<PAGE> 1
As filed with the Securities and Exchange Commission on February 23, 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. 41 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 40 [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)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (b)
[X] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(iii) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Title of Securities Being Registered . . . . Shares of beneficial interest
<PAGE> 2
The purpose of this post-effective amendment is to register
Institutional, Retail and B shares of the Balanced Allocation Fund.
<PAGE> 3
CROSS REFERENCE SHEET
Balanced Allocation Fund
Form N-1A Part A Item Prospectus Caption
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1. Cover Page............................. Cover Page
2. Synopsis............................... Expense Table
3. Condensed Financial
Information............................ Yield and Performance
Information
4. General Description of
Registrant............................. Investment Objective and
Policies; Investment
Limitations; Description of the
Trust and Its Shares
5. Management of the Trust................ Management of the Trust;
Custodian and Transfer Agent
6. Capital Stock and Other
Securities............................. How to Purchase and Redeem
Shares; Dividends and
Distributions; Taxes;
Description of the Trust and Its
Shares; Miscellaneous
7. Purchase of Securities
Being Offered.......................... Pricing of Shares; How to
Purchase and Redeem Shares;
Distribution and Servicing
Arrangements
8. Redemption Repurchase.................. How to Purchase and Redeem
Shares
9. Pending Legal Proceedings.............. Inapplicable
<PAGE> 4
ARMADA FUNDS
PROSPECTUS
_______________, 1998
Balanced Allocation Fund
<PAGE> 5
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|- SHARES OF ARMADA FUNDS 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 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. |
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No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the offering
made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Trust
or its Distributor. This Prospectus does not constitute an offering by the Trust
or by the Distributor in any jurisdiction in which such offering may not
lawfully be made.
<PAGE> 6
TABLE OF CONTENTS
PAGE
INTRODUCTION................................................................ 3
EXPENSE TABLE............................................................... 4
INVESTMENT OBJECTIVE AND POLICIES........................................... 6
INVESTMENT LIMITATIONS...................................................... 26
YIELD AND PERFORMANCE INFORMATION........................................... 28
PRICING OF SHARES........................................................... 29
HOW TO PURCHASE AND REDEEM SHARES........................................... 30
DISTRIBUTION AND SERVICING ARRANGEMENTS..................................... 45
DIVIDENDS AND DISTRIBUTIONS................................................. 46
TAXES....................................................................... 46
MANAGEMENT OF THE TRUST..................................................... 48
DESCRIPTION OF THE TRUST AND ITS SHARES..................................... 49
CUSTODIAN AND TRANSFER AGENT................................................ 52
EXPENSES.....................................................................53
MISCELLANEOUS............................................................... 53
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Subject to Completion - Dated February 24, 1998
Information contained herein pertaining to the Armada Balanced Allocation Fund
is subject to completion or amendment. A post-effective amendment to the
registration statement relating to shares of the Armada Balanced Allocation Fund
has been filed with the Securities and Exchange Commission. Shares of the Armada
Balanced Allocation Fund may not be sold nor may offers to buy 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 shares of the Armada Balanced Allocation 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
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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 Balanced Allocation Fund (the
"Fund") of Armada Funds (the "Trust").
BALANCED ALLOCATION FUND'S investment objective is to seek current
income, long-term capital growth and conservation of capital. The Fund invests
primarily in three major asset groups: equity securities; fixed income
securities; and cash equivalent securities.
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
<PAGE> 8
the Distributor for distributing its shares. See "Distribution Agreement."
This Prospectus sets forth concisely the information about the Balanced
Allocation Fund that a prospective investor should consider before investing.
Investors should carefully read this Prospectus and retain it for future
reference. Additional information about the Fund, contained in a Statement of
Additional Information, has been filed with the Securities and Exchange
Commission ("SEC") and is available upon request without charge by contacting
the Trust at its telephone number or address shown above. The Statement of
Additional Information bears the same date as this Prospectus and is
incorporated by reference in its entirety into this Prospectus.
SHARES OF THE TRUST ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED OR OTHERWISE SUPPORTED BY, NATIONAL CITY BANK, ITS PARENT
COMPANY OR ANY OF ITS AFFILIATES, AND ARE NOT FEDERALLY INSURED OR GUARANTEED BY
THE U.S. GOVERNMENT, 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
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 objective and
policies as described below under "Investment Objective 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. Retail shares are sold with 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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<TABLE>
<CAPTION>
EXPENSE TABLE
==================================================================================================================
BALANCED ALLOCATION BALANCED ALLOCATION
RETAIL BALANCED ALLOCATION INSTITUTIONAL
SHARES(1) B SHARES(1) SHARES
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<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
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ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net
assets)
Management Fees...................... .75% .75% .75%
12b-1 Fees(5),(6).................... .07% .75% .07%
Other Expenses(4).................... .42% .42% .17%
---- ---- ----
TOTAL FUND OPERATING
EXPENSES (after fee waivers)(4),(6).. 1.24% 1.92% .99%
==== ===== ===
==================================================================================================================
<FN>
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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" below.
2 A reduced sales charge may be available. A contingent deferred sales
charge of 1% may be assessed on certain redemptions of Retail shares
purchased without an initial sales charge as part of an investment of $1
million or more. 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%, 3.0% and 2.0% for redemptions made during
the third through fifth years, respectively. No deferred sales charge is
charged after the fifth year. For more information, see "How to Purchase
and Redeem Shares - Sales Charges Applicable to 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 Trust has 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 1.27% and 1.02% 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
------ -------
<S> <C> <C>
Balanced Allocation Fund Retail Shares(1)................ $60 $ 85
Balanced Allocation Fund Retail Shares(3)................ $23 $ 39
Balanced Allocation Fund B Shares(2)..................... $70 $100
Balanced Allocation Fund Institutional Shares............ $10 $ 32
<FN>
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1 Assumes deduction at time of purchase of maximum applicable front-end
sales charge.
2 Assumes deduction of maximum applicable contingent deferred sales charge.
3 Assumes no front end sales charge but the maximum contingent deferred
sales charge at 1 year.
</TABLE>
The purpose of the foregoing tables is to assist investors in understanding the
various fees and expenses that investors in the Fund will bear directly or
indirectly. THE INFORMATION INCLUDED IN THE TABLES AND HYPOTHETICAL EXAMPLE
ABOVE IS BASED ON THE FUND'S ESTIMATED FEES AND EXPENSES FOR THE CURRENT FISCAL
YEAR AND SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF PAST OR FUTURE EXPENSES.
ACTUAL FEES AND EXPENSES MAY BE GREATER OR LESS THAN THOSE INDICATED. MOREOVER,
WHILE THE EXAMPLE ASSUMES A 5% ANNUAL RETURN, THE FUND'S ACTUAL PERFORMANCE MAY
RESULT IN AN ACTUAL RETURN GREATER OR LESS THAN 5%.
For more complete descriptions of these fees and expenses, see "Management of
the Trust" and "Distribution and Servicing Arrangements" in this Prospectus. Any
fees that are charged by affiliates of the adviser or other institutions
directly to their customer accounts for services related to investments in
shares of the Fund are in addition to and not reflected in the fees and expenses
described above.
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<PAGE> 12
INVESTMENT OBJECTIVE 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 Objective and Policies" in
the Statement of Additional Information for further information on the
investments in which the Fund may invest.
BALANCED ALLOCATION FUND
The investment objective of the Fund is to seek current
income, long-term capital growth and conservation of capital.
The Fund may invest in any type or class of security. Under
normal market conditions the Fund invests in common stocks, fixed income
securities, securities convertible into common stocks (i.e., warrants,
convertible preferred stock, fixed rate preferred stock, convertible fixed
income securities, options and rights) and cash equivalent securities. The Fund
intends to invest 45% to 65% of its net assets in common stocks and securities
convertible into common stocks, 25% to 55% of its net assets in fixed income
securities and up to 30% of its net assets in cash and cash equivalents. Of
these investments, no more than 20% of the Fund's net assets will be invested in
foreign securities.
The Fund holds common stocks primarily for the purpose of
providing long-term growth of capital. When selecting stocks for the Fund, the
adviser will consider primarily their potential for long-term capital
appreciation. The Fund intends to invest predominantly in those companies which
are growth-oriented and have exhibited consistent, above-average growth in
revenues and earnings. The Fund will invest in the common and preferred stocks
of companies with a market capitalization of at least $100 million and which are
traded either in established over-the-counter markets or on national exchanges.
The Fund invests the fixed income portion of its portfolio of
investments in a broad range of investment grade debt securities which are rated
at the time of purchase within the four highest rating categories assigned by
Moody's, S&P, Fitch, Duff or IBCA (defined under "Ratings Criteria"). These
fixed income securities will consist of bonds, debentures, notes, zero coupon
securities, asset-backed securities, state, municipal and industrial revenue
bonds, obligations issued or guaranteed by the U.S. government or its agencies
or instrumentalities, certificates of deposit, time deposits, high quality
commercial paper, bankers' acceptances and variable amount master demand notes.
In addition, a portion of the Fund's assets may be invested from time to time in
first mortgage loans and
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<PAGE> 13
participation certificates in pools of mortgages issued or guaranteed by the
U.S. government or its agencies or instrumentalities. Some fixed income
securities may have warrants or options attached.
The Fund expects to invest in a variety of U.S. Treasury
obligations, differing in their interest rates, maturities and times of
issuance, as well as "stripped" U.S. Treasury obligations, such as Treasury
receipts issued by the U.S. Treasury representing either future interest or
principal payments, and other obligations issued or guaranteed by the U.S.
government or its agencies or instrumentalities.
The cash equivalent securities in which the Fund normally
invests are short-term obligations (with maturities of 18 months or less)
consisting of domestic and foreign commercial paper, variable amount master
demand notes, bankers' acceptances, certificates of deposit and time deposits of
domestic and foreign branches of U.S. banks and foreign banks and repurchase
agreements. The Fund may also invest in the securities of investment companies.
The amounts invested in equity, fixed income and cash
equivalent securities will vary from time to time, depending on the adviser's
assessment of business, economic and market conditions, including any potential
advantage of price shifts between the equity markets and the fixed income
markets. During temporary defensive periods, the Fund may hold up to 100% of its
assets in short-term obligations. However, to the extent that the Fund's assets
are so invested, its investment objective may not be achieved.
SPECIAL RISK FACTORS AND CONSIDERATIONS
Foreign Securities and Currencies
Investments in foreign securities involve certain inherent
risks, such as political or economic instability of the issuer or the country of
issue, the difficulty of predicting international trade patterns, changes in
exchange rates of foreign currencies and the possibility of adverse changes in
investment or exchange control regulations. There may be less publicly available
information about a foreign company than about a domestic company. Foreign
companies generally are not subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
companies. Further, foreign stock markets are generally not as developed or
efficient as those in the U.S., and in most foreign markets, volume and
liquidity are less than in the U.S. Fixed commissions on foreign stock exchanges
are generally higher than the negotiated commissions on U.S. exchanges, and
there is generally less
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<PAGE> 14
government supervision and regulation of foreign stock exchanges, brokers and
companies than in the U.S.
With respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, limitations on the
removal of funds or other assets, or diplomatic developments that could affect
investment within those countries. Because of these and other factors,
securities of foreign companies acquired by the Fund may be subject to greater
fluctuation in price than securities of domestic companies.
To the extent the Fund invests in securities denominated in or
quoted in currencies other than the U.S. dollar, changes in currency exchange
rates (as well as changes in market values) will affect the value in U.S.
dollars of securities held by the Fund. Foreign exchange rates are influenced by
trade and investment flows, policy decisions of governments, and investor
sentiment about these and other issues. In addition, costs are incurred in
connection with conversions between various currencies.
The expense ratio of a fund investing in foreign securities
can be expected to be higher than that of funds investing in domestic
securities. The costs of investing abroad are generally higher for several
reasons, including the cost of investment research, increased costs of custody
for foreign securities, higher commissions paid for comparable transactions
involving foreign securities, and costs arising from delays in settlements of
transactions involving foreign securities.
Interest and dividends payable on the Fund's foreign portfolio
securities may be subject to foreign withholding taxes. To the extent such taxes
are not offset by tax credits or deductions allowed to investors under U.S.
federal income tax provisions, they may reduce the return to the Fund's
shareholders.
Derivative Instruments
The Fund may purchase certain "derivative" instruments.
Derivative instruments are instruments that derive value from the performance of
underlying securities, interest or currency exchange rates, or indices, and
include (but are not limited to) futures contracts, options, forward currency
contracts and structured debt obligations (including collateralized mortgage
obligations ("CMOs"), various floating rate instruments and other types of
securities).
Like all investments, derivative instruments involve several
basic types of risks which must be managed in order to meet investment
objectives. The specific risks presented by derivatives include, to varying
degrees, market risk in the form
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<PAGE> 15
of underperformance of the underlying securities, exchange rates or indices;
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leveraging risk that, if interest or
exchange rates change adversely, the value of the derivative instrument will
decline more than the securities, rates or indices on which it is based;
liquidity risk that the Fund will be unable to sell a derivative instrument when
it wants because of lack of market depth or market disruption; pricing risk that
the value of a derivative instrument (such as an option) will not correlate
exactly to the value of the underlying securities, rates or indices on which it
is based; extension risk that the expected duration of an instrument may
increase or decrease; and operations risk that loss will occur as a result of
inadequate systems and controls, human error or otherwise. Some derivative
instruments are more complex than others, and for those instruments that have
been developed recently, data are lacking regarding their actual performance
over complete market cycles.
The risk to the Fund due to the use of derivatives in the
equity portion of the Fund's portfolio of investments will be limited to 10% of
such investments at the time of the derivative transaction.
With respect to the fixed income portion of the Fund's
investments, the Fund's adviser has determined that the risk features that most
distinguish derivatives from other investment instruments (and which heavily
influence the market, volatility and leveraging, liquidity, and pricing risks
referred to above) can be described generally as "structural risk." Structural
risk refers to the contractual features of an investment that can cause its
total return to vary with changes in interest rates or other variables.
Structural risk is not unique to derivatives, but because derivatives often are
created through the intricate division of the cash flows of the underlying
security, they can (but do not necessarily) present a high degree of structural
risk. Structural risk can arise from variations in coupon levels, principal,
and/or average life.
The adviser has adopted the following internal policies
concerning management of the structural risk inherent in derivative instruments
in the fixed income portion of the Fund's portfolio. The risk to the Fund due to
the use of such derivatives will be limited to the principal invested in such
instruments. When the Fund engages in short sales "against the box," risk of
loss will be limited to the value of the securities "in the box." The adviser
does not presently intend to invest in the following types of derivatives which
are structured instruments, such as range notes, dual index notes, leveraged or
deleveraged bonds, inverse floaters, index amortizing notes and other structured
instruments having similar cash flow characteristics.
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<PAGE> 16
The cash equivalent portion of the Fund's portfolio of
investments is managed with an emphasis on safety and high credit quality. This
requires that liquidity risk and market risk or interest rate risk, as well as
credit risk, be held to minimal levels. The adviser has determined that many
types of floating rate and variable rate instruments, commonly referred to as
"derivatives," are considered to be potentially volatile. These derivative
instruments are structured in a way that may not allow them to reset to par at
an interest rate adjustment date. Accordingly, the adviser has adopted the
following policies with respect to this portion of the Fund's assets.
The following types of derivative instruments ARE NOT
permitted investments for the cash equivalent portion of the Fund's portfolio of
investments:
- - A leveraged or deleveraged floaters (whose interest rate reset
provisions are based on a formula that magnifies the effect of changes
in interest rates);
- - range floaters (which do not pay interest if market interest
rates move outside of a specified range);
- - A dual index floaters (whose interest rate reset provisions are tied to
more than one index so that a change in the relationship between these
indices may result in the value of the instrument falling below face
value);
- - inverse floaters (which reset in the opposite direction of
their index); and
- - A any other structured instruments having cash flow characteristics
that can create potential market volatility similar to the instruments
listed above.
Additionally, the cash equivalent portion of the Fund's portfolio will not be
invested in instruments indexed to longer than one-year rates, or in instruments
whose interest rate reset provisions are tied to an index that materially lags
short-term interest rates, such as "COFI floaters."
At the present time, the only derivative investments that have
been determined to be suitable for the cash equivalent portion of the Fund's
portfolio are:
- - securities based on short-term, fixed-rate contracts; and
- - A floating-rate or variable-rate securities whose interest rates reset
based on changes in standard money market rate indices such as U.S.
government Treasury bills, London Interbank Offered Rate, published
commercial paper rates, or federal funds rates.
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<PAGE> 17
The risk to the Fund due to the use of derivatives in the cash
equivalent portion of its assets will be limited to the principal invested in
such instruments.
The adviser will evaluate the risks presented by the
derivative instruments purchased by the Fund, and will determine, in connection
with day-to-day management of the Fund, how they will be used in furtherance of
the Fund's investment objective.
OTHER INVESTMENT POLICIES OF THE FUND
Futures Contracts and Related Options
The Fund may invest in stock index, interest rate, bond index
and foreign currency futures contracts and options on these futures contracts.
The Fund may do so either to hedge the value of its portfolio securities as a
whole, or to protect against declines occurring prior to sales of securities in
the value of the securities to be sold. In addition, the Fund may utilize
futures contracts in anticipation of changes in the composition of its holdings
for hedging purposes or to maintain liquidity.
