
financial commitment on the obligation.
"CC" - An obligation rated "CCC" 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" - An obligation rated "D" is in payment default. This
rating is used when payments on an obligation are not made on the date due, even
if the applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon the
filing of a bankruptcy petition or the taking of similar action if payments on
an obligation are jeopardized.
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 rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high volatility
or high variability in expected returns due to non-credit risks. Examples of
such obligations are: securities whose principal or interest return is indexed
to equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
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 risks appear somewhat larger than in "Aaa"
securities.
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"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 operation 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.
(P)... - When applied to forward delivery bonds, indicates
that the rating is provisional pending delivery of the bonds. The rating may be
revised prior to delivery if changes occur in the legal documents or the
underlying credit quality of the bonds.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which
Moody's believes possess the strongest investment attributes are designated by
the symbols, Aa1, A1, Baa1, Ba1 and B1.
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.
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<PAGE> 87
"AA" - Debt is considered 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 for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1+."
"A" - Bonds considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest
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<PAGE> 88
and repay principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have an adverse impact
on these bonds, and therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
"BB" - Bonds considered to be speculative. The obligor's
ability to pay interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified, which could assist the obligor in satisfying its debt service
requirements.
"B" - Bonds are considered highly speculative. While
securities in this class are currently meeting debt service requirements, the
probability of continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable business and
economic activity throughout the life of the issue.
"CCC" - Bonds have certain identifiable characteristics that,
if not remedied, may lead to default. The ability to meet obligations requires
an advantageous business and economic environment.
"CC" - Bonds are minimally protected. Default in payments of
interest and/or principal seems probable over time.
"C" - Bonds are in imminent default in payment of interest or
principal.
"DDD," "DD" and "D" - Bonds are in default on interest and/or
principal payments. Such securities are extremely speculative and should be
valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. "DDD" represents 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 ratings from and including "AA" to "C" may be modified by the addition of
a plus (+) or minus (-) sign to show relative standing within these major rating
categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes
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<PAGE> 89
in business, economic or financial conditions are unlikely to increase
investment risk substantially.
"AA" - Obligations for which there is a very low expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions may increase investment risk, albeit not very significantly.
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial conditions
may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk than
for obligations in other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one
of these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating
below "AAA" to denote relative status within 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; nonUnited States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation represents the highest category
assigned by Thomson BankWatch to long-term debt and 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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<PAGE> 90
"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 Thomson BankWatch's lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, 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.
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" - The highest category indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
"A-2" - Capacity for timely payment on issues with this
designation is satisfactory. However, the relative degree of safety is not as
high as for issues designated "A-1."
"A-3" - Issues carrying this designation have adequate
capacity for timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
"B" - Issues are regarded as having only a speculative
capacity for timely payment.
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<PAGE> 91
"C" - This rating is assigned to short-term debt obligations
with a doubtful capacity for payment.
"D" - Issues are in payment default. The "D" rating category
is used when interest payments of principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period.
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
effects 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
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<PAGE> 92
following summarizes the rating categories used by Duff & Phelps for commercial
paper:
"D-1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
"D-3" - Debt possesses satisfactory liquidity and other
protection factors qualify issues as investment grade. Risk factors are larger
and subject to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure 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 short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to three years.
The following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues
assigned this rating have a satisfactory degree of assurance for
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<PAGE> 93
timely payment, but the margin of safety is not as great as the "F-1+" and "F-1"
ratings.
"F-3" - Securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues
assigned this rating have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
"D" - Securities are in actual or imminent payment default.
"LOC" - The symbol "LOC" indicates that the rating is based on
a letter of credit issued by a commercial bank.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"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.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries.
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<PAGE> 94
The following summarizes the rating categories used by IBCA for short-term
debt ratings:
"A1" - Obligations are supported by the highest capacity for
timely repayment. Where issues possess a particularly strong credit feature, a
rating of "A1+" is assigned.
"A2" - Obligations are supported by a satisfactory capacity
for timely repayment although such capacity may be susceptible to adverse
changes in business, economic or financial conditions.
"A3" - Obligations are supported by an adequate capacity for
timely repayment such capacity is more susceptible to adverse changes in
business, economic, or financial conditions than for obligations in higher
categories.
"B" - Obligations for which the capacity for timely repayment
is susceptible to adverse changes in business, economic, or financial
conditions.
"C" - Obligations for which there is a high risk of default or
which are currently in default.
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<PAGE> 95
FORM N-1A
---------
PART C - OTHER INFORMATION
--------------------------
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS
(1) None.
C-1
<PAGE> 96
(2) None.