Futures contracts obligate the Fund, at maturity, to take or
make delivery of certain securities or the cash value of an index or the cash
value of a stated amount of a foreign currency.
The Fund may purchase and sell call and put options on futures
contracts traded on an exchange or board of trade. When the Fund purchases an
option on a futures contract, it has the right to assume a position as a
purchaser or seller of a futures contract at a specified exercise price at any
time during the option period. When the Fund sells an option on a futures
contract, it becomes obligated to purchase or sell a futures contract if the
option is exercised. In anticipation of a market advance, the Fund may purchase
call options on futures contracts as a substitute for the purchase of futures
contracts to hedge against a possible increase in the price of securities which
the Fund intends to purchase. Similarly, if the value of the Fund's securities
is expected to decline, it might purchase put options or sell call options on
futures contracts rather than sell futures contracts.
The Fund intends to comply with the regulations of the
Commodity Futures Trading Commission ("CFTC") exempting it from registration as
a "commodity pool operator." The Fund's commodities transactions must constitute
bona fide hedging or other permissible transactions pursuant to such
regulations. In addition, the Fund may not engage in such transactions if the
sum of the amount of initial margin deposits and premiums paid for unexpired
commodity options, other than for bona fide hedging transactions, would exceed
5% of the liquidation value of its assets, after taking into account unrealized
profits and unrealized losses on such contracts it has entered into;
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<PAGE> 18
provided, however, that in the case of an option that is in-the-money at the
time of purchase, the in-the-money amount may be excluded in calculating the
percentage limitation. In connection with the Fund's position in a futures
contract or option thereon, it will create a segregated account of liquid
assets, such as cash, U.S. government securities or other liquid high grade debt
obligations, or will otherwise cover its position in accordance with applicable
requirements of the SEC.
The primary risks associated with the use of futures contracts
and options are:
(i) an imperfect correlation between the change in market
value of the securities held by the Fund and the price of the futures contracts
and options;
(ii) possible lack of a liquid secondary market for a futures
contract and the resulting inability to close a futures contract when desired;
(iii) losses greater than the amount of the principal invested
as initial margin due to unanticipated market movements which are potentially
unlimited; and
(iv) the adviser's ability to predict correctly the direction
of securities prices, interest rates and other economic factors.
Options
The Fund may write covered call options, buy put options, buy
call options and sell or "write" secured put options on a national securities
exchange and issued by the Options Clearing Corporation for hedging purposes.
Such transactions may be effected on a principal basis with primary reporting
dealers in U.S. government securities in an amount not exceeding 5% of the
Fund's net assets. Such options may relate to particular securities, stock or
bond indices, financial instruments or foreign currencies. Purchasing options is
a specialized investment technique which entails a substantial risk of a
complete loss of the amounts paid as premiums to the writer of the option.
A call option for a particular security gives the purchaser of
the option the right to buy, and a writer the obligation to sell, the underlying
security at the stated exercise price at any time prior to the expiration of the
option, regardless of the market price of the security. The premium paid to the
writer is the consideration for undertaking the obligations under the option
contract. A put option for a particular security gives the purchaser the right
to sell the underlying security at the stated exercise price at any time
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<PAGE> 19
prior to the expiration date of the option, regardless of the market price of
the security. In contrast to an option on a particular security, an option on a
securities index provides the holder with the right to make or receive a cash
settlement upon exercise of the option.
The Fund may purchase and sell put options on portfolio
securities at or about the same time that it purchases the underlying security
or at a later time. By buying a put, the Fund limits its risk of loss from a
decline in the market value of the security until the put expires. Any
appreciation in the value of and yield otherwise available from the underlying
security, however, will be partially offset by the amount of the premium paid
for the put option and any related transaction costs. Call options may be
purchased by the Fund in order to acquire the underlying security at a later
date at a price that avoids any additional cost that would result from an
increase in the market value of the security. The Fund may also purchase call
options to increase its return to investors at a time when the call is expected
to increase in value due to anticipated appreciation of the underlying security.
Prior to its expiration, a purchased put or call option may be sold in a closing
sale transaction (a sale by the Fund, prior to the exercise of an option that it
has purchased, of an option of the same series), and profit or loss from the
sale will depend on whether the amount received is more or less than the premium
paid for the option plus the related transaction costs.
In addition, the Fund may write covered call and secured put
options. A covered call option means that the Fund owns or has the right to
acquire the underlying security subject to call at all times during the option
period. A secured put option means that the Fund maintains in a segregated
account with its custodian cash or U.S. government securities in an amount not
less than the exercise price of the option at all times during the option
period. Such options will be listed on a national securities exchange and issued
by the Options Clearing Corporation and may be effected on a principal basis
with primary reporting dealers in the U.S.
The aggregate value of the securities subject to options
written by the Fund will not exceed 25% of the value of its net assets. In order
to close out an option position prior to maturity, the Fund may enter into a
"closing purchase transaction" by purchasing a call or put option (depending
upon the position being closed out) on the same security with the same exercise
price and expiration date as the option which it previously wrote.
Options trading is a highly specialized activity and carries
greater than ordinary investment risk. Purchasing options may result in the
complete loss of the amounts paid as
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<PAGE> 20
premiums to the writer of the option. In writing a covered call option, the Fund
gives up the opportunity to profit from an increase in the market price of the
underlying security above the exercise price (except to the extent the premium
represents such a profit). Moreover, it will not be able to sell the underlying
security until the covered call option expires or is exercised or the Fund
closes out the option. In writing a secured put option, the Fund assumes the
risk that the market value of the security will decline below the exercise price
of the option. The use of covered call and secured put options will not be a
primary investment technique of the Fund.
Foreign Securities and Currencies
The Fund may invest up to 20% of its net assets at the
time of purchase in securities issued by foreign entities and
ADRs, EDRs and GDRs (defined below). The Fund also may invest in
securities of domestic issuers denominated in foreign currencies
and foreign currencies. See "Special Risk Factors - Foreign
Securities and Currencies" above.
American, Standard & Poor's, European and Global Depository
Receipts
The Fund may invest in both sponsored and unsponsored American
Depository Receipts ("ADRs"), Standard & Poor's Depository Receipts ("SPDRs"),
European Depository Receipts ("EDRs"), Global Depository Receipts ("GDRs") and
other similar global instruments. ADRs are receipts issued in registered form by
a U.S. bank or trust company evidencing ownership of underlying securities
issued by a foreign issuer. ADRs may be listed on a national securities exchange
or may be traded in the over-the-counter markets. ADR prices are denominated in
U.S. dollars although the underlying securities may be denominated in a foreign
currency. SPDRs are receipts designed to replicate the performance of the S&P
500. EDRs, which are sometimes referred to as Continental Depository Receipts,
are receipts issued in Europe typically by non-U.S. banks or trust companies and
foreign branches of U.S. banks that evidence ownership of foreign or U.S.
securities. EDRs are designed for use in European exchange and over-the-counter
markets. GDRs are receipts structured similarly to EDRs and are marketed
globally. GDRs are designed for trading in non-U.S. securities markets.
Investments in ADRs, EDRs and GDRs involve risks similar to those accompanying
direct investments in foreign securities, but those that are traded in the
over-the-counter market which do not have an active or substantial secondary
market will be considered illiquid and, therefore, will be subject to the Fund's
limitation with respect to illiquid securities.
The principal difference between sponsored and unsponsored
ADR, EDR and GDR programs is that unsponsored ones
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<PAGE> 21
are organized independently and without the cooperation of the issuer of the
underlying securities. Consequently, available information concerning the issuer
may not be as current as for sponsored ADRs, EDRs and GDRs, and the prices of
unsponsored ADRs, EDRs and GDRs may be more volatile.
Forward Currency Exchange Contracts
The Fund may enter into forward currency exchange contracts in
an effort to reduce the level of volatility caused by changes in foreign
currency exchange rates or where such transactions are deemed economically
appropriate for the reduction of risks inherent in the ongoing management of the
Fund. The Fund may not enter into such contracts for speculative purposes. A
forward currency exchange contract is an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of contract. Although such contracts tend to minimize the risk of loss due to a
decline in the value of the hedged currency, at the same time they tend to limit
any potential gain that might be realized should the value of such currency
increase. Consequently, the Fund may choose to refrain from entering into such
contracts. In connection with forward currency exchange contracts, the Fund will
create a segregated account of liquid assets or otherwise cover its position in
accordance with applicable SEC requirements.
Exchange Rate-Related Securities
The Fund may invest in debt securities for which the principal
due at maturity, while paid in U.S. dollars, is determined by reference to the
exchange rate between the U.S. dollar and the currency of one or more foreign
countries ("Exchange Rate-Related Securities"). The interest payable on these
securities is also denominated in U.S. dollars and is not subject to foreign
currency risk and, in most cases, is paid at rates higher than most other
similarly rated securities in recognition of the risks associated with these
securities. There is the possibility of significant changes in rates of exchange
between the U.S. dollar and any foreign currency to which an Exchange
Rate-Related Security is linked. In addition, there is no assurance that
sufficient trading interest to create a liquid secondary market will exist for a
particular Exchange Rate- Related Security due to conditions in the debt and
foreign currency markets. Illiquidity in the forward foreign exchange market and
the high volatility of the foreign exchange market may, from time to time,
combine to make it difficult to sell an Exchange Rate-Related Security prior to
maturity without incurring a significant price loss.
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<PAGE> 22
Other Investments with Equity Characteristics
The Fund may hold other instruments with equity
characteristics, such as preferred stocks, securities convertible into common
stock, rights, and warrants.
Debt Securities
The Fund may invest in debt securities which may include:
equipment lease and trust certificates; corporate issues; collateralized
mortgage obligations; state, municipal and private activity bonds; obligations
issued or guaranteed by the U.S. government, its agencies or instrumentalities;
securities of supranational organizations such as the World Bank; participation
certificates in pools of mortgages, including mortgages issued or guaranteed by
the U.S. government, its agencies or instrumentalities; asset-backed securities
such as mortgage backed securities, Certificates of Automobile Receivables
("CARS") and Certificates of Amortizing Revolving Debts ("CARDS"); private
placements; and income participation loans. Some of the securities in which the
Fund invests may have warrants or options attached.
Fund appreciation may result from an improvement in the credit
standing of an issuer whose securities are held or a general decline in the
level of interest rates or a combination of both. An increase in the level of
interest rates generally reduces the value of the fixed rate debt instruments
held by the Fund; conversely, a decline in the level of interest rates generally
increases the value of such investments. An increase in the level of interest
rates may temporarily reduce the value of the floating rate debt instruments
held by the Fund; conversely, a decline in the level of interest rates may
temporarily increase the value of those investments.
Ratings Criteria
The Fund invests only in investment grade debt securities
which are rated at the time of purchase within the four highest ratings groups
assigned by Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa, A and Baa),
Standard & Poor's Ratings Group ("S&P) (AAA, AA, A and BBB), Fitch Investors
Service, Inc. ("Fitch") (AAA, AA, A and BBB), Duff & Phelps Credit Rating Co.
("Duff") (AAA, AA, A and BBB) or IBCA (AAA, AA, A and BBB), or, if unrated,
which are determined by the Fund's adviser to be of comparable quality pursuant
to guidelines approved by the Trust's Board of Trustees. Debt securities rated
in the lowest investment grade debt category (Baa by Moody's or BBB by S&P,
Fitch, Duff or IBCA) may have speculative characteristics; changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to
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<PAGE> 23
make principal and interest payments than is the case with higher grade
securities.
In the event that subsequent to its purchase by the Fund, a
rated security ceases to be rated or its rating is reduced below investment
grade, the adviser will consider whether the Fund should continue to hold the
security. The adviser expects, however, to sell promptly any securities that are
non-investment grade as a result of such events that exceed 5% of the Fund's net
assets where the adviser has determined that such sale is in the best interest
of the Fund.
Rating symbols are more fully described in Appendix A to the
Statement of Additional Information.
Mortgage-Backed Securities
The Fund may purchase securities that are secured or backed by
mortgages and are issued by entities such as Government National Mortgage
Association ("GNMA"), Federal National Mortgage Association ("FNMA"), Federal
Home Loan Mortgage Corporation ("FHLMC"), or private mortgage conduits.
Mortgage-backed securities represent an ownership interest in
a pool of mortgages, the interest and principal payments on which may be
guaranteed by an agency or instrumentality of the U.S. government, although not
necessarily by the U.S. government itself. Mortgage-backed securities include
CMOs and mortgage pass-through certificates.
Mortgage pass-through certificates, which represent interests
in pools of mortgage loans, provide the holder with a pro rata interest in the
underlying mortgages. One type of such certificate in which the Fund may invest
is a GNMA Certificate which is backed as to the timely payment of principal and
interest by the full faith and credit of the U.S. government. Another type is a
FNMA Certificate, the principal and interest of which are guaranteed only by
FNMA itself, not by the full faith and credit of the U.S. government. Another
type is a FHLMC Participation Certificate which is guaranteed by FHLMC as to
timely payment of principal and interest. However, like a FNMA security it is
not guaranteed by the full faith and credit of the U.S. government. Privately
issued mortgage backed securities will carry an investment grade rating at the
time of purchase by S&P or by Moody's or, if unrated, will be in the adviser's
opinion equivalent in credit quality to such rating. Mortgage- backed securities
issued by private issuers, whether or not such obligations are subject to
guarantees by the private issuer, may entail greater risk than obligations
directly or indirectly guaranteed by the U.S. government.
The yield and average life characteristics of mortgage-
backed securities differ from traditional debt securities. A
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<PAGE> 24
major difference is that the principal amount of the obligations may be prepaid
at any time because the underlying assets (i.e., loans) generally may be prepaid
at any time. As a result, if a mortgage-backed security is purchased at a
premium, a prepayment rate that is faster than expected will reduce the expected
yield to maturity and average life, while a prepayment rate that is slower than
expected will have the opposite effect of increasing yield to maturity and
average life. Conversely, if a mortgage-backed security is purchased at a
discount, faster than expected prepayments will increase, while slower than
expected prepayments will decrease, the expected yield to maturity and average
life. There can be no assurance that the Trust's estimation of the duration of
mortgage-backed securities it holds will be accurate or that the duration of
such instruments will always remain within the maximum target duration. In
calculating the average weighted maturity of the Funds, the maturity of
mortgage-backed securities will be based on estimates of average life.
Prepayments on mortgage-backed securities generally increase
with falling interest rates and decrease with rising interest rates;
furthermore, prepayment rates are influenced by a variety of economic and social
factors. Like other fixed income securities, when interest rates rise, the value
of mortgage-backed securities generally will decline; however, when interest
rates decline, the value of mortgage-backed securities may not increase as much
as that of other similar duration fixed income securities, and, as noted above,
changes in market rates of interest may accelerate or retard prepayments and
thus affect maturities.
These characteristics may result in a higher level of price
volatility for these assets under certain market conditions. In addition, while
the market for Mortgage-backed securities is ordinarily quite liquid, in times
of financial stress the market for these securities can become restricted.
Asset-Backed Securities
The Fund may also invest in asset-backed securities including
interests in pools of receivables, such as motor vehicle installment purchase
obligations and credit card receivables. In general, the collateral supporting
non-mortgage, asset-backed securities is of shorter maturity than mortgage loans
and is less likely to experience substantial prepayments. Such securities may
also be debt instruments, which are also known as collateralized obligations and
are generally issued as the debt of a special purpose entity organized solely
for the purpose of owning such assets and issuing such debt. Asset- backed
securities are not issued or guaranteed by the U.S.
government or its agencies or instrumentalities.
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<PAGE> 25
Asset-backed securities involve certain risks that are not
presented by mortgage-backed securities. Primarily, these securities may not
have the benefit of the same security interest in the underlying collateral.
Credit card receivables are generally unsecured and the debtors are entitled to
the protection of a number of state and federal consumer credit laws. Most
issuers of motor vehicle receivables permit the servicers to retain possession
of the underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related motor vehicle receivables. In
addition, because of the large number of vehicles involved in a typical issuance
and technical requirements under state laws, the trustee for the holders of the
motor vehicle receivables may not have an effective security interest in all of
the obligations backing such receivables. Therefore, there is a possibility that
recoveries on repossessed collateral may not, in some cases, be able to support
payments on these securities.
Corporate Debt Obligations
Each Fund may invest in corporate debt obligations. In
addition to obligations of corporations, corporate debt obligations include
securities issued by banks and other financial institutions. Corporate debt
obligations are subject to the risk of an issuer's inability to meet principal
and interest payments on the obligations.
Interest Rate and Total Return Swaps
In order to protect its value from interest rate fluctuations,
the Fund may enter into interest rate and total return swaps. The Fund expects
to enter into these hedging transactions primarily to preserve a return or
spread of a particular investment or portion of its holdings and to protect
against an increase in the price of securities the Fund anticipates purchasing
at a later date. Swaps involve the exchange by the Fund with another party of
their respective commitments to pay or receive interest (i.e., an exchange of
floating rate payments for fixed rate payments). The net amount of the excess,
if any, of the Fund's obligations over its entitlements with respect to each
swap will be accrued on a daily basis and an amount of liquid assets, such as
cash, U.S. government securities or other liquid high grade debt securities,
having an aggregate net asset value at least equal to such accrued excess will
be maintained in a segregated account by the Fund's custodian. The Fund will not
enter into any swap unless the unsecured commercial paper, senior debt, or
claims paying ability of the other party is rated either "A" or "A-1" or better
by S&P, Duff or Fitch, or "A" or "P-1" or better by Moody's or the claims paying
ability of the other party is deemed
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<PAGE> 26
creditworthy and any such obligation the Fund may have under such an arrangement
will be covered by setting aside liquid high grade securities in a segregated
account.
U.S. Government Obligations
The Fund may purchase obligations issued or guaranteed
by the U.S. government, its agencies and instrumentalities. Obligations of
certain agencies and instrumentalities of the U.S. government, such as the GNMA,
are supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Export- Import Bank of the United States, are supported by the
right of the issuer to borrow from the Treasury; others, such as those of the
FNMA, are supported by the discretionary authority of the U.S. government to
purchase the agency's obligations; still others, such as those of the Student
Loan Marketing Association, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Some of these investments may be variable or
floating rate instruments. See "Variable and Floating Rate Obligations."
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<PAGE> 27
U.S. Treasury Obligations and Receipts
The Fund may invest in U.S. Treasury obligations consisting of
bills, notes and bonds issued by the U.S. Treasury, and separately traded
interest and principal component parts of such obligations that are transferable
through the Federal book-entry system known as STRIPS (Separately Traded
Registered Interest and Principal Securities).
The Fund may invest in separately traded interest and
principal component parts of the U.S. Treasury obligations that are issued by
banks or brokerage firms and are created by depositing U.S. Treasury obligations
into a special account at a custodian bank. The custodian holds the interest and
principal payments for the benefit of the registered owners of the certificates
of receipts. The custodian arranges for the issuance of the certificates or
receipts evidencing ownership and maintains the register. Receipts include
"Treasury Receipts" ("TR's"), "Treasury Investment Growth Receipts" ("TIGR's"),
"Liquid Yield Option Notes" ("LYON's"), and "Certificates of Accrual on Treasury
Securities" ("CATS"). TIGR's, LYON's and CATS are interests in private
proprietary accounts while TR's are interests in accounts sponsored by the U.S.
Treasury.
Securities denominated as TR's, TIGR's, LYON's and CATS are
sold as zero coupon securities which means that they are sold at a substantial
discount and redeemed at face value at their maturity date without interim cash
payments of interest or principal. This discount is accreted over the life of
the security, and such accretion will constitute the income earned on the
security for both accounting and tax purposes. Because of these features, such
securities may be subject to greater interest rate volatility than interest
paying investments.
Dollar Rolls
The Fund may invest in reverse repurchase agreements in the
form of Dollar Rolls. Dollar Rolls are transactions in which securities are sold
by the Fund for delivery in the current month and the Fund simultaneously
contracts to repurchase substantially similar securities on a specified future
date. Any difference between the sale price and the purchase price is netted
against the interest income foregone on the securities sold to arrive at an
implied borrowing rate. Alternatively, the sale and purchase transactions can be
executed at the same price, with the Fund being paid a fee as consideration for
entering into the commitment to purchase. Dollar Rolls may be renewed prior to
cash settlement and initially may involve only a firm commitment agreement by
the Fund to buy a security. If the broker-dealer to which the Fund sells the
security becomes insolvent, the Fund's right to repurchase the security may be
restricted. Other risks involved in entering into Dollar Rolls include the risk
that the
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<PAGE> 28
value of the security may change adversely over the term of the Dollar Roll and
that the security the Fund is required to repurchase may be worth less than the
security that the Fund originally held.
Short Sales
The Fund may engage in short sales of its securities. Selling
securities short involves selling securities the seller does not own (but has
borrowed) in anticipation of a decline in the market price of such securities.
To deliver the securities to the buyer, the seller must arrange through a broker
to borrow the securities and, in so doing, the seller becomes obligated to
replace the securities borrowed at their market price at the time of
replacement. In a short sale, the proceeds the seller receives from the sale are
retained by a broker until the seller replaces the borrowed securities. The
seller may have to pay a premium to borrow the securities and must pay any
dividends or interest payable on the securities until they are replaced.
The Fund may only sell securities short "against the box." A
short sale is "against the box" if, at all times during which the short position
is open, the Fund owns at least an equal amount of the securities or securities
convertible into, or exchangeable without further consideration for, securities
of the same issuer as the securities that are sold short.
Variable and Floating Rate Obligations
The Fund may purchase variable and floating rate instruments
(including variable amount master demand notes and adjustable rate mortgages)
which are unsecured instruments that permit the indebtedness thereunder to vary
in addition to providing for periodic adjustments in the interest rate. The
absence of an active secondary market with respect to particular variable and
floating rate instruments could make it difficult for the Fund to dispose of
instruments if the issuer defaulted on its payment obligation or during periods
that the Fund is not entitled to exercise its demand rights, and the Fund could,
for these or other reasons, suffer a loss with respect to such instruments.
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. The Fund
expects that commitments to purchase when-issued securities will not exceed 25%
of the value of its total assets under normal market conditions. The Fund does
not intend to purchase when-issued securities for speculative purposes but only
for the purpose of acquiring
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<PAGE> 29
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
it to miss a price or yield considered to be attractive.
Lending Portfolio Securities
In order to generate additional income, the Fund may, from
time to time, lend its portfolio securities to broker-dealers, banks or other
institutional borrowers. The Fund must receive at least 100% collateral in the
form of cash or U.S. government securities. This collateral must be valued daily
by the Fund's adviser and the borrower will be required to provide additional
collateral should the market value of the loaned securities increase. During the
time portfolio securities are on loan, the borrower pays the Fund any dividends
or interest paid on such securities. Loans are subject to termination by the
Fund or the borrower at any time. While the Fund does not have the right to vote
securities on loan, it intends to terminate the loan and regain the right to
vote if this is considered important with respect to the investment. The Fund
will only enter into loan arrangements with broker-dealers, banks or other
institutions which the adviser has determined are creditworthy under guidelines
established by the Trust's Board of Trustees.
Illiquid Securities
The Fund will not invest more than 15% of its net assets in
securities that are illiquid. Illiquid securities would generally include
repurchase agreements and other instruments with notice/termination dates in
excess of seven days, interest rate swaps 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 adviser, acting under guidelines approved and monitored by the Board,
that an adequate trading market exists for that security. This investment
practice could have the effect of increasing the level of illiquidity in the
Fund during any period that qualified institutional buyers become uninterested
in purchasing these restricted securities. 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.
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<PAGE> 30
Short-Term Obligations
The Fund may hold temporary cash balances which may be
invested in various short-term obligations (with maturities of 18 months or
less) such as domestic and foreign commercial paper, bankers' acceptances,
certificates of deposit and demand and time deposits of domestic and foreign
branches of U.S. banks and foreign banks, U.S. government securities, repurchase
agreements, reverse repurchase agreements and guaranteed investment contracts
("GICs").
Bank 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 of
domestic and foreign branches of U.S. banks and 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.
Commercial Paper
Investments in commercial paper and other short-term
promissory notes issued by corporations (including variable and floating rate
instruments) must be rated at the time of purchase "A-2" or better by S&P,
"Prime-2" or better by Moody's, "F-2" or better by Fitch, "Duff 2" or better by
Duff, or "A2" or better by IBCA or, if not rated, determined by the adviser to
be of comparable quality pursuant to guidelines approved by the Trust's Board of
Trustees. Investments may also include corporate notes. In addition, the Fund
may invest in Canadian Commercial Paper ("CCP"), which is U.S. dollar
denominated commercial paper issued by a Canadian corporation or a Canadian
counterpart of a U.S. corporation, and in Europaper, which is U.S. dollar
denominated commercial paper of a foreign issuer.
Repurchase Agreements
Securities held by the Fund may be subject to repurchase
agreements. Under the terms of a repurchase agreement, the Fund purchases
securities from financial institutions such as banks and broker-dealers which
the Fund's adviser deems creditworthy under guidelines approved by the Board of
Trustees, subject to the seller's agreement to repurchase such securities at a
mutually agreed-upon date and price. The repurchase price generally equals the
price paid by the Fund plus interest negotiated on the basis of current short
term rates, which may be more or less than the rate on the underlying
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<PAGE> 31
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 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 agreements, 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 the 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 the 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 the Fund under the 1940 Act.
Reverse Repurchase Agreements
The Fund may borrow funds for temporary purposes by entering
into reverse repurchase agreements in accordance with its investment
restrictions. Pursuant to such agreements, the Fund would sell its portfolio
securities to financial institutions such as banks and broker-dealers, and agree
to repurchase them at a mutually agreed-upon date and price. The Fund intends to
enter into reverse repurchase agreements only to avoid otherwise selling
securities during unfavorable market conditions to meet redemptions. At the time
the Fund enters into a reverse repurchase agreement, it will place in a
segregated custodial account assets such as U.S. government securities or other
liquid, high grade debt securities consistent with the Fund's investment
restrictions having a value equal to the repurchase price (including accrued
interest), and will subsequently monitor the account to ensure that such
equivalent value is maintained. Reverse repurchase agreements involve the risk
that the market value of the securities sold by the Fund may decline below the
price at which it is obligated to repurchase the securities. Reverse repurchase
agreements are considered to be borrowings by the Fund under the 1940 Act.
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
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<PAGE> 32
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. 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.
Portfolio Turnover
The Fund may engage in short-term trading and may sell
securities which have been held for periods ranging from several months to less
than a day. The object of such short-term trading is to increase the potential
for capital appreciation and/or income by making portfolio changes in
anticipation of expected movements in interest rates or security prices or in
order to take advantage of what the Fund's adviser believes is a temporary
disparity in the normal yield relationship between two securities. Any such
trading would increase the Fund's turnover rate and its transaction costs.
Higher portfolio turnover may result in increased taxable gains to shareholders
(see "Taxes" below) and increased expenses paid by the Fund due to transaction
costs. The Fund's annual portfolio turnover is not expected to exceed 200% under
normal market conditions.
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 its
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 Objective
and Policies.")
The Fund may not:
1. Purchase any securities which would cause 25% or more of
the value of its total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry, provided that:
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<PAGE> 33
(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;
(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 or securities issued or guaranteed by any foreign government,
if, immediately after such purchase, more than 5% of the value of the Fund's
total assets would be invested in such issuer or the Fund would hold more than
10% of any class of securities of the issuer or more than 10% of the outstanding
voting securities of the issuer, except that up to 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
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<PAGE> 34
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 of the Fund
over a 30-day period identified in the advertisement. This income is then
"annualized." The amount of income so generated by the investment during the
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 calculates the 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.
Both methods of calculating total return reflect changes in
the price of the shares and assume that any dividends and capital gain
distributions made by the Fund with respect to a class during the period are
reinvested in shares of that class. When considering average total return
figures for periods longer than one year, it is important to note that the
annual total return of a class for any one year in the period might have been
greater or less than the average for the entire period. The Fund may also
advertise, from time to time, the total returns of one or more classes of shares
on a year-by-year or other basis for various specified periods by means of
quotations, charts, graphs or schedules.
Investors may compare the performance of each class of shares
of the Fund to the performance of other mutual funds with comparable investment
objectives, to various mutual fund or market indices, such as the S&P 500, and
to data or rankings prepared by independent services such as Lipper Analytical
Services, Inc. or other financial or industry publications that monitor the
performance of mutual funds. Comparisons may also be made to indices or data
published in Money Magazine, Forbes, Barron's, The Wall Street Journal, The New
York Times, Business Week, U.S.A. Today, CDA/Weisenberger, The American Banker,
Morningstar, Incorporated and other publications of a local, regional or
financial industry nature.
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<PAGE> 35
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 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 net asset value of a class should
be considered in ascertaining the total return to shareholders for a given
period. Total return data should also be considered in light of the risks
associated with the Fund's composition, quality, maturity, operating expenses
and market conditions. Any fees charged by financial institutions (as described
in "How to Purchase and Redeem Shares") are not included in the computation of
performance data but will reduce a shareholder's net return on an investment in
the Fund.
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
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 these materials from the Trust free of charge by calling
1-800-622-FUND(3863).
PRICING OF SHARES
For processing purchase and redemption orders, the net asset
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.
Investments of the Fund in securities traded on an exchange
are valued at the last quoted sale price for a given day, or if a sale is not
reported for that day, at the mean
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<PAGE> 36
between the most recent quoted bid and asked prices. Other securities and
temporary cash investments acquired more than 60 days from maturity are valued
at the mean between the most recent 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. Securities and
other assets for which no quotations are readily available are valued at their
fair value under procedures approved by the Board of Trustees. Absent unusual
circumstances, short-term investments having maturities of 60 days or less are
valued on the basis of amortized cost unless the Trust's Board of Trustees
determines that this does not represent fair value. The net asset value per
share of each class of shares of the Fund will fluctuate as the value of its
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
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<PAGE> 37
compensation to the extent such may be prohibited by the laws of any state or
any self-regulatory agency, such as the National Association of Securities
Dealers, Inc.
PURCHASE OF 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).
Shares may be purchased in conjunction with an individual
retirement account ("IRA") and rollover IRAs where a designated custodian acts
as custodian. Investors should contact NatCity Investments, Inc., the
Distributor or their financial institutions for information as to applications
and annual fees. Investors should also consult their tax advisers to determine
whether the benefits of an IRA are available or appropriate.
The minimum investment is $500 for the initial purchase of
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
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<PAGE> 38
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 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:
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<PAGE> 39
<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% of the amount invested to the financial
institution placing the purchase order. A 1% sales charge will be assessed
against a shareholder's fund account if its value falls below $1,000,000 due to
a redemption by the shareholder within the first year following the initial
investment of $1,000,000 or more.
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
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<PAGE> 40
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.
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 4.00% of
the Public Offering Price.
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<PAGE> 41
Letter of Intent
An Investor may qualify for a reduced sales charge immediately
upon signing a nonbinding Letter of Intent stating the Investor's intention to
invest during the next 13 months a specified amount which, if made at one time,
would qualify for a reduced sales charge. The Letter of Intent option is
included on the account application which may be obtained from the Investor's
financial institution or directly from the Trust by calling
1-800-622-FUND(3863). If an Investor so elects, the 13 month period may begin up
to 30 days prior to the Investor's signing the Letter of Intent. The initial
investment under the Letter of Intent must be equal to at least 4.0% of the
amount indicated in the Letter of Intent. During the term of a Letter of Intent,
the Transfer Agent will hold Retail shares representing 4.0% of the amount
indicated in the Letter of Intent in escrow for payment of a higher sales charge
if the entire amount is not purchased.
Upon completing the purchase of the entire amount indicated in
the Letter of Intent, the escrowed shares will be released. If the entire amount
is not purchased within the 13 month period or is redeemed within one year from
the time of fulfillment, the Investor will be required to pay an amount equal to
the difference in the dollar amount of sales charge actually paid and the amount
of sales charge the Investor would have had to pay on the aggregate purchases if
the total of such purchases had been made at a single time.
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 five 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.
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<PAGE> 42
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................................................. 5.0%
More than two, but less
than three............................................... 4.0%
More than three, but less
than four................................................ 3.0%
More than four, but less
than five................................................ 2.0%
After five years........................................... None
*
After eight years..........................................
*Conversion to Retail shares.
</TABLE>
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
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<PAGE> 43
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
(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
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<PAGE> 44
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 five 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 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
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<PAGE> 45
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
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 five-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 five-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
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<PAGE> 46
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.
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.
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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.
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.
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During periods of unusual economic or market changes,
telephone redemptions may be difficult to implement. In such event, shareholders
should mail their redemption requests to their financial institutions or Armada
Funds at the address shown above. Neither the Trust nor its Transfer Agent will
be responsible for the authenticity of instructions received by telephone that
are reasonably believed to be genuine. In attempting to confirm that telephone
instructions are genuine, the Trust and its Transfer Agent will use such
procedures as are considered reasonable, including recording those instructions
and requesting information as to account registration (such as the name in which
an account is registered, the account number and recent transactions in the
account). To the extent that the Trust and its Transfer Agent fail to use
reasonable procedures to verify the genuineness of telephone instructions, they
may be liable for such instructions that prove to be fraudulent and
unauthorized. In all other cases, shareholders will bear the risk of loss for
fraudulent telephone transactions. The Trust reserves the right to refuse a
telephone redemption if it believes it is advisable to do so. Procedures for
redeeming Retail shares 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.
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If any portion of the shares to be redeemed represents an
investment made by personal check, the Trust reserves the right to delay payment
of the redemption proceeds until the Transfer Agent is reasonably satisfied that
the check has been collected, which could take up to 15 calendar days from the
date of purchase. A shareholder who anticipates the need for more immediate
access to his investment should purchase shares by Federal funds, bank wire,
certified or cashier's check. Financial institutions normally impose a charge in
connection with the use of bank wires, as well as certified checks, cashier's
checks and Federal funds.
Payment to Shareholders for shares redeemed will be made
within seven days after receipt of the request for redemption.
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,
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Inc., an Investor's financial institution or by calling 1-800- 622-FUND(3863).
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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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- transfer agent services, with respect to
Retail or B shares beneficially owned by customers. Since financial institutions
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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 and paid quarterly. 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 ex-dividend date.