C-2
<PAGE> 97
C-3
<PAGE> 98
(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-4
<PAGE> 99
(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
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").
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<PAGE> 100
(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").
(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").
(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
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<PAGE> 101
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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<PAGE> 102
(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,
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<PAGE> 103
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.
(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
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<PAGE> 104
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.
(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.
(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
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<PAGE> 105
State Street Bank and Trust Company, dated March 1, 1997, is
incorporated herein by reference to Exhibit 9(d) to PEA No.
33.
(d) 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.
(e) 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)(1) Opinion and consent of counsel.
(11) Consent of Drinker Biddle & Reath 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.
- --------
1. To be filed under Rule 24f-2 as part of Registrant's Rule 24f-2
Notice.
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<PAGE> 106
(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.
(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.
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<PAGE> 107
(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.
(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.
(14) None.
(15) (a) Service and Distribution Plan for Retail and
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 Exhibits 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").
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<PAGE> 108
(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
Dual-Class System, is incorporated herein by reference to
Exhibit 18 to PEA No. 38.
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
October 31, 1997:
<TABLE>
<CAPTION>
Total
Number of Record
Title of Class Holders Institutional Retail
-------------- ---------------- ------------- ------
<S> <C> <C> <C>
Class A units of 42,575 19,569 23,006
beneficial interest
(Money Market
Fund)
Class B units of 4,770 2,716 2,054
beneficial interest
(Government Money
Market Fund)
Class C units of 2,576 2,343 233
beneficial interest
(Treasury Money Market
Fund)
Class D units of 2,970 2,105 865
beneficial interest
(Tax Exempt Money
Market Fund)
Class H units of 6,254 5,702 552
beneficial interest
(Equity Growth Fund)
</TABLE>
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<PAGE> 109
<TABLE>
<CAPTION>
Total
Number of Record
Title of Class Holders Institutional Retail
-------------- ---------------- ------------- ------
<S> <C> <C> <C>
Class I units of 2,700 2,562 138
beneficial interest
(Intermediate Bond
Fund)
Class K units of 942 840 102
beneficial interest
(Ohio Tax Exempt
Fund)
Class M units of 3,808 3,727 81
beneficial interest
(Equity Income
Fund)
Class N units of 5,054 4,389 665
beneficial interest
(Small Cap Value
Fund)
Class O units of 511 485 26
beneficial interest
(Enhanced Income
Fund)
Class P units of 1,096 1,079 17
beneficial interest
(Total Return
Advantage Fund)
Class Q units of 799 682 117
beneficial interest
(Pennsylvania Tax Exempt
Money Market Fund)
Class R units of 2,818 2,810 8
beneficial interest
(Bond Fund)
Class S units of 2,920 2,901 19
beneficial interest
(GNMA Fund)
Class T units of 393 384 9
beneficial interest
(Pennsylvania
Municipal Fund)
Class U units of 331 324 7
beneficial interest
(International Equity
Fund)
Class V units of 0 0 0
beneficial interest
(Equity Index Fund)
</TABLE>
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<PAGE> 110
<TABLE>
<CAPTION>
Total
Number of Record
Title of Class Holders Institutional Retail
-------------- ---------------- ------------- ------
<S> <C> <C> <C>
Class W units of 35 26 9
beneficial interest
(Core Equity Fund)
Class X units of 358 351 7
beneficial interest
(Small Cap Growth
Fund)
Class Y units of 0 0 0
beneficial interest
(Real Return Advantage
Fund)
</TABLE>
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
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<PAGE> 111
(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.
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
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<PAGE> 112
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 Bank or its
agents or subcontractors, and (ii) have been
prepared,
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<PAGE> 113
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
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<PAGE> 114
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.
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,
C-20
<PAGE> 115
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 ADVISERS
(a) Investment Adviser: National City Bank
National City Bank performs investment advisory services for
Registrant and certain other investment advisory customers. National City Bank
has been in the business of managing the investments of fiduciary and other
accounts throughout Ohio since October 1919. In addition to its trust business,
National City Bank provides commercial banking services.
To the knowledge of Registrant, none of the directors or
officers of National City Bank, 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, National City Corporation, which owns all the outstanding stock of National
City Bank, or other subsidiaries of National City Corporation. Set forth below
are the names and principal businesses of the directors and certain of the
senior executive officers of National City Bank who are engaged in any other
business, profession, vocation or employment of a substantial nature.
C-21
<PAGE> 116
NATIONAL CITY BANK
<TABLE>
<CAPTION>
POSITION OTHER
WITH NATIONAL BUSINESS TYPE OF
NAME CITY BANK CONNECTIONS BUSINESS
- ---- ------------- ----------- ---------
<S> <C> <C> <C>
George R. Berlin Director President and Chief
Executive Officer,
Berco, Inc.