Shareholders must make such election, or any revocation thereof, in writing to
their Banks or financial institutions. The election will become effective with
respect to dividends and distributions paid after its receipt.
TAXES
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 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
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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 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
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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 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
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sales of the Fund's securities, and maintain the Fund's records relating to such
purchases and sales.
National City manages the Fund, makes decisions with respect
to and places orders for all purchases and sales of the Fund's securities and
maintains the Fund's records, elating to such purchases and sales. The Asset
Management Group of National City makes the investment decisions for the Fund.
No individual is primarily responsible for making recommendations regarding the
Fund to the Asset Management Group.
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 .75% 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.
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 64 separate
classes or series of shares of beneficial interest ("shares"). Three of these
classes or series, which represent interests in the Balanced Allocation Fund
(Class AA, Class AA - Special Series 1 and Class AA - Special Series 2).
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<PAGE> 56
Class AA shares constitute the Institutional class or series of shares; Class AA
- - Special Series 1 shares constitute the Retail class or series of shares; and
Class AA - 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
(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)
National Tax Exempt Fund
(Class L, Class L - Special Series 1 and Class L
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)
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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)
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
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required by law or when the Board of Trustees determines that the matter to be
voted on affects only the interests of shareholders of a particular investment
fund. The Statement of Additional Information gives examples of situations in
which the law requires voting by investment fund. In addition, shareholders of
each of the investment Funds will vote in the aggregate and not by class or
series, except as otherwise expressly required by law or when the Board of
Trustees determines the matter to be voted on affects only the interests of the
holders of a particular class or series of shares. Under the Institutional and
Retail Plan and B Shares Plan, only the holders of Retail/Institutional 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 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.
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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.
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
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capital markets; investment strategies and techniques; investment products and
tax, retirement and investment planning.
Inquiries regarding the Trust or any of its investment funds
may be directed to 1-800-622-FUND(3863).
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<TABLE>
<CAPTION>
Armada Funds
BOARD OF TRUSTEES
<S> <C>
ROBERT D. NEARY ROBERT J. FARLING
Chairman Retired Chairman, President and Chief
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.
</TABLE>
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<PAGE> 62
ARMADA FUNDS
INVESTMENT ADVISER
AFFILIATE OF NATIONAL
CITY CORPORATION
National City Bank
1900 East Ninth Street
Cleveland, Ohio 44114
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<PAGE> 63
CROSS REFERENCE SHEET
Balanced Allocation Fund
<TABLE>
<CAPTION>
Statement of Additional
Form N-1A Part B Item Information Caption
- --------------------- -------------------
<S> <C>
1. Cover Page......................................................... Cover Page
2. Table of Contents.................................................. Table of Contents
3. General Information and History.................................... Statement of Additional
Information
4. Investment Objectives and Policies................................. Investment Objective and
Policies
5. Management of Registrant........................................... Trustees and Officers
6. Control Persons and Principal
Holders of Securities.............................................. Description of Shares
7. Investment Advisory and Other
Services........................................................... Advisory,
Administration,
Distribution, Custodian
Services and Transfer
Agency Agreements
8. Brokerage Allocation and Other
Practices.......................................................... 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> 64
Subject to completion - Dated February 24, 1998
Information contained herein pertaining to the Armada Balanced Allocation Fund
is subject to completion or amendment. A post-effective amendment to the
registration statement relating to shares of the Armada Balanced Allocation Fund
has been filed with the Securities and Exchange Commission. Shares of the Armada
Balanced Allocation Fund may not be sold nor may offers to buy shares of the
Fund be accepted prior to the time the post-effective amendment to the
registration statement becomes effective. This Statement of Additional
Information shall not constitute an offer to sell or the solicitation of an
offer to buy nor shall there be any sale of shares of the Armada Balanced
Allocation 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.
<PAGE> 65
ARMADA FUNDS
STATEMENT OF ADDITIONAL INFORMATION
______________, 1998
BALANCED ALLOCATION 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> 66
TABLE OF CONTENTS
Page
STATEMENT OF ADDITIONAL INFORMATION.................................... 1
INVESTMENT OBJECTIVE AND POLICIES...................................... 1
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION......................... 14
DESCRIPTION OF SHARES.................................................. 17
ADDITIONAL INFORMATION CONCERNING TAXES................................ 19
TRUSTEES AND OFFICERS.................................................. 21
ADVISORY, ADMINISTRATION, DISTRIBUTION, CUSTODIAN
SERVICES AND TRANSFER AGENCY AGREEMENTS............................. 26
SHAREHOLDER SERVICES PLANS............................................. 29
PORTFOLIO TRANSACTIONS................................................. 30
AUDITORS............................................................... 31
COUNSEL................................................................ 31
PERFORMANCE INFORMATION................................................ 32
MISCELLANEOUS.......................................................... 35
APPENDIX A........................................................... A-1
APPENDIX B........................................................... B-1
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<PAGE> 67
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
Balanced Allocation 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 OBJECTIVE 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, "Yield and Performance Information" below.
Attached to this Statement of Additional Information is
Appendix A which contains descriptions of the rating symbols used
by Standard & Poor's Rating Group ("S&P"), Fitch IBCA, Inc. ("Fitch
IBCA"), Duff & Phelps Credit Rating Co. (Duff"), and Moody's
Investors Service, Inc. ("Moody's") for securities which may be
held by the Fund.
FOREIGN SECURITIES
- ------------------
Unanticipated political or social developments may affect the
value of the Fund's investments in emerging market countries and the
availability to the Fund of additional investments in those countries. The small
size, relatively unseasoned nature of the securities markets and limited volume
of trading in securities in certain of these countries may make the Fund's
investments there illiquid and more volatile than investments in Japan or most
Western European countries. In addition, the Fund may be required to establish
special custodial or other arrangements before making certain investments.
Moreover, there may be little financial or accounting information available with
respect to issuers located in certain emerging market countries, and it may be
difficult as a result to assess the value or prospects of an investment in such
issuers.
FOREIGN GOVERNMENT OBLIGATIONS
- ------------------------------
The Fund may purchase debt obligations issued or guaranteed by
governments (including states, provinces or municipalities) of countries other
than the United States, or by their agencies, authorities or instrumentalities.
The percentage of assets invested in securities of a particular country or
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<PAGE> 68
denominated in a particular currency will vary in accordance with the adviser's
assessment of gross domestic product in relation to aggregate debt, current
account surplus or deficit, the trend of the current account, reserves available
to defend the currency, and the monetary and fiscal policies of the government.
FOREIGN CURRENCY TRANSACTIONS
- -----------------------------
In order to protect against a possible loss on investments
resulting from a decline or appreciation in the value of a particular foreign
currency against the U.S. dollar or another foreign currency or for other
reasons, the Fund is authorized to enter into forward currency exchange
contracts. These contracts involve an obligation to purchase or sell a specified
currency at a future date at a price set at the time of the contract. Forward
currency contracts do not eliminate fluctuations in the values of portfolio
securities but rather allow the Fund to establish a rate of exchange for a
future point in time.
When entering into a contract for the purchase or sale of a
security, the Fund may enter into a forward foreign currency exchange contract
for the amount of the purchase or sale price to protect against variations,
between the date the security is purchased or sold and the date on which payment
is made or received, in the value of the foreign currency relative to the U.S.
dollar or other foreign currency.
When the adviser anticipates that a particular foreign
currency may decline substantially relative to the U.S. dollar or other leading
currencies, in order to reduce risk, the Fund may enter into a forward contract
to sell, for a fixed amount, the amount of foreign currency approximating the
value of some or all of the Fund's securities denominated in such foreign
currency. Similarly, when the obligations held by the Fund create a short
position in a foreign currency, the Fund may enter into a forward contract to
buy, for a fixed amount, an amount of foreign currency approximating the short
position. With respect to any forward foreign currency contract, it will not
generally be possible to match precisely the amount covered by that contract and
the value of the securities involved due to the changes in the values of such
securities resulting from market movements between the date the forward contract
is entered into and the date it matures. In addition, while forward contracts
may offer protection from losses resulting from declines or appreciation in the
value of a particular foreign currency, they also limit potential gains which
might result from changes in the value of such currency. The Fund will also
incur costs in connection with forward foreign currency exchange contracts and
conversions of foreign currencies and U.S.
dollars.
A separate account consisting of cash or liquid securities
equal to the amount of the Fund's assets that could be
-2-
<PAGE> 69
required to consummate forward contracts will be established with the Trust's
custodian except to the extent the contracts are otherwise "covered." For the
purpose of determining the adequacy of the securities in the account, the
deposited securities will be valued at market or fair value. If the market or
fair value of such securities declines, additional cash or liquid securities
will be placed in the account daily so that the value of the account will equal
the amount of such commitments by the Fund. A forward contract to sell a foreign
currency is "covered" if the Fund owns the currency (or securities denominated
in the currency) underlying the contract, or holds a forward contract (or call
option) permitting the Fund to buy the same currency at a price no higher than
the Fund's price to sell the currency. A forward contract to buy a foreign
currency is "covered" if the Fund holds a forward contract (or call option)
permitting the Fund to sell the same currency at a price as high as or higher
than the Fund's price to buy the currency.
CONVERTIBLE SECURITIES
- ----------------------
Convertible securities entitle the holder to receive interest
paid or accrued on debt or the dividend paid on preferred stock until the
securities mature or are redeemed, converted or exchanged. Prior to conversion,
convertible securities have characteristics similar to ordinary debt securities
in that they normally provide a stable stream of income with generally higher
yields than those of common stock of the same or similar issuers. Convertible
securities rank senior to common stock in a corporation's capital structure and
therefore generally entail less risk than the corporation's common stock. The
value of the convertibility feature depends in large measure upon the degree to
which the convertible security sells above its value as a fixed income security.
In selecting convertible securities for the Fund, the adviser
will consider, among other factors, the creditworthiness of the issuers of the
securities; the interest or dividend income generated by the securities; the
potential for capital appreciation of the securities and the underlying common
stocks; the prices of the securities relative to other comparable securities and
to the underlying common stocks; whether the securities are entitled to the
benefits of sinking funds or other protective conditions; diversification of the
Fund's portfolio as to issuers; and the ratings of the securities. Since credit
rating agencies may fail to timely change the credit ratings of securities to
reflect subsequent events, the adviser will consider whether such issuers will
have sufficient cash flow and profits to meet required principal and interest
payments. The Fund may retain a portfolio security whose rating has been changed
if the adviser deems that retention of such security is warranted.
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<PAGE> 70
WARRANTS
- --------
Warrants enable the owner to subscribe to and purchase a
specified number of shares of the issuing corporation at a specified price
during a specified period of time. The prices of warrants do not necessarily
correlate with the prices of the underlying securities. The purchase of warrants
involves the risk that the purchaser could lose the purchase value of the
warrant if the right to subscribe to additional shares is not exercised prior to
the warrant's expiration. Also, the purchase of warrants involves the risk that
the effective price paid for the warrant added to the subscription price of the
related security may exceed the value of the subscribed security's market price
such as when there is no movement in the level of the underlying security.
FUTURES CONTRACTS AND RELATED OPTIONS
- -------------------------------------
The Fund may invest in futures contracts and related options.
For a detailed description of these investments and related risks, see Appendix
B attached to this Statement of Additional Information.
"COVERED CALL" OPTIONS
- ----------------------
As described in the Prospectus, the Fund may write covered
call options. The Fund will write call options only if they are "covered." The
option is "covered" if the Fund owns the security underlying the call or has an
absolute and immediate right to acquire that security without additional cash
consideration (or, if additional cash consideration is required, liquid assets
of equal value are held in a segregated account by its custodian) upon
conversion or exchange of other securities held by it. For a call option on an
index, the option is covered if the Fund maintains with its custodian a
portfolio of securities substantially replicating the movement of the index, or
liquid assets equal to the contract value. A call option is also covered if the
Fund holds a call on the same security or index as the call written where the
exercise price of the call held is (i) equal to or less than the exercise price
of the call written, or (ii) greater than the exercise price of the call written
provided the difference is maintained by the Fund in liquid assets in a
segregated account with its custodian.
The Fund's obligation to sell a security subject to a covered
call option written by it may be terminated prior to the expiration date of the
option by the Fund's execution of a closing purchase transaction, which is
effected by purchasing on an exchange an option of the same series (i.e., same
underlying security, exercise price and expiration date) as the option
previously written. Such a purchase does not result in the ownership of an
option. A closing purchase transaction will ordinarily be effected to realize a
profit on an outstanding
-4-
<PAGE> 71
option, to prevent an underlying security from being called, to permit the sale
of the underlying security or to permit the writing of a new option containing
different terms on such underlying security. The cost of such a liquidation
purchase plus transaction costs may be greater than the premium received upon
the original option, in which event the Fund will have incurred a loss on the
transaction. There is no assurance that a liquid secondary market will exist for
any particular option. An option writer, unable to effect a closing purchase
transaction, will not be able to sell the underlying security until the option
expires or the optioned security is delivered upon exercise with the result that
the writer in such circumstances will be subject to the risk of market decline
or appreciation in the security during such period.
When the Fund writes an option, an amount equal to the net
premium (the premium less the commission) received by the Fund is included in
the liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of this deferred credit will be subsequently
marked-to-market to reflect the current value of the option written. The current
value of the traded option is the last sale price or, in the absence of a sale,
the current bid price. If an option written by the Fund expires on the
stipulated expiration date or if the Fund enters into a closing purchase
transaction, it will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold) and the
deferred credit related to such option will be eliminated. If an option written
by the Fund is exercised, the proceeds of the sale will be increased by the net
premium originally received and the Fund will realize a gain or loss.
There are several risks associated with transactions in
certain options. For example, there are significant differences between the
securities and options markets that could result in an imperfect correlation
between these markets, causing a given transaction not to achieve its
objectives. In addition, a liquid secondary market for particular options,
whether traded over-the-counter or on a securities exchange may be absent for
reasons which include the following: there may be insufficient trading interest
in certain options; restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; trading halts, suspensions or
other restrictions may be imposed with respect to particular classes or series
of options or underlying securities or currencies; unusual or unforeseen
circumstances may interrupt normal operations on an exchange; the facilities of
an exchange or the Options Clearing Corporation may not at all times be adequate
to handle current trading value; or one or more exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that exchange (or in that class or series of options)
would cease to exist, although outstanding options that
-5-
<PAGE> 72
had been issued by the Options Clearing Corporation as a result of trades on
that exchange would continue to be exercisable in accordance with their terms.
ASSET-BACKED SECURITIES
- -----------------------
As described in the Prospectus, the Fund may purchase
asset-backed securities, which are securities backed by mortgages, installment
contracts, credit card receivables or other assets. Asset-backed securities
represent interests in "pools" of assets in which payments of both interest and
principal on the securities are made periodically, thus in effect "passing
through" periodic payments made by the individual borrowers on the assets that
underlie the securities, net of any fees paid to the issuer or guarantor of the
securities. The average life of asset-backed securities varies with the
maturities of the underlying instruments, and the average life of a
mortgage-backed instrument, in particular, is likely to be substantially less
than the original maturity of the mortgage pools underlying the securities as a
result of mortgage prepayments. For this and other reasons, an asset-backed
security's stated maturity may be shortened, and the security's total return may
be difficult to predict precisely. Asset-backed securities acquired by the Fund
may include collateralized mortgage obligations ("CMOs") issued by private
companies.
The Fund may invest in securities the timely payment of
principal and interest on which are guaranteed by the Government National
Mortgage Association ("GNMA") a wholly-owned U.S. Government corporation within
the Department of Housing and Urban Development. The market value and interest
yield of these instruments can vary due to market interest rate fluctuations and
early prepayments of underlying mortgages. These securities represent ownership
in a pool of federally insured mortgage loans. GNMA certificates consist of
underlying mortgages with a maximum maturity of 30 years. However, due to
scheduled and unscheduled principal payments, GNMA certificates have a shorter
average maturity and, therefore, less principal volatility than a comparable
30-year bond. Since prepayment rates vary widely, it is not possible to predict
accurately the average maturity of a particular GNMA pool. GNMA securities
differ from conventional bonds in that principal is paid back to the certificate
holders over the life of the loan rather than at maturity. The scheduled monthly
interest and principal payments relating to mortgages in the pool are "passed
through" to investors. In addition, there may be unscheduled principal payments
representing prepayments on the underlying mortgages. Although GNMA certificates
may offer yields higher than those available from other types of U.S. Government
securities, GNMA certificates may be less effective than other types of
securities as a means of "locking in" attractive long-term rates because of the
prepayment feature. For instance, when interest rates decline, the value of a
GNMA certificate likely will
-6-
<PAGE> 73
not rise as much as comparable debt securities due to the prepayment feature. In
addition, these prepayments can cause the price of a GNMA certificate originally
purchased at a premium to decline in price to its par value, which may result in
a loss.