Thomas G. Breitenbach Director President and Chief Health Care
Executive Officer,
MedAmerica Health
Systems
Steve D. Bullock Director Chief Executive Non-Profit
Officer and Chapter Organization
Manager, American
Red Cross
David A. Daberko Director Chairman and Chief Bank holding company
Executive Officer,
National City
Corporation
Director, National Bank
City Bank of
Columbus
Director, National Bank
City Bank of Dayton
Director, National Bank
City Bank of Indiana
Director, National Bank
City Bank of
Kentucky
Officer and Tractor sales
Director, Hudson
Tractor Sales, Inc.
Director, Student
Loan Marketing
Association
Vincent A. DiGirolamo Director Vice Chairman, Bank holding company
National City
Corporation
Daniel W. Duval Director President and Chief
Executive Officer,
Robbins & Myers,
Inc.
Thomas J. Fitzpatrick Director Chairman and Chief
Executive Officer,
Elford, Inc.
</TABLE>
C-22
<PAGE> 117
<TABLE>
<CAPTION>
POSITION OTHER
WITH NATIONAL BUSINESS TYPE OF
NAME CITY BANK CONNECTIONS BUSINESS
- ---- ------------- ----------- ---------
<S> <C> <C> <C>
Gary A. Glaser Director Chairman, National Bank
City Bank of
Columbus
Gordon D. Harnett Director President, Chairman Manufacturer of
and Chief Executive engineering material
Officer, Brush
Wellman, Inc.
Donald V. Kellermeyer Director President,
Kellermeyer Co.
William G. Kelley Director Chairman and Chief
Executive Officer,
Consolidated Stores
Corporation
J. Peter Kelly Director President and Chief Manufacturer of
Operating Officer, steel
LTV Corp.
Wiliam E. President, Chief Executive Vice Bank holding company
MacDonald III Executive Officer President, National
and Director City Corporation
William P. Madar Director Vice Chairman and Manufacturer of
Chief Executive machinery
Officer, Nordson
Corporation
Paul A. Ormond Director Chairman, President
and Chief Executive
Officer, Health Care
& Retirement Corp.
William F. Patient Director Chairman, President PVC manufacturer
and Chief Executive
Officer, The Geon
Company
Shelley B. Roth Director President, Pierre's Ice cream
French Ice Cream
Company
Dr. K. Wayne Smith Director President and Chief
Executive Officer,
OCLC Online Computer
Library, Inc.
Thomas C. Sullivan Director Chairman of the Manufacturer of
Board and Chief protective coatings,
Executive Officer, roofing material and
RPM, Inc. paint
Jerry Sue Thornton, Director President, Cuyahoga Education
Ph.D. Community College
</TABLE>
C-23
<PAGE> 118
<TABLE>
<CAPTION>
POSITION OTHER
WITH NATIONAL BUSINESS TYPE OF
NAME CITY BANK CONNECTIONS BUSINESS
- ---- ------------- ----------- ---------
<S> <C> <C> <C>
John R. Werren Director Partner, Day, Law firm
Ketterer, Raley,
Wright & Rybollt
W. Douglas Bannerman Senior Executive Senior Vice Bank holding company
Vice President, President, National
Corporate Banking City Corporation
Jeffery M. Biggar Executive Vice Senior Vice Bank holding company
President, President, National
Private Client City Corporation
Group
Jane Grebenc Executive Vice None
President, Retail
Banking
Robert K. Healey, Jr. Executive Vice None
President
Thomas R. Hollern Area President, None
Northeast Region
Katherine B. Executive Vice None
Hollingsworth President/
Southwest
Dorothy M. Horvath Executive Vice None
President/Central
James Hughes Executive Vice None
President/
Northcoast
Jeffrey D. Kelly Executive Vice Executive Vice Bank holding company
President, President, National
Investments City Corporation
Kenneth R. Knutson Area President, None
Northeast Region
Stephen McLane Executive Vice None
President/Central
Bruce T. Muddell Executive Vice None
President, Credit
Administration
Richard A. Ray Executive Vice None
President/Central
Philip L. Rice Executive Vice None
President/
Northcoast
David W. Ridenour Executive Vice None
President/
Northwest
</TABLE>
C-24
<PAGE> 119
<TABLE>
<CAPTION>
POSITION OTHER
WITH NATIONAL BUSINESS TYPE OF
NAME CITY BANK CONNECTIONS BUSINESS
- ---- ------------- ----------- ---------
<S> <C> <C> <C>
Robert A. Robinson Executive Vice None
President/
Northwest
Jeffrey T. Siler Executive Vice None
President/
Southwest
William F. Smith Executive Vice None
President/Central
Harold E. Todd, Jr. Executive Vice Executive Vice Bank holding company
President, President, National
Institutional City Corporation
Trust and Asset
Management
Gregory L. Tunis Senior Executive
Vice President
</TABLE>
(b) Investment Adviser: National Asset Management
Corporation ("National Asset Management")
To the knowledge of Registrant, none of the directors or
officers of National Asset Management, 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 of National Asset Management also hold
positions with National City Corporation or its subsidiaries. Set forth below
are the names and principal business of the directors and certain of the senior
executive officers of National Asset Management who are engaged in any other
business, profession, vocation, or employment of a substantial nature.