There are a number of important differences among the agencies
and instrumentalities of the U.S. Government that issue mortgage-related
securities and among the securities that they issue. Mortgage-related securities
guaranteed by the GNMA include GNMA Mortgage Pass-Through Certificates (also
known as "Ginnie Maes") which are guaranteed as to the timely payment of
principal and interest by GNMA and such guarantee is backed by the full faith
and credit of the United States. GNMA is a wholly-owned U.S. Government
corporation within the Department of Housing and Urban Development. GNMA
certificates also are supported by the authority of GNMA to borrow funds from
the U.S. Treasury to make payments under its guarantee. Mortgage-backed
securities issued by the FNMA include FNMA Guaranteed Mortgage Pass-Through
Certificates (also known as "Fannie Maes") which are solely the obligations of
the FNMA and are not backed by or entitled to the full faith and credit of the
United States, but are supported by the right of the issuer to borrow from the
Treasury. FNMA is a government-sponsored organization owned entirely by private
stockholders. Fannie Maes are guaranteed as to timely payment of the principal
and interest by FNMA. Mortgage-related securities issued by the FHLMC include
FHLMC Mortgage Participation Certificates (also known as "Freddie Macs" or
"Pcs"). They are solely the obligations of the FHLMC and guaranteed as to timely
payment of the principal and interest by FHLMC only.
Non-mortgage asset-backed securities involve certain risks
that are not presented by mortgage-backed securities. Primarily, these
securities may not have the benefit of the same security interest in the
underlying collateral. Credit card receivables are generally unsecured and the
debtors are entitled to the protection of a number of state and federal consumer
credit laws, many of which have given debtors the right to set off certain
amounts owed on the credit cards, thereby reducing the balance due. Most issuers
of automobile receivables permit the servicers to retain possession of the
underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related automobile receivables. In
addition, because of the large number of vehicles involved in a typical issuance
and technical requirements under state laws, the trustee for the holders of the
automobile receivables may not have an effective security interest in all of the
obligations backing such receivables. Therefore, there is a possibility that
recoveries on repossessed collateral may not, in some cases, be able to support
payments on these securities.
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<PAGE> 74
INTEREST RATE AND TOTAL RETURN SWAPS
- ------------------------------------
The Fund may enter into interest rate or total return swaps
for hedging purposes and not for speculation. It will typically use interest
rate or total return swaps to preserve a return on a particular investment or
portion of its portfolio or to shorten the effective duration of its
investments. Swaps involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest or the total return of a
predefined "index," such as an exchange of fixed rate payments for floating rate
payments or an exchange of a floating rate payment for the total return on an
index.
The Fund will only enter into swaps on a net basis, (i.e., the
two payment streams are netted out, with the Fund receiving or paying, as the
case may be, only the net amount of the two payments). Inasmuch as these
transactions are entered into for good faith hedging purposes, the Fund and its
adviser believe that such obligations do not constitute senior securities as
defined in the 1940 Act and, accordingly, will not treat them as being subject
to the Fund's borrowing restrictions. The net amount of the excess, if any, of
the Fund's obligations over its entitlements with respect to each swap will be
accrued on a daily basis and an amount of liquid assets, such as cash, U.S.
government securities or other liquid high grade debt securities, having an
aggregate net asset value at least equal to such accrued excess will be
maintained in a segregated account by the Fund's custodian.
If there is a default by the other party to a swap
transaction, the Fund will have contractual remedies pursuant to the agreements
related to the transaction. The swap market has grown substantially in recent
years with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
the swap market has become relatively liquid in comparison with markets for
other similar instruments which are traded in the Interbank market.
INCOME PARTICIPATION LOANS
- --------------------------
The Fund may make or acquire participations in privately
negotiated loans to borrowers. Frequently, such loans have variable interest
rates and may be backed by a bank letter of credit; in other cases they may be
unsecured. Such transactions may provide an opportunity to achieve higher yields
than those that may be available from other securities offered and sold to the
general public.
Privately arranged loans, however, will generally not be rated
by a credit rating agency and will normally be liquid, if at all, only through a
provision requiring repayment following demand by the lender. Such loans made by
the Fund may have a demand
-8-
<PAGE> 75
provision permitting the Fund to require repayment within seven days.
Participations in such loans, however, may not have such a demand provision and
may not be otherwise marketable. Recovery of an investment in any such loan that
is illiquid and payable on demand will depend on the ability of the borrower to
meet an obligation for full repayment of principal and payment of accrued
interest within the demand period, normally seven days or less (unless the Fund
determines that a particular loan issue, unlike most such loans, has a readily
available market). As it deems appropriate, the Board of Trustees of the Trust
will establish procedures to monitor the credit standing of each such borrower,
including its ability to honor contractual payment obligations.
SHORT-TERM OBLIGATIONS
- ----------------------
The Fund may invest directly in various short-term obligations
including those described below.
Investments include commercial paper and other short-term
promissory notes issued by corporations (including variable and floating rate
instruments). The Fund may invest in Canadian Commercial Paper ("CCP"), which is
commercial paper issued by a Canadian corporation or a Canadian counterpart of a
U.S. corporation, and in Europaper, which is U.S. dollar denominated commercial
paper of a foreign issuer. The Fund may also acquire zero coupon obligations,
which have greater price volatility than coupon obligations and which will not
result in the payment of interest until maturity.
Bank obligations include bankers' acceptances and negotiable
certificates of deposit, and non-negotiable demand and time deposits issued for
a definite period of time and earning a specified return by a U.S. bank which is
a member of the Federal Reserve System. Bank obligations also include U.S.
dollar denominated bankers' acceptances and 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.
The Fund may make limited investments in "GICs" issued by U.S.
insurance companies. When investing in GICs, the Fund makes cash contributions
to a deposit fund or an insurance company's general account. The insurance
company then credits to the Fund monthly a guaranteed minimum interest which is
based on an index. The insurance company may assess periodic charges against a
GIC for expense and service costs allocable to it, and the charges will be
deducted from the value of the deposit fund. The Fund will
-9-
<PAGE> 76
purchase a GIC only when its adviser has determined, under guidelines
established by the Board of Trustees, that the GIC presents minimal credit risks
to the Fund and is of comparable quality to instruments that are rated high
quality by one or more rating agencies. In addition, because the Fund may not
receive the principal amount of a GIC from the insurance company on seven days'
notice or less, the GIC is considered an illiquid investment, and, together with
other instruments in the Fund which are not readily marketable, will not exceed
15% of the Fund's net assets.
WHEN-ISSUED SECURITIES
- ----------------------
The Fund may purchase securities on a "when-issued" basis
(i.e., for delivery beyond the normal settlement date at a stated price and
yield). When the Fund agrees to purchase when-issued securities, the custodian
sets aside cash or liquid portfolio securities equal to the amount of the
commitment in a separate account. Normally, the custodian will set aside
portfolio securities to satisfy a purchase commitment, and in such a case the
Fund may be required subsequently to place additional assets in the separate
account in order to ensure that the value of the account remains equal to the
amount of the Fund's commitment, marked to market daily. It is likely that the
Fund's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets aside
cash. Because the Fund will set aside cash or liquid assets to satisfy its
purchase commitments in the manner described, the Fund's liquidity and ability
to manage its portfolio might be affected in the event its commitments to
purchase when-issued securities ever exceeded 25% of the value of its total
assets.
When the Fund engages in when-issued transactions, it relies
on the seller to consummate the trade. Failure of the seller to do so may result
in the Fund's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
REPURCHASE AGREEMENTS
- ---------------------
Securities held by the Fund may be subject to repurchase
agreements. Under the terms of a repurchase agreement, the Fund purchases
securities from financial institutions such as banks and broker-dealers which
the adviser deems creditworthy under guidelines approved by the Board of
Trustees, subject to the seller's agreement to repurchase such securities at a
mutually agreed-upon date and price. The repurchase price generally equals the
price paid by the Fund plus interest negotiated on the basis of current short
term rates, which may be more or less than the rate on the underlying portfolio
securities. The seller under a repurchase agreement will be required to maintain
the value of collateral held pursuant to the agreement at not less than the
repurchase price (including accrued interest). If the seller were
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<PAGE> 77
to default on its repurchase obligation or become insolvent, the Fund 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 the 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 the 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 the Fund under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS
- -----------------------------
The Fund may borrow funds for temporary purposes by entering
into reverse repurchase agreements in accordance with its investment
restrictions. Pursuant to such agreements, the Fund would sell portfolio
securities to financial institutions such as banks and broker-dealers, and agree
to repurchase them at a mutually agreed-upon date and price. The Fund intends to
enter into reverse repurchase agreements only to avoid otherwise selling
securities during unfavorable market conditions to meet redemptions. At the time
the Fund enters into a reverse repurchase agreement, it will place in a
segregated custodial account assets such as U.S. Government securities or other
liquid, high grade debt securities consistent with the Fund's investment
restrictions having a value equal to the repurchase price (including accrued
interest), and will subsequently monitor the account to ensure that such
equivalent value is maintained. Reverse repurchase agreements involve the risk
that the market value of the securities sold by the Fund may decline below the
price at which it is obligated to repurchase the securities. Reverse repurchase
agreements are considered to be borrowings by the Fund under the Investment
Company Act of 1940.
U.S. GOVERNMENT OBLIGATIONS
- ---------------------------
As described in the Prospectus, 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
-11-
<PAGE> 78
authority of the U.S. Government to purchase the agency's obligations; and still
others, such as those of the Student Loan Marketing Association, are supported
only by the credit of the agency or instrumentality issuing the obligation. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored agencies or instrumentalities if it is not
obligated to do so by law.
VARIABLE AND FLOATING RATE OBLIGATIONS
- --------------------------------------
The Fund may purchase variable and floating rate obligations
(including variable amount master demand notes) which are unsecured instruments
that permit the indebtedness thereunder to vary and provide for periodic
adjustments in the interest rate. Because variable and floating rate obligations
are direct lending arrangements between the Fund and the issuer, they are not
normally traded although certain variable and floating rate obligations, such as
Student Loan Marketing Association variable rate obligations, may have a more
active secondary market because they are issued or guaranteed by the U.S.
Government or its agencies or instrumentalities. Even though there may be no
active secondary market in such instruments, the Fund may demand payment of
principal and accrued interest at a time specified in the instrument or may
resell them to a third party. Such obligations may be backed by bank letters of
credit or guarantees issued by banks, other financial institutions or the U.S.
government, its agencies or instrumentalities. The quality of any letter of
credit or guarantee will be rated high quality or, if unrated, will be
determined to be of comparable quality by the adviser. In the event an issuer of
a variable or floating rate obligation defaulted on its payment obligation, the
Fund might be unable to dispose of the instrument because of the absence of a
secondary market and could, for this or other reasons, suffer a loss to the
extent of the default.
SECURITIES OF OTHER INVESTMENT COMPANIES
- ----------------------------------------
The Fund currently intends to limit its investments in
securities issued by other investment companies so that, as determined
immediately after a purchase of such securities is made: (i) not more than 5% of
the value of the Fund's total assets will be invested in the securities of any
one investment company; (ii) not more than 10% of the value of its total assets
will be invested in the aggregate in securities of investment companies as a
group; and (iii) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Fund or by the Trust as a whole.
PORTFOLIO TURNOVER
- ------------------
The Fund may engage in short term trading and may sell
securities which have been held for periods ranging from several
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<PAGE> 79
months to less than a day. Portfolio turnover will tend to rise during periods
of economic turbulence and decline during periods of stable growth. The Fund's
annual portfolio turnover is not expected to exceed 200% under normal market
conditions.
The portfolio turnover rate for the Fund is calculated by
dividing the lesser of purchases or sales of portfolio securities for the year
by the monthly average value of the portfolio securities. The calculation
excludes U.S. Government securities and all securities whose maturities at the
time of acquisition were one year or less. Portfolio turnover may vary greatly
from year to year as well as within a particular year, and may also be affected
by cash requirements for redemptions of shares and by requirements which enable
a Fund to receive certain favorable tax treatment. Portfolio turnover will not
be a limiting factor in making investment decisions.
ADDITIONAL INVESTMENT LIMITATIONS
- ---------------------------------
In addition to the investment limitations disclosed in the
Prospectus, the Fund is subject to the following investment limitations which
may be changed with respect to the Fund only by a vote of the holders of a
majority of its 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.
-13-
<PAGE> 80
The Fund may not:
1. Acquire any other investment company or investment company
security except in connection with a merger, consolidation, reorganization or
acquisition of assets or where otherwise permitted under the 1940 Act.
2. Write or sell put options, call options, straddles,
spreads, or any combination thereof, except as consistent with the Fund's
investment objective and policies, for transactions in options on securities or
indices of securities, futures contracts and options on futures contracts and in
similar investments.
3. Purchase securities on margin, make short sales of
securities or maintain a short position, except that, 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 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,
-14-
<PAGE> 81
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) 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
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<PAGE> 82
Fund's net assets and number of outstanding shares on its commencement date, are
as follows:
BALANCED ALLOCATION FUND*
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
* Amounts are estimated as the Fund has not commenced operations.
-16-
<PAGE> 83
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 64 classes
or series of shares. Three of these classes or series, which represent interests
in the Balanced Allocation Fund (Class AA, Class AA - Special Series 1 and Class
AA - 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.
-17-
<PAGE> 84
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
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<PAGE> 85
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.
The Fund 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, 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.
Some investments held by the Fund may be subject to special
rules which govern the federal income tax treatment of certain transactions
denominated in terms of a currency other than the U.S. dollar or determined by
reference to the value of one or more currencies other than the U.S. dollar. The
types of transactions covered by the special rules include the following: (1)
the acquisition of, or becoming the obligor under, a bond or other debt
instrument (including, to the extent provided in Treasury regulations, preferred
stock); (2) the accruing of certain trade receivables and payables; and (3) the
entering into or acquisition of any forward contract, futures contract, option
and
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<PAGE> 86
similar financial instrument. The disposition of a currency other than the U.S.
dollar by a U.S. taxpayer is also treated as a transaction subject to the
special currency rules. With respect to transactions covered by the special
rules, foreign currency gain or loss is calculated separately from any gain or
loss on the underlying transaction and is normally taxable as ordinary gain or
loss. The Treasury Department has issued regulations under which certain
transactions subject to the special currency rules that are part of a "section
988 hedging transaction" are not subject to the mark-to-market or loss deferral
rules under the Code. Gain or loss attributable to the foreign currency
component of transactions engaged in by the Fund which are not subject to the
special currency rules (such as foreign equity investments other than certain
preferred stocks) will be treated as capital gain or loss and will not be
segregated from the gain or loss on the underlying transaction.
The Trust will designate any distribution of long-term capital
gains of 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 Fund shares, if the
shareholder has not held such shares for at least six months, any loss on the
sale or exchange of those shares will be treated as long-term capital loss to
the extent of the capital gain dividends received with respect to the shares.
A 4% non-deductible excise tax is imposed on regulated
investment companies that fail to currently distribute an amount equal to
specified percentages of their ordinary taxable income and capital gain net
income (excess of capital gains over capital losses). 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 U.S. Treasury 31% of taxable dividends or gross proceeds realized
upon sale paid to shareholders who have failed to provide a correct tax
identification number in the manner required, or who are subject to withholding
by the Internal Revenue Service for failure to properly include on their return
payments of taxable
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<PAGE> 87
interest or dividends, or who have failed to certify to the Fund that they are
not subject to backup withholding when required to do so or that they are
"exempt recipients."
TRUSTEES AND OFFICERS
---------------------
The trustees and executive officers of the Trust, their
addresses, principal occupations during the past five years, and other
affiliations are as follows:
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<PAGE> 88
<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>
-22-
<PAGE> 89
<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>
-23-
<PAGE> 90
<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.
The following table summarizes the compensation for each of
the Trustees of the Trust for the fiscal year ended May 31, 1997:
-24-
<PAGE> 91
<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 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
- --------
* 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.
-25-
<PAGE> 92
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 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
-26-
<PAGE> 93
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 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
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<PAGE> 94
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 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
- -------------------------------------------------
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<PAGE> 95
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 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
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<PAGE> 96
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 adviser generally seeks competitive spreads or
commissions, it may not necessarily allocate each transaction to the
underwriter or dealer charging the lowest spread or commission available on the
transaction. Allocation of transactions, including their frequency, to various
dealers is determined by the adviser in its best judgment and in a manner
deemed fair and reasonable to shareholders. Under the 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 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
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<PAGE> 97
such term is defined under the 1940 Act) of any of them acting as principal,
except to the extent permitted by the SEC. In addition, the Fund will not give
preference to its adviser's correspondents with respect to such transactions,
securities, savings deposits, repurchase agreements and reverse repurchase
agreements.
While serving as adviser to the Fund, National City has
agreed to maintain its policy and practice of conducting its Trust Department
independently of its Commercial Department. In making investment
recommendations for the Trust, Trust Department personnel will not inquire or
take into consideration whether the issuer of securities proposed for purchase
or sale for the Trust's account are customers of the Commercial Department. In
dealing with commercial customers, the Commercial Department will not inquire or
take into consideration whether securities of those customers are held by the
Trust.
Investment decisions for the Fund are made independently from
those for the other Funds and for other investment companies and accounts
advised or managed by the adviser. Such other Funds, investment companies and
accounts may also invest in the same securities as 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.
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.
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<PAGE> 98
PERFORMANCE INFORMATION
-----------------------
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 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.
The Fund calculates interest earned on debt obligations held
in its portfolio 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) 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. With respect to debt obligations purchased by the Fund at a
discount or premium, the formula generally calls for amortization of the
discount or premium. The amortization schedule
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<PAGE> 99
will be adjusted monthly to reflect changes in the market values of such debt
obligations.
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" and
"Sales Charges Applicable to Purchases of B Shares" in the Prospectus.
The Fund computes its "average annual total return" by
determining the average annual compounded rate of return during specified
periods that would equate the initial amount invested to the ending redeemable
value of such investment by dividing the ending redeemable value of a
hypothetical $1,000 initial payment by $1,000 and raising the quotient to a
power equal to one divided by the number of years (or fractional portion
thereof) covered by the computation and subtracting one from the result. This
calculation can be expressed as follows:
ERV 1/n
T = [(-----) - 1]
P
Where: T = average annual total return
ERV = ending redeemable value at the end of the
period covered by the computation of a
hypothetical $1,000 payment made at the
beginning of the period
P = hypothetical initial payment of $1,000
n = period covered by the computation, expressed
in terms of years
The Fund computes its aggregate total returns by determining
the aggregate rates of return during specified periods that likewise equate the
initial amount invested to the ending redeemable value of such investment. The
formula for calculating aggregate total return is as follows:
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<PAGE> 100
ERV
T = (---) - 1
P
The calculations of average annual total return and aggregate
total return assume the reinvestment of all dividends and capital gain
distributions on the reinvestment dates during the period and include all
recurring fees charged to all shareholder accounts, assuming an account size
equal to the Fund's mean (or median) account size for any fees that vary with
the size of the account. The maximum sales load and other charges deducted from
payments are deducted from the initial $1,000 payment (variable "P" in the
formula). The ending redeemable value (variable "ERV" in the formula) is
determined by assuming complete redemption of the hypothetical investment and
the deduction of all contingent deferred sales charges and other 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 a 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 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 or the ending value redeemed any amount representing sales charges. The
Fund will, however, disclose the maximum sales charge and will also disclose
that the performance data do not reflect sales charges and that inclusion of
sale charges would reduce the performance quoted.
The Fund may also from time to time include discussions or
illustrations of the effects of compounding in Materials. "Compounding" refers
to the fact that, if dividends or other distributions on the Fund investment are
reinvested by being paid in additional Fund shares, any future income or capital
appreciation of the Fund would increase the value, not only of the original Fund
investment, but also of the additional Fund shares received through
reinvestment. As a result, the value of the Fund investment would increase more
quickly than if dividends or other distributions had been paid in cash.
In addition, the Fund may also include in Materials
discussions and/or illustrations of the potential investment goals
-34-
<PAGE> 101
of a prospective investor, investment management strategies, techniques,
policies or investment suitability of the Fund, high-quality investments,
economic conditions, the relationship between sectors of the economy and the
economy as a whole, various securities markets, the effects of inflation and
historical performance of various asset classes, including but not limited to,
stocks, bonds and Treasury securities. From time to time, Materials may
summarize the substance of information contained in shareholder reports
(including the investment composition of the Fund), as well as the views of the
adviser as to current market, economic, trade and interest rate trends,
legislative, regulatory and monetary developments, investment strategies and
related matters believed to be of relevance to the Fund. The Fund may also
include in Materials charts, graphs or drawings which compare the investment
objective, return potential, relative stability and/or growth possibilities of
the Fund and/or other mutual funds, or illustrate the potential risks and
rewards of investment in various investment vehicles, including but not limited
to, stocks, bonds, Treasury securities and shares of the Fund and/or other
mutual funds. Materials may include a discussion of certain attributes or
benefits to be derived by an investment in the Fund and/or other mutual funds
(such as value investing, market timing, dollar cost averaging, asset
allocation, constant ratio transfer, automatic accounting rebalancing, the
advantages and disadvantages of investing in tax-deferred and taxable
investments), shareholder profiles and hypothetical investor scenarios, timely
information on financial management, tax and retirement planning and investment
alternatives to certificates of deposit and other financial instruments. Such
Materials may include symbols, headlines or other material which highlight or
summarize the information discussed in more detail therein.
MISCELLANEOUS
-------------
The 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> 102
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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<PAGE> 103
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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<PAGE> 104
"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> 105
"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> 106
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 in
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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; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation 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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"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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"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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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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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. The
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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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APPENDIX B
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As stated in the Prospectus, the Balanced Allocation Fund (the
"Fund") may enter into certain futures transactions and options for hedging
purposes. Such transactions are described in this Appendix.
I. INTEREST RATE FUTURES CONTRACTS
USE OF INTEREST RATE FUTURES CONTRACTS. Bond prices are
established in both the cash market and the futures market. In the cash market,
bonds are purchased and sold with payment for the full purchase price of the
bond being made in cash, generally within five business days after the trade. In
the futures market, only a contract is made to purchase or sell a bond in the
future for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Fund may use interest rate futures
contracts as a defense, or hedge, against anticipated interest rate changes and
not for speculation. As described below, this would include the use of futures
contract sales to protect against expected increases in interest rates and
futures contract purchases to offset the impact of interest rate declines.
The Fund presently could accomplish a similar result to that
which it hopes to achieve through the use of futures contracts by selling bonds
with long maturities and investing in bonds with short maturities when interest
rates are expected to increase, or conversely, selling short-term bonds and
investing in long-term bonds when interest rates are expected to decline.
However, because of the liquidity that is often available in the futures market,
the protection is more likely to be achieved, perhaps at a lower cost and
without changing the rate of interest being earned by the Fund, through using
futures contracts.
DESCRIPTION OF INTEREST RATE FUTURES CONTRACTS. An interest
rate futures contract sale would create an obligation by the Fund, as seller, to
deliver the specific type of financial instrument called for in the contract at
a specific future time for a specified price. A futures contract purchase would
create an obligation by the Fund, as purchaser, to take delivery of the specific
type of financial instrument at a specific future time at a specific price. The
specific securities delivered or taken, respectively, at settlement date, would
not be determined until at or near that date. The determination would be in
accordance with the rules of the exchange on which the futures contract sale or
purchase was made.
Although interest rate futures contracts by their terms call
for actual delivery or acceptance of securities, in most cases
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the contracts are closed out before the settlement date without the making or
taking of delivery of securities. Closing out a futures contract sale is
effected by the Fund's entering into a futures contract purchase for the same
aggregate amount of the specific type of financial instrument and the same
delivery date. If the price of the sale exceeds the price of the offsetting
purchase, the Fund is immediately paid the difference and thus realizes a gain.
If the offsetting purchase price exceeds the sale price, the Fund pays the
difference and realizes a loss. Similarly, the closing out of a futures contract
purchase is effected by the Fund entering into a futures contract sale. If the
offsetting sale price exceeds the purchase price, the Fund realizes a gain, and
if the purchase price exceeds the offsetting sale price, the Fund realizes a
loss.
Interest rate futures contracts are traded in an auction
environment on the floors of several exchanges -- principally, the Chicago Board
of Trade, the Chicago Mercantile Exchange and the New York Futures Exchange. The
Fund would deal only in standardized contracts on recognized exchanges. Each
exchange guarantees performance under contract provisions through a clearing
corporation, a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering
various financial instruments including long-term United States Treasury Bonds
and Notes; Government National Mortgage Association (GNMA) modified pass-through
mortgage backed securities; three-month United States Treasury Bills; and
ninety-day commercial paper. The Fund may trade in any interest rate futures
contracts for which there exists a public market, including, without limitation,
the foregoing instruments.
EXAMPLE OF FUTURES CONTRACT SALE. The Fund may engage in an
interest rate futures contract sale to maintain the income advantage from
continued holding of a long-term bond while endeavoring to avoid part or all of
the loss in market value that would otherwise accompany a decline in long-term
securities prices. Assume that the market value of a certain security held by
the Fund tends to move in concert with the futures market prices of long-term
United States Treasury bonds ("Treasury bonds"). The adviser wants to fix the
current market value of this fund security until some point in the future.
Assume the fund security has a market value of 100, and the adviser believes
that because of an anticipated rise in interest rates, the value will decline to
95. The Fund might enter into futures contract sales of Treasury bonds for a
equivalent of 98. If the market value of the fund security does indeed decline
from 100 to 95, the equivalent futures market price for the Treasury bonds might
also decline from 98 to 93.
In that case, the five point loss in the market value of the
fund security would be offset by the five point gain realized by closing out the
futures contract sale. Of course, the futures
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market price of Treasury bonds might well decline to more than 93 or to less
than 93 because of the imperfect correlation between cash and futures prices
mentioned below.
The adviser could be wrong in its forecast of interest rates
and the equivalent futures market price could rise above 98. In this case, the
market value of the fund securities, including the fund security being
protected, would increase. The benefit of this increase would be reduced by the
loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above
example might incur a loss (which might be reduced by a offsetting transaction
prior to the settlement date). In each transaction, transaction expenses would
also be incurred.
EXAMPLE OF FUTURES CONTRACT PURCHASE. The Fund may engage in
an interest rate futures contract purchase when it is not fully invested in
long-term bonds but wishes to defer for a time the purchase of long-term bonds
in light of the availability of advantageous interim investments, e.g., shorter
term securities whose yields are greater than those available on long-term
bonds. The Fund's basic motivation would be to maintain for a time the income
advantage from investing in the short-term securities; the Fund would be
endeavoring at the same time to eliminate the effect of all or part of a
expected increase in market price of the long-term bonds that the Fund may
purchase.
For example, assume that the market price of a long-term bond
that the Fund may purchase, currently yielding 10%, tends to move in concert
with futures market prices of Treasury bonds. The adviser wishes to fix the
current market price (and thus 10% yield) of the long-term bond until the time
(four months away in this example) when it may purchase the bond. Assume the
long-term bond has a market price of 100, and the adviser believes that, because
of an anticipated fall in interest rates, the price will have risen to 105 (and
the yield will have dropped to about 9 1/2%) in four months. The Fund might
enter into futures contracts purchases of Treasury bonds for an equivalent price
of 98. At the same time, the Fund would assign a pool of investments in
short-term securities that are either maturing in four months or earmarked for
sale in four months, for purchase of the long-term bond at an assumed market
price of 100. Assume these short-term securities are yielding 15%. If the market
price of the long-term bond does indeed rise from 100 to 105, the equivalent
futures market price for Treasury bonds might also rise from 98 to 103. In that
case, the 5 point increase in the price that the Fund pays for the long-term
bond would be offset by the 5 point gain realized by closing out the futures
contract purchase.
The adviser could be wrong in its forecast of interest rates;
long-term interest rates might rise to above 10%; and the
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equivalent futures market price could fall below 98. If short-term rates at the
same time fall to 10% or below, it is possible that the Fund would continue with
its purchase program for long-term bonds. The market price of available
long-term bonds would have decreased. The benefit of this price decrease, and
thus yield increase, will be reduced by the loss realized on closing out the
futures contract purchase.
If, however, short-term rates remained above available
long-term rates, it is possible that the Fund would discontinue its purchase
program for long-term bonds. The yield on short-term securities in the Fund,
including those originally in the pool assigned to the particular long-term
bond, would remain higher than yields on long-term bonds. The benefit of this
continued incremental income will be reduced by the loss realized on closing out
the futures contract purchase. In each transaction, expenses would also be
incurred.
II. INDEX FUTURES CONTRACTS
GENERAL. A bond or stock index assigns relative values to the
bonds or stocks included in the index which fluctuates with changes in the
market values of the bonds or stocks included. Some stock index futures
contracts are based on broad market indexes, such as the Standard & Poor's
Ratings Group 500 or the New York Stock Exchange Composite Index. In contrast,
certain exchanges offer futures contracts on narrower market indexes or indexes
based on an industry or market segment, such as oil and gas stocks.
Futures contracts are traded on organized exchanges regulated
by the Commodity Futures Trading Commission. Transactions on such exchanges are
cleared through a clearing corporation, which guarantees the performance of the
parties to each contract.
The Fund may sell index futures contracts in order to offset a
decrease in market value of its fund securities that might otherwise result from
a market decline. The Fund may do so either to hedge the value of its fund as a
whole, or to protect against declines, occurring prior to sales of securities,
in the value of the securities to be sold. Conversely, the Fund may purchase
index futures contracts in anticipation of purchases of securities. A long
futures position may be terminated without a corresponding purchase of
securities.
In addition, the Fund may utilize index futures contracts in
anticipation of changes in the composition of its fund holdings. For example, in
the event that the Fund expects to narrow the range of industry groups
represented in its holdings it may, prior to making purchases of the actual
securities, establish a long futures position based on a more restricted index,
such as an index
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comprised of securities of a particular industry group. The Fund may also sell
futures contracts in connection with this strategy, in order to protect against
the possibility that the value of the securities to be sold as part of the
restructuring of the fund will decline prior to the time of sale.
III. MARGIN PAYMENTS
Unlike purchase or sales of fund securities, no price is paid
or received by the Fund upon the purchase or sale of a futures contract.
Initially, the Fund will be required to deposit with the broker or in a
segregated account with the Custodian or a subcustodian an amount of cash or
cash equivalents, known as initial margin, based on the value of the contract.
The nature of initial margin in futures transactions is different from that of
margin in security transactions in that futures contract margin does not involve
the borrowing of funds by the customer to finance the transactions. Rather, the
initial margin is in the nature of a performance bond or good faith deposit on
the contract which is returned to the Fund upon termination of the futures
contract assuming all contractual obligations have been satisfied. Subsequent
payments, called variation margin, to and from the broker, will be made on a
daily basis as the price of the underlying instruments fluctuates making the
long and short positions in the futures contract more or less valuable, a
process known as marking-to-the-market. For example, when the Fund has purchased
a futures contract and the price of the contract has risen in response to a rise
in the underlying instruments, that position will have increased in value and
the Fund will be entitled to receive from the broker a variation margin payment
equal to that increase in value. Conversely, where the Fund has purchased a
futures contract and the price of the future contract has declined in response
to a decrease in the underlying instruments, the position would be less valuable
and the Fund would be required to make a variation margin payment to the broker.
At any time prior to expiration of the futures contract, the adviser may elect
to close the position by taking an opposite position, subject to the
availability of a secondary market, which will operate to terminate the Fund's
position in the futures contract. A final determination of variation margin is
then made, additional cash is required to be paid by or released to the Fund,
and the Fund realizes a loss or gain.
IV. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
There are several risks in connection with the use of futures
by the Fund as hedging devices. One risk arises because of the imperfect
correlation between movements in the price of the futures and movements in the
price of the instruments which are the subject of the hedge. The price of the
future may move more than
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or less than the price of the instruments being hedged. If the price of the
futures moves less than the price of the instruments which are the subject of
the hedge, the hedge will not be fully effective but, if the price of the
instruments being hedged has moved in an unfavorable direction, the Fund would
be in a better position than if it had not hedged at all. If the price of the
instruments being hedged has moved in a favorable direction, this advantage will
be partially offset by the loss on the futures. If the price of the futures
moves more than the price of the hedged instruments, the Fund will experience
either a loss or gain on the futures which will not be completely offset by
movements in the price of the instruments which are the subject of the hedge. To
compensate for the imperfect correlation of movements in the price of
instruments being hedged and movements in the price of futures contracts, the
Fund may buy or sell futures contracts in a greater dollar amount than the
dollar amount of instruments being hedged if the volatility over a particular
time period of the prices of such instruments has been greater than the
volatility over such time period of the futures, or if otherwise deemed to be
appropriate by the advisers. Conversely, the Fund may buy or sell fewer futures
contracts if the volatility over a particular time period of the prices of the
instruments being hedged is less than the volatility over such time period of
the futures contract being used, or if otherwise deemed to be appropriate by the
adviser.
Where futures are purchased to hedge against a possible
increase in the price of securities before the Fund is able to invest its cash
(or cash equivalents) in an orderly fashion, it is possible that the market may
decline instead; if the Fund then concludes not to invest its cash at that time
because of concern as to possible further market decline or for other reasons,
the Fund will realize a loss on the futures contract that is not offset by a
reduction in the price of the instruments that were to be purchased.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
instruments being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced thus producing distortions. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price
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distortions. Due to the possibility of price distortion in the futures market,
and because of the imperfect correlation between the movements in the cash
market and movements in the price of futures, a correct forecast of general
market trends or interest rate movements by the advisers may still not result in
a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or
board of trade which provides a secondary market for such futures. Although the
Fund intends to purchase or sell futures only on exchanges or boards of trade
where there appear to be active secondary markets, there is no assurance that a
liquid secondary market on any exchange or board of trade will exist for any
particular contract or at any particular time. In such event, it may not be
possible to close a futures investment position, and in the event of adverse
price movements, the Fund would continue to be required to make daily cash
payments of variation margin. However, in the event futures contracts have been
used to hedge fund securities, such securities will not be sold until the
futures contract can be terminated. In such circumstances, an increase in the
price of the securities, if any, may partially or completely offset losses on
the futures contract. However, as described above, there is no guarantee that
the price of the securities will in fact correlate with the price movements in
the futures contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary
market in a futures contract may be adversely affected by "daily price
fluctuation limits" established by commodity exchanges which limit the amount of
fluctuation in a futures contract price during a single trading day. Once the
daily limit has been reached in the contract, no trades may be entered into at a
price beyond the limit, thus preventing the liquidation of open futures
positions. The trading of futures contracts is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal activity, which could at times make it difficult or
impossible to liquidate existing positions or to recover excess variation margin
payments.