NATIONAL ASSET MANAGEMENT
<TABLE>
<CAPTION>
Position with Other
National Asset Business Type of
Name Management Connections Business
- ---- -------------- ----------- ---------
<S> <C> <C> <C>
James R. Bell, III Director Director, President Bank
and Chief
Executive Officer,
National City Bank of
Kentucky
Executive Vice Bank holding
President, company
National City
Corporation
</TABLE>
C-25
<PAGE> 120
<TABLE>
<CAPTION>
Position with Other
National Asset Business Type of
Name Management Connections Business
- ---- -------------- ----------- --------
<S> <C> <C> <C>
William F. Director, None
Chandler, Jr. Managing Director
and Principal
</TABLE>
C-26
<PAGE> 121
<TABLE>
<CAPTION>
Position with Other
National Asset Business Type of
Name Management Connections Business
- ---- -------------- ----------- --------
<S> <C> <C> <C>
Carl W. Hafele Director, None
Managing Director
and Principal
Leonard V. Hardin Director Director and Bank
Chairman of the
Board, National City
Bank of Kentucky
Robert Siefers Director Chief Financial Bank holding
Officer, National company
City Corporation
Harold B. Todd, Jr. Director Executive Vice Presi- Bank holding
dent, National City company
Corporation
Executive Vice Presi- Bank
dent, Institutional
Trust and Asset Manage-
ment, National City Bank
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. Senior None
Stodghill Investment Manager
Erik N. Evans Investment None
Manager
Brent A. Bell Investment None
Manager
Randall T. Zipfel Manager, None
Information Systems
</TABLE>
(c) Sub-Investment Adviser: Wellington Management Corporation,
LLP ("Wellington").
Wellington performs sub-investment advisory services for the
Registrant's Small Cap Growth Fund.
Wellington is an investment adviser registered under the
Investment Advisers Act of 1940 (the "Advisers Act").
C-27
<PAGE> 122
The list required by this Item 28 of the partners of
Wellington, together with information as to any business profession, vocation or
employment of substantial nature engaged in by such partners during the past two
years, is incorporated herein by references to Schedule A and D of Form ADV
filed by Wellington pursuant to the Advisers Act (SEC File No. 801-15908).
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:
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 International Trust August 30, 1988
The Pillar Funds February 28, 1992
CUFUND May 1, 1992
STI Classic Funds May 29, 1992
CoreFunds, Inc. October 30, 1992
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
Marquis Funds(R) August 17, 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
Monitor Funds January 11, 1996
FMB Funds, Inc. March 1, 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
Expedition Funds June 9, 1997
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").
C-28
<PAGE> 123
(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.
Position and Office Positions and Offices
Name with Underwriter With Registrant
- ---- ------------------- ---------------------
Alfred P. West, Jr. Director, Chairman & --
Chief Executive Officer
Henry H. Greer Director, President & --
Chief Operating Officer
Carmen V. Romeo Director, Executive --
Vice President,
President-Investment
Advisory Group
Gilbert L. Beebower Executive Vice --
President
Richard B. Lieb Executive Vice --
President, President-
Investment Services
Division
Dennis J. McGonigle Executive Vice --
President
Leo J. Dolan, Jr. Senior Vice President --
Carl A. Guarino Senior Vice President --
Larry Hutchison Senior Vice President --
David G. Lee Senior Vice President --
Jack May Senior Vice President --
A. Keith McDowell Senior Vice President --
Hartland J. McKeon Senior Vice President --
Barbara J. Moore Senior Vice President --
Kevin P. Robins Senior Vice President, --
General Counsel &
Secretary
Robert Wagner Senior Vice President --
Patrick K. Walsh Senior Vice President --
Robert Aller Vice President --
Marc H. Cahn Vice President & --
Assistant Secretary
Gordon W. Carpenter Vice President --
Todd Cipperman Vice President & --
Assistant Secretary
Robert Crudup Vice President & --
Managing Director
Barbara Doyne Vice President --
Jeff Drennen Vice President --
Vic Galef Vice President & --
Managing Director
Kathy Heillig Vice President & --
Treasurer
Michael Kantor Vice President --
Samuel King Vice President --
Kim Kirk Vice President & --
Managing Director
C-29
<PAGE> 124
Position and Office Positions and Offices
Name with Underwriter With Registrant
- ---- ------------------- ---------------------
John Krzeminski Vice President & --
Managing Director
Carolyn McLaurin Vice President & --
Managing Director
W. Kelso Morrill Vice President --
Barbara A. Nugent Vice President & --
Assistant Secretary
Sandra K. Orlow Vice President & --
Assistant Secretary
Cynthia M. Parrish Vice President &
Assistant Secretary
Donald Pepin Vice President & --
Managing Director
Kim Rainey Vice President --
Mark Samuels Vice President & --
Managing Director
Steve Smith Vice President --
Daniel Spaventa Vice President --
Kathryn L. Stanton Vice President & --
Assistant Secretary
Wayne M. Withrow Vice President & --
Managing Director
James Dougherty Director of Brokerage --
Services
Item 30. LOCATION OF ACCOUNTS AND RECORDS
(1) National City Bank, 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 advisers and custodian); and National Asset Management
Corporation, 101 South Fifth Street, Louisville, KY 40202.
(2) SEI Investments Distribution Co., 1 Freedom Valley Road, Oaks,
Pennsylvania 19456 (records relating to its function as distributor).
(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
C-30
<PAGE> 125
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 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).
(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 functions as
sub-adviser).
Item 31. MANAGEMENT SERVICES
Inapplicable.
Item 32. UNDERTAKINGS
(a) 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.
(b) Registrant undertakes to file a post-effective amendment, using
unaudited financial statements for the Registrant's National Tax Exempt Fund
which need not be certified, within four to six months from the date of this
Post-Effective Amendment No. 40.
C-31
<PAGE> 126
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, Registrant has duly caused
this Post-Effective Amendment No. 40 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 22nd day of January, 1998.
ARMADA FUNDS
Registrant
/s/ W. Bruce McConnel, III
----------------------------
Secretary
W. Bruce McConnel, III
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No.40 to Registrant's Registration Statement has been signed below
by the following persons in the capacities and on
the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Neal Andrews Treasurer January 22, 1998
- ----------------------
Neal J. Andrews
*Leigh Carter Trustee January 22, 1998
- ----------------------
Leigh Carter
*John F. Durkott Trustee January 22, 1998
- ----------------------
John F. Durkott
*Robert J. Farling Trustee January 22, 1998
- ----------------------
Robert J. Farling
*Richard W. Furst Trustee January 22, 1998
- ----------------------
Richard W. Furst
*Gerald Gherlein Trustee January 22, 1998
- ----------------------
Gerald Gherlein
*Herbert Martens President and Trustee January 22, 1998
- ----------------------
Herbert Martens
*Robert D. Neary Trustee And Chairman January 22, 1998
- ---------------------- of the Board
Robert D. Neary
*J. William Pullen Trustee January 22, 1998
- ----------------------
J. William Pullen
*By: /s/ W. Bruce Mcconnel, III
W. Bruce McConnel, III
Attorney-in-Fact
C-32
<PAGE> 127
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: September 17, 1997
------------
/s/ Robert D. Neary
- -----------------------------
Robert D. Neary
<PAGE> 128
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: September 17, 1997
------------
/s/ Leigh Carter
- ---------------------------
Leigh Carter
<PAGE> 129
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: September 17, 1997
-------------
/s/ John F. Durkott
- -----------------------------
John F. Durkott
<PAGE> 130
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: September 17, 1997
---------------
/s/Richard W. Furst
- -------------------------
Richard W. Furst
<PAGE> 131
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: September 17, 1997
-------------
/s/ J. William Pullen
- -----------------------------
J. William Pullen
<PAGE> 132
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: September 17, 1997
-------------
/s/ Herbert R. Martens, Jr.
- -----------------------------
Herbert R. Martens, Jr.
<PAGE> 133
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: September 17, 1997
-------------
/s/ Gerald L. Gherlein
- --------------------------
Gerald L. Gherlein
<PAGE> 134
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: September 17, 1997
-------------
/s/ Gerald L. Gherlein
- --------------------------
Gerald L. Gherlein
<PAGE> 135
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
(11) Consent of Drinker Biddle & Reath LLP
<PAGE> 1
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. 40 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
January 21, 1998