Successful use of futures by the Fund is also subject to the
adviser's ability to predict correctly movements in the direction of the market.
For example, if the Fund has hedged against the possibility of a decline in the
market adversely affecting securities held by it and securities prices increase
instead, the Fund will lose part or all of the benefit to the increased value of
its securities which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Fund has insufficient
cash, it may have to sell securities to meet daily variation margin
requirements. Such sales of securities may be, but will not necessarily be, at
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increased prices which reflect the rising market. The Fund may have to sell
securities at a time when it may be disadvantageous to do so.
V. OPTIONS ON FUTURES CONTRACTS
The Fund may purchase and write options on the futures
contracts described above. A futures option gives the holder, in return for the
premium paid, the right to buy (call) from or sell (put) to the writer of the
option a futures contract at a specified price at any time during the period of
the option. Upon exercise, the writer of the option is obligated to pay the
difference between the cash value of the futures contract and the exercise
price. Like the buyer or seller of a futures contract, the holder, or writer, of
an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing an option of the same series,
at which time the person entering into the closing transaction will realize a
gain or loss. The Fund will be required to deposit initial margin and variation
margin with respect to put and call options on futures contracts written by it
pursuant to brokers' requirements similar to those described above. Net option
premiums received will be included as initial margin deposits.
Investments in futures options involve some of the same
considerations that are involved in connection with investments in futures
contracts (for example, the existence of a liquid secondary market). In
addition, the purchase or sale of an option also entails the risk that changes
in the value of the underlying futures contract will not correspond to changes
in the value of the option purchased. Depending on the pricing of the option
compared to either the futures contract upon which it is based, or upon the
price of the securities being hedged, an option may or may not be less risky
than ownership of the futures contract or such securities. In general, the
market prices of options can be expected to be more volatile than the market
prices on the underlying futures contract. Compared to the purchase or sale of
futures contracts, however, the purchase of call or put options on futures
contracts may frequently involve less potential risk to the Fund because the
maximum amount at risk is the premium paid for the options (plus transaction
costs). The writing of an option on a futures contract involves risks similar to
those risks relating to the sale of futures contracts.
VI. OTHER MATTERS
Accounting for futures contracts will be in accordance with
generally accepted accounting principles.
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<PAGE> 121
FORM N-1A
---------
Part C - Other Information
--------------------------
Item 24. Financial Statements and Exhibits
---------------------------------
(A) Financial Statements
--------------------
(1) Included in Parts A of the Registration Statement:
None.
(2) Incorporated by reference in Parts B of the
Registration Statement:
None.
(B) Exhibits
--------
(1) Declaration of Trust dated January 28, 1986 is
incorporated herein by reference to Exhibit 1 to Post-
Effective Amendment No. 1 to Registrant's Registration
Statement filed on December 16, 1986 ("PEA No. 1").
(a) Amendment No. 1 to Declaration of Trust is
incorporated herein by reference to Exhibit 1(a) to
Post-Effective Amendment No. 6 to Registrant's Registration
Statement filed on August 1, 1989
("PEA No. 6").
(b) Amendment No. 2 to Declaration of Trust is
incorporated herein by reference to Exhibit 1(b) to
Post-Effective Amendment No. 23 to Registrant's Registration
Statement filed on May 11, 1995
("PEA No. 23").
(c) Certificate of Classification of Shares
reflecting the creation of the Tax Exempt Portfolio (Trust) as
filed with the Office of Secretary of State of Massachusetts
on October 16, 1989 is incorporated herein by reference to
Exhibit 1(c) to Post-Effective Amendment No. 26 to
Registrant's Registration Statement filed on May 15, 1996
("PEA No. 26").
(d) Certificate of Classification of Shares
reflecting the creation of Special Series 1 in the Money
Market, Government, Treasury, Tax Exempt, Equity, Bond and
Ohio Tax Exempt Portfolios as filed with the Office of
Secretary of State of Massachusetts on December 11, 1989 is
incorporated herein by reference to Exhibit 1(d) to PEA No.
26.
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<PAGE> 122
(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").
(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,
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<PAGE> 123
respectively, as filed with the Office of the Secretary
of State of Massachusetts on June 27, 1997 is
incorporated herein by reference to Exhibit 1(i) to PEA
No. 35.
(j) Certificate of Classification of Shares
reflecting the creation of Special Series 2 Shares
representing interests in the Money Market, Government Money
Market, Treasury Money Market, Tax-Exempt Money Market, Equity
Growth, Equity Income, Small Cap Value (formerly, the Mid Cap
Regional), Enhanced Income, Total Return Advantage,
Intermediate Bond (formerly, the Fixed Income), Ohio
Tax-Exempt, National Tax- Exempt, Pennsylvania Tax-Exempt,
Bond (formerly, the "Intermediate Government Fund"), GNMA,
Pennsylvania Municipal, International Equity, Equity Index,
Core Equity, Small Cap Growth and Real Return Advantage Funds
is incorporated herein by reference to Exhibit 1(j) to
Post-Effective Amendment No. 38 to Registrant's Registration
Statement filed on December 18, 1997 ("PEA No 38").
(k) Form of Certificate of Classification of
shares reflecting the creation of shares in the Tax
Managed Equity, Aggressive Allocation, Balanced
Allocation and Conservative Allocation Funds.
(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 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
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<PAGE> 124
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").
(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
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<PAGE> 125
incorporated herein by reference to Exhibit 4(l) to PEA
No. 10.
(m) Specimen copy of share certificate for Class K
units of beneficial interest is incorporated herein by
reference to Exhibit 4(m) to PEA No. 10.
(n) Specimen copy of share certificate for Class K -
Special Series 1 units of beneficial interest is incorporated
herein by reference to Exhibit 4(n) to PEA No. 10.
(5) (a) Investment Advisory Agreement for the Money Market
Portfolio, Government Portfolio, Treasury Portfolio, Tax
Exempt Portfolio, Equity Portfolio, Bond Portfolio and Ohio
Tax Exempt Portfolio among Registrant, National City Bank,
BancOhio National Bank and First National Bank of Louisville
dated September 26, 1990 is incorporated herein by reference
to Exhibit 5(f) to Post-Effective Amendment No. 14 to
Registrant's Registration Statement filed on September 5, 1990
("PEA No. 14").
(b) Investment Advisory Agreement for the Money
Market Portfolio (Trust), Government Portfolio (Trust),
Treasury Portfolio (Trust) and Tax Exempt Portfolio (Trust)
among Registrant, National City Bank, BancOhio National Bank
and First National Bank of Louisville dated September 26, 1990
is incorporated herein by reference to Exhibit 5(g) to PEA No.
14.
(c) Investment Advisory Agreement for the Enhanced
Income Fund and the Total Return Advantage Fund between
Registrant and National Asset Management Corporation dated
July 5, 1994, is incorporated herein by reference to Exhibit
5(h) to Post-Effective Amendment No. 21 to Registrant's
Registration Statement filed on August 31, 1994 ("PEA No.
21").
(d) Investment Advisory Agreement for the Equity
Income Portfolio among Registrant, National City Bank,
National City Bank, Columbus and National City Bank, Kentucky
dated June 30, 1994, is incorporated herein by reference to
Exhibit 5(i) to PEA No. 21.
(e) Investment Advisory Agreement for the Mid Cap
Regional Equity Portfolio between Registrant and National City
Bank dated July 25, 1994, is incorporated herein by reference
to Exhibit 5(j) to PEA No. 21.
(f) Investment Advisory Agreement for the
National Tax Exempt Portfolio among Registrant,
C-5
<PAGE> 126
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 Pennsylvan-
ia Municipal Funds between Registrant and National City
Bank dated September 9, 1996, is incorporated herein by
reference to Exhib-
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<PAGE> 127
it 5(g) to PEA No. 33.
(h) Investment Advisory Agreement for the Core Equity
Fund between Registrant and National Asset Management
Corporation dated July 31, 1997 is incorporated herein by
reference to Exhibit 5(i) to Post-Effective Amendment No. 36
to Registrant's Registration Statement filed on September 30,
1997 ("PEA No. 36").
(i) Investment Advisory Agreement for the Small Cap
Growth, Equity Index, Real Return Advantage and International
Equity Funds between Registrant and National City Bank dated
July 31, 1997 is incorporated herein by reference to Exhibit
5(j) to PEA No. 36.
(j) Sub-Advisory Agreement between National City Bank
and Wellington Management Company, LLP with respect to the
Small Cap Growth Fund dated July 31, 1997 is incorporated
herein by reference to Exhibit 5(k) to PEA No. 36.
(k) Advisory Agreement for the Money Market,
Treasury, Government, Tax Exempt, Pennsylvania Tax Exempt,
National Tax Exempt, Fixed Income, GNMA, Intermediate
Government, Equity Growth, Equity Income, Mid Cap Regional,
Ohio Tax Exempt and Pennsylvania Municipal Funds between
Registrant and National City Bank is incorporated herein by
reference to Exhibit 5(k) to PEA No. 38.
(l) Advisory Agreement for the Enhanced Income and
Total Return Advantage Funds between Registrant and National
Asset Management Corporation is incorporated herein by
reference to Exhibit 5(l) to PEA No. 38.
(m) Form of Advisory Agreement for the Tax
Managed Equity, Aggressive Allocation, Balanced
Allocation, Conservative Allocation, Emerging Markets,
Mid Cap Growth, Michigan Municipal Bond and Treasury II
Funds between Registrant and National City Bank.
(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.
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<PAGE> 128
(b) Addendum to the Distribution Agreement between
Registrant and SEI Financial Services Company, dated November
19, 1997, is incorporated herein by reference to Exhibit 6(b)
to PEA No. 38.
(7) None.
(8) (a) Custodian Services Agreement between Registrant and
National City Bank, dated November 7, 1994, is incorporated
herein by reference to Exhibit 8(a) to Post-Effective
Amendment No. 22 to Registrant's Registration Statement filed
on December 30, 1994 ("PEA
No. 22").
(b) Sub-Custodian Agreement between National City
Bank and The Bank of California, National Association, dated
November 7, 1994, is incorporated herein by reference to
Exhibit 8(a) to PEA No. 22.
(c) Exhibit A to the Custodian Services Agreement
between Registrant and National City Bank dated July 31, 1997
is incorporated herein by reference to Exhibit 8(c) to PEA No.
36.
(d) Form of Amended Exhibit A to the Custodian
Services Agreement between Registrant and National City
Bank.
(9) (a) Administration and Accounting Services Agreement
between Registrant and PFPC Inc., dated March 1, 1993 is
incorporated by reference to Exhibit 9(l) to Post-Effective
Amendment No. 16 to Registrant's Registration Statement filed
on March 1, 1993 ("PEA
No. 16").
(b) Exhibit A to the Administration and Accounting
Services Agreement dated March 1, 1993 between Registrant and
PFPC Inc., dated July 31, 1997, is incorporated herein by
reference to Exhibit 9(b) to PEA No. 36.
(c) Transfer Agency and Service Agreement (the
"Transfer Agency Agreement") between Registrant and State
Street Bank and Trust Company, dated March 1, 1997, is
incorporated herein by reference to Exhibit 9(d) to PEA No.
33.
(d) Form of Addendum No. 1 to Amended and
Restated Transfer Agency and Dividend Disbursement
Agreement between Registrant and State Street Bank and
Trust Company.
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<PAGE> 129
(E) Revised Shareholder Services Plan and Servicing
Agreement adopted by the Board of Trustees on February 15,
1997, is incorporated herein by reference to Exhibit 9(e) to
PEA No. 33.
(F) Blue Sky Services Agreement between the
Registrant and SEI Fund Resources, dated December 2,
1996, is incorporated herein by reference to Exhibit
9(f) to PEA No. 33.
(10)(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.
(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
- --------
1 To be filed under Rule 24f-2 as part of Registrant's Rule
24f-2 Notice.
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<PAGE> 130
incorporated herein by reference to Exhibit 13(e) to
PEA No. 21.
(f) Purchase Agreement between Registrant and
Allmerica Investments, Inc. with respect to the Equity Income
Portfolio, dated June 30, 1994, is incorporated herein by
reference to Exhibit 13(g) to PEA No. 21.
(g) Purchase Agreement between Registrant and
Allmerica Investments, Inc. with respect to the Mid Cap
Regional Equity Portfolio, dated July 25, 1994, is
incorporated herein by reference to Exhibit 13(h) to PEA No.
21.
(h) Purchase Agreement between Registrant and
Allmerica Investments, Inc. with respect to the Total
Return Advantage Fund, dated July 5, 1994, is
incorporated herein by reference to Exhibit 13(f) to
PEA No. 21.
(i) Purchase Agreement between Registrant and
Allmerica Investments, Inc. with respect to the National Tax
Exempt Portfolio is incorporated herein by reference to
Exhibit 13(e) to PEA No. 20.
(j) Purchase Agreement between Registrant and 440
Financial Distributors, Inc. with respect to the Pennsylvania
Tax Exempt Money Market Fund, dated September 6, 1996, is
incorporated herein by reference to Exhibit 13(j) to PEA No.
33.
(k) Purchase Agreement between Registrant and 440
Financial Distributors, Inc. with respect to the Intermediate
Government Money Market Fund, dated September 6, 1996, is
incorporated herein by reference to Exhibit 13(k) to PEA No.
33.
(l) Purchase Agreement between Registrant and 440
Financial Distributors, Inc. with respect to the GNMA Fund,
dated September 6, 1996, is incorporated herein by reference
to Exhibit 13(l) to PEA No. 33.
(m) Purchase Agreement between Registrant and 440
Financial Distributors, Inc. with respect to the
Pennsylvania Municipal Fund, dated September 6, 1996,
is incorporated herein by reference to Exhibit 13(m) to
PEA No. 33.
(n) Purchase Agreement between Registrant and SEI
Investments Distribution Co., ("SIDC") with respect to the
Core Equity Fund is incorporated herein by reference to
Exhibit 13(n) to PEA No. 36.
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<PAGE> 131
(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.
(T) Form of Purchase Agreement between Registrant
and SEI Investments Distribution Co. with respect to
the Aggressive Allocation, Balanced Allocation and
Conservative Allocation Funds.
(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 Exhibit 15(b) to
PEA No. 38.
(16) (a) Schedules for Computation of Performance Quotations
are incorporated herein by reference to Exhibit 16 to
Post-Effective Amendment No. 15 to Registrant's Registration
Statement filed on
September 18, 1992 ("PEA No. 15").
(b) Schedules for Computation of Performance
Quotations for the Treasury, Mid Cap Regional, Equity Growth
and Equity Income Portfolios and the Enhanced Income and Total
Return Advantage Funds and the Pennsylvania Tax Exempt, the
Pennsylvania Municipal, the Intermediate Government and the
GNMA Funds are
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<PAGE> 132
incorporated herein by reference to Exhibit 16 to PEA
No. 22.
(17) (a) None.
(18) Revised Plan Pursuant to Rule 18f-3 for Operation
of a Triple-Class System.
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
JANUARY 31, 1998:
<TABLE>
<CAPTION>
Total
Number of Record
Title of Class Holders Institutional Retail B SHARES
- -------------- ------- ------------- ------ --------
<S> <C> <C> <C> <C>
Class A units of 42,575 19,411 24,201 3
beneficial interest
(Money Market Fund)
Class B units of 4,770 2,675 1,768
beneficial interest
(Government Money
Market Fund)
Class C units of 2,576 2,418 224
beneficial interest
(Treasury Money Market
Fund)
Class D units of 2,970 2,143 904
beneficial interest
(Tax Exempt Money
Market Fund)
Class H units of 6,254 5,784 694 3
beneficial interest
(Equity Growth Fund)
Class I units of 2,700 2,698 182 4
beneficial interest
(Intermediate Bond
Fund)
Class K units of 942 874 104
beneficial interest
(Ohio Tax Exempt
Fund)
</TABLE>
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<PAGE> 133
<TABLE>
<CAPTION>
Total
Number of Record
Title of Class Holders Institutional Retail B Shares
- -------------- ----------------- ------------- ------ --------
<S> <C> <C> <C> <C>
Class M units of 3,808 3,832 160 3
beneficial interest
(Equity Income Fund)
Class N units of 5,054 4,533 828 19
beneficial interest
(Small Cap Value Fund)
Class O units of 511 448 27
beneficial interest
(Enhanced Income Fund)
Class P units of 1,096 1,153 29
beneficial interest
(Total Return
Advantage Fund)
Class Q units of 799 668 83
beneficial interest
(Pennsylvania Tax Exempt
Money Market Fund)
Class R units of 2,818 2,705 8 3
beneficial interest
(Bond Fund)
Class S units of 2,920 2,878 0
beneficial interest
(GNMA Fund)
Class T units of 393 383 8
beneficial interest
(Pennsylvania Municipal
Fund)
Class U units of 331 360 57
beneficial interest
(International Equity
Fund)
Class V units of 0 0 0
beneficial interest
(Equity Index Fund)
Class W units of 35 52 18 3
beneficial interest
(Core Equity Fund)
Class X units of 358 432 39 4
beneficial interest
(Small Cap Growth
Fund)
Class Y units of 0 0 0
beneficial interest
(Real Return Advantage
Fund)
</TABLE>
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<PAGE> 134
Item 27. Indemnification
----------------
Indemnification of Registrant's principal underwriter,
custodian and transfer agent against certain losses is provided for,
respectively, in Article 6 of the Distribution Agreement, incorporated by
reference as Exhibit (6) hereto, and Sections 12 and 6, respectively, of the
Custodian Services and Transfer Agency Agreements, incorporated by reference as
Exhibits (8)(a) and (9)(h) hereto. In Article 6 of the Distribution Agreement,
the Trust agrees to indemnify and hold harmless the Distributor and each of its
directors and officers and each person, if any, who controls the Distributor
within the meaning of Section 15 of the 1933 Act against any loss, liability,
claim, damages or expense (including the reasonable cost of investigating or
defending any alleged loss, liability, claim, damages or expense and reasonable
counsel fees and disbursements incurred in connection therewith), arising by
reason of any person acquiring any Shares, based upon the ground that the
registration statement, prospectus, Shareholder reports or other information
filed or made public by the Trust (as from time to time amended) included an
untrue statement of a material fact or omitted to state a material fact required
to be stated or necessary in order to make the statements made not misleading.
However, the Trust does not agree to indemnify the Distributor or hold it
harmless to the extent that the statements or omission was made in reliance
upon, and in conformity with, information furnished to the Trust by or on behalf
of the Distributor.
In addition, Section 9.3 of Registrant's Declaration of Trust
dated January 28, 1986, incorporated by reference as Exhibit (1) hereto,
provides as follows:
9.3 Indemnification of Trustees, Representatives and
Employees. The Trust shall indemnify each of its Trustees
against all liabilities and expenses (including amounts paid
in satisfaction of judgments, in compromise, as fines and
penalties, and as counsel fees) reasonably incurred by him in
connection with the defense or disposition of any action, suit
or other proceeding, whether civil or criminal, in which he
may be involved or with which he may be threatened, while as a
Trustee or thereafter, by reason of his being or having been
such a Trustee EXCEPT with respect to any matter as to which
he shall have been adjudicated to have acted in bad faith,
willful misfeasance, gross negligence or reckless disregard of
his duties, PROVIDED that as to any matter disposed of by a
compromise payment by such person, pursuant to a consent
decree or otherwise, no indemnification either for said
payment or for any other expenses shall be provided unless the
Trust shall have received a written
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<PAGE> 135
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 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
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<PAGE> 136
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,
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
C-16
<PAGE> 137
ruling by any federal agency or any state
with respect to the offer or sale of such
Shares in such state.
(f) The negotiations and processing of checks
made payable to prospective or existing
Shareholders tendered to the Bank for the
purchase of Shares, such checks are commonly
known as "third party checks."
6.2 At any time the Bank may apply to any officer of
the Fund for instructions, and may consult with
legal counsel with respect to any matter arising
in connection with the services to be performed by
the Bank tinder this Agreement, and the Bank and
its agents or subcontractors shall not be liable
and shall be indemnified by the Fund oil behalf of
the applicable Portfolio for any action taken or
omitted by it in reliance upon such instructions
or upon the opinion of such counsel (provided such
counsel is reasonably satisfactory to the Fund).
The Bank, its agents and subcontractors shall be
protected and indemnified in acting upon any paper
or document, reasonably believed to be genuine and
to have been signed by the proper person or
persons, or upon any instruction, information,
data, records or documents provided the Bank or
its agents or subcontractors by machine readable
input, telex, CRT data entry or other similar
means authorized by the Fund, and shall not be
held to have notice of any change of authority of
any person, until receipt of written notice
thereof from the Fund. The Bank, its agents and
subcontractors shall also be protected and
indemnified in recognizing stock certificates
which are reasonably believed to bear the proper
manual or facsimile signatures of the officers of
the Fund, and the proper countersignature of any
former transfer agent or former registrar, or of a
co-transfer agent or co-registrar.
6.3 In the event either party is unable to perform its
obligations under the terms of this Agreement
because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond
its control, or other causes reasonably beyond its
control, such party shall not be liable for
damages to the other for any damages resulting
from such failure to perform or otherwise from
such causes.
C-17
<PAGE> 138
6.4 In order that the indemnification provisions
contained in this Section 6 shall apply, upon the
assertion of a claim for which the Fund may be
required to indemnify the Bank, the Bank shall
promptly notify the Fund of such assertion, and
shall keep the Fund advised with respect to all
developments concerning such claim. The Fund shall
have the option to participate with the Bank in
the defense of such claim or to defend against
said claim in its own name or in the name of the
Bank. The Bank shall in no case confess any claim
or make any compromise in any case in which the
Fund may be required to indemnify the Bank except
with the Fund's prior written consent.
Registrant has obtained from a major insurance carrier a
directors' and officers' liability policy covering certain types of errors and
omissions. In no event will Registrant indemnify any of its trustees, officers,
employees or agents against any liability to which such person would otherwise
be subject by reason of his willful misfeasance, bad faith or gross negligence
in the performance of his duties, or by reason of his reckless disregard of the
duties involved in the conduct of his office or under his agreement with
Registrant. Registrant will comply with Rule 484 under the Securities Act of
1933 and Release No. 11330 under the Investment Company Act of 1940 in
connection with any indemnification.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers, and controlling
persons of Registrant pursuant to the foregoing provisions, or otherwise,
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Registrant of expenses
incurred or paid by a trustee, officer, or controlling person of Registrant in
the successful defense of any action, suit, or proceeding) is asserted by such
trustee, officer, or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
C-18
<PAGE> 139
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-19
<PAGE> 140
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-20
<PAGE> 141
<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-21
<PAGE> 142
<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-22
<PAGE> 143
<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-23
<PAGE> 144
<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
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.
C-24
<PAGE> 145
Wellington is an investment adviser registered under the
Investment Advisers Act of 1940 (the "Advisers Act").
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,
C-25
<PAGE> 146
clearing and settlement of securities transactions
("MarketLink").
(b) Furnish the information required by the following
table with respect to each director, officer or partner of
each principal underwriter named in the answer to Item 21 of
Part B. Unless otherwise noted, the principal business address
of each director or officer is Oaks, PA 19456.
<TABLE>
<CAPTION>
Position and Office Positions and Offices
Name with Underwriter with Registrant
- ---- ---------------- ---------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman & --
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 --
</TABLE>
C-26
<PAGE> 147
<TABLE>
<CAPTION>
Position and Office Positions and Offices
Name with Underwriter with Registrant
- ---- ---------------- ---------------
<S> <C> <C>
Samuel King Vice President --
Kim Kirk Vice President & --
Managing Director
John Krzeminski Vice President & --
Managing Director
Carolyn McLaurin Vice President & --
Managing Director
W. Kelso Morrill Vice President --
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
</TABLE>
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).
C-27
<PAGE> 148
(5) Drinker Biddle & Reath LLP, 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107-3496 (Registrant's
Declaration of Trust, Code of Regulations, and Minute Books).
(6) PNC Bank, National Association, 17th and Chestnut Streets,
Philadelphia, Pennsylvania 19103 (records relating to its
former functions as custodian).
(7) PFPC Inc., 400 Bellevue Parkway, Wilmington, Delaware
19809 (records relating to its 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 effective
date of Post-Effective Amendment No. 40.
C-28
<PAGE> 149
(C) REGISTRANT UNDERTAKES TO FILE A POST-EFFECTIVE
AMENDMENT, USING UNAUDITED FINANCIAL STATEMENTS FOR THE
REGISTRANT'S BALANCED ALLOCATION FUND WHICH NEED NOT BE
CERTIFIED, WITHIN FOUR TO SIX MONTHS FROM THE EFFECTIVE DATE OF
THIS POST-EFFECTIVE AMENDMENT NO. 41.
C-29
<PAGE> 150
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. 41 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 23RD day of FEBRUARY,
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. 41 to Registrant's Registration Statement has been signed below
by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Neal J. Andrews Treasurer FEBRUARY 23, 1998
- ---------------------------
Neal J. Andrews
*Leigh Carter Trustee FEBRUARY 23, 1998
- ---------------------------
Leigh Carter
*John F. Durkott Trustee FEBRUARY 23, 1998
- ---------------------------
John F. Durkott
*Robert J. Farling Trustee FEBRUARY 23, 1998
- ---------------------------
Robert J. Farling
*Richard W. Furst Trustee FEBRUARY 23, 1998
- ---------------------------
Richard W. Furst
*Gerald Gherlein Trustee FEBRUARY 23, 1998
- ---------------------------
Gerald Gherlein
*Herbert Martens President and Trustee FEBRUARY 23, 1998
- ---------------------------
Herbert Martens
</TABLE>
C-30
<PAGE> 151
<TABLE>
<CAPTION>
<S> <C> <C>
*Robert D. Neary Trustee and Chairman FEBRUARY 23, 1998
- ----------------------------
Robert D. Neary of the Board
*J. William Pullen Trustee FEBRUARY 23, 1998
- ----------------------------
J. William Pullen
</TABLE>
*By: /S/ W. BRUCE MCCONNEL, III
- ------------------------------------
W. Bruce McConnel, III
Attorney-in-Fact
C-31
<PAGE> 152
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> 153
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> 154
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> 155
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> 156
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> 157
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> 158
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> 159
EXHIBIT INDEX
-------------
(1)(c) Form of Certificate of Classification of Shares
(5)(m) Form of Advisory Agreement for the Tax Managed Equity, Aggressive
Allocation, Balanced Allocation, Conservative Allocation, Emerging
Markets, Mid Cap Growth, Michigan Municipal Bond and Treasury II Funds
between Registrant and National City Bank.
(8)(d) Form of Amended Exhibit A to the Custodian Services Agreement between
Registrant and National City Bank.
(9)(d) Form of Addendum No. 1 to Amended and Restated Transfer Agency and
Dividend Disbursement Agreement between Registrant and State Street
Bank and Trust Company.
(11) Consent of Drinker Biddle & Reath LLP.
(13)(f) Form of Purchase Agreement between Registrant and SEI
Investments Distribution Co. with respect to the
Aggressive Allocation, Balanced Allocation and
Conservative Allocation Funds.
(18) Revised Plan Pursuant to Rule 18f-3 for Operation of a
Triple-Class System.
<PAGE> 1
Exhibit 1(c)
ARMADA FUNDS ("ARMADA")
(A MASSACHUSETTS BUSINESS TRUST)
CERTIFICATE OF CLASSIFICATION OF SHARES
I, W. Bruce McConnel, III, do hereby certify as
follows:
(1) That I am the duly elected Secretary of Armada
Funds ("Armada");
(2) That in such capacity I have examined the records of
actions taken by the Board of Trustees of Armada;
(3) That the Board of Trustees of Armada duly adopted the
following resolutions at the Regular Meeting of the Board of Trustees held on
February 17, 1998:
CREATION OF NEW SERIES OF SHARES
1. CREATION OF CLASS Z, CLASS Z-SPECIAL SERIES 1 AND CLASS
Z-SPECIAL SERIES 2 SHARES REPRESENTING INTERESTS IN THE
TAX MANAGED EQUITY FUND.
RESOLVED, that pursuant to Section 5.1 of Armada's
Declaration of Trust, an unlimited number of authorized,
unissued and unclassified shares of beneficial interest in
Armada (no par value) be, and hereby are, classified and
designated as Class Z shares of beneficial interest;
FURTHER RESOLVED, that pursuant to Section 5.1 of
Armada's Declaration of Trust, an unlimited number of
authorized, unissued and unclassified shares of beneficial
interest in Armada (no par value) be, and hereby are,
classified and designated as Class Z-Special Series 1 shares;
FURTHER RESOLVED, that pursuant to Section 5.1 of
Armada's Declaration of Trust, an unlimited number of
authorized, unissued and unclassified shares of beneficial
interest in Armada (no par value) be, and hereby are,
classified and designated as Class Z-Special Series 2 shares;
FURTHER RESOLVED, that all consideration received by
Armada for the issue or sale of Class Z shares, Class
Z-Special Series 1 shares and Class Z-Special Series 2 shares
shall be invested and reinvested with the consideration
received by Armada for the issue and sale of Class Z shares,
Class Z-Special Series 1 shares and Class Z-Special Series 2
shares and any other
<PAGE> 2
shares of beneficial interest in Armada hereafter designated
as Class Z shares (irrespective of whether said shares have
been designated as part of a series of said class and, if so
designated, irrespective of the particular series
designation), together with all income, earnings, profits and
proceeds thereof, including any proceeds derived from the
sale, exchange or liquidation thereof, any funds or payments
derived from any reinvestment of such proceeds in whatever
form the same may be, and any general assets of Armada
allocated to Class Z shares, Class Z-Special Series 1 shares
and Class Z-Special Series 2 shares or such other shares by
the Board of Trustees in accordance with Armada's Declaration
of Trust, and each Class Z share, Class Z-Special Series 1
share and Class Z-Special Series 2 share shall share in
proportion to their respective net asset values with each such
other share in such consideration and other assets, income,
earnings, profits and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation thereof, and
any assets derived from any reinvestment of such proceeds in
whatever form;
FURTHER RESOLVED, that each Class Z share, each Class
Z-Special Series 1 share and each Class Z-Special Series 2
share shall be charged in proportion to their respective net
asset values with each other share of beneficial interest in
Armada now or hereafter designated as a Class Z share of
beneficial interest (irrespective of whether said share has
been designated as part of a series of said class and, if so
designated as part of a series, irrespective of the series
designation) with the expenses and liabilities of Armada in
respect of Class Z shares, Class Z-Special Series 1 shares,
Class Z-Special Series 2 shares or such other shares and in
respect of any general expenses and liabilities of Armada
allocated to Class Z shares, Class Z-Special Series 1 shares,
Class Z-Special Series 2 shares or such other shares by the
Board of Trustees in accordance with the Declaration of Trust,
except that to the extent permitted by rule or order of the
Securities and Exchange Commission and as may be from time to
time determined by the Board of Trustees:
(a) only the Class Z shares shall bear: (i) the expenses and
liabilities arising from transfer agency services that are
directly attributable to Class Z shares; and (ii) other such
expenses and liabilities as the Board of Trustees may from
time to time determine are directly attributable to such
shares and which should therefore be borne solely by Class Z
shares;
- 2 -
<PAGE> 3
(b) only the Class Z-Special Series 1 shares shall bear: (i)
the expenses and liabilities of payments to institutions under
any agreements entered into by or on behalf of Armada which
provide for services by the institutions exclusively for their
customers who beneficially own such shares; (ii) the expenses
and liabilities arising from transfer agency services that are
directly attributable to Class Z-Special Series 1 shares; and
(iii) such other expenses and liabilities as the Board of
Trustees may from time to time determine are directly
attributable to such shares and which should therefore be
borne solely by Class Z-Special Series 1 shares;
(c) only the Class Z-Special Series 2 shall bear: (i) the
expenses and liabilities of payments to institutions under any
agreements entered into by or on behalf of Armada which
provide for services by the institutions exclusively for their
customers who beneficially own such shares; (ii) the expenses
and liabilities arising from transfer agency services that are
directly attributable to such shares; (iii) the expenses and
liabilities of distribution fees payable under Armada's
Distribution and Shareholder Services Plan for Special Series
2 shares; and (iv) such other expenses and liabilities as the
Board of Trustees may from time to time determine are directly
attributable to such shares and which should therefore be
borne solely by such shares;
(d) no Class Z shares shall bear the expenses and liabilities
described in clause (b) and clause (c) above;
(e) no Class Z-Special Series 1 shares shall bear the expenses
and liabilities described in clause (a) and clause (c) above;
(f) no Class Z-Special Series 2 shares shall bear the expenses
and liabilities described in clause (a) and clause (b) above;
(g) on any matter that pertains to the agreements,
arrangements, expenses or liabilities described in clause (a)
above (or to any plan or other document adopted by Armada
relating to said agreements, arrangements, expenses or
liabilities) and that is submitted to a vote of shareholders
of Armada, only Class Z shares shall be entitled to vote,
except that: (i) if said matter affects shares of beneficial
interest in Armada other than Class Z shares, such other
affected shares in Armada shall also be entitled
- 3 -
<PAGE> 4
to vote and, in such case, Class Z shares shall be voted in
the aggregate together with such other affected shares and not
by class or series, except where otherwise required by law or
permitted by the Board of Trustees of Armada; and (ii) if said
matter does not affect Class Z shares, said shares shall not
be entitled to vote (except where otherwise required by law or
permitted by the Board of Trustees) even though the matter is
submitted to a vote of the holders of shares of beneficial
interest in Armada other than Class Z shares;
(h) on any matter that pertains to the agreements,
arrangements, expenses or liabilities described in clause (b)
above (or to any plan or other document adopted by Armada
relating to said agreements, arrangements, expenses or
liabilities) and that is submitted to a vote of shareholders
of Armada, only Class Z-Special Series 1 shares shall be
entitled to vote, except that: (i) if said matter affects
shares of beneficial interest in Armada other than Class Z-
Special Series 1 shares, such other affected shares in Armada
shall also be entitled to vote and, in such case, Class
Z-Special Series 1 shares shall be voted in the aggregate
together with such other affected shares and not by class or
series, except where otherwise required by law or permitted by
the Board of Trustees of Armada; and (ii) if said matter does
not affect Class Z-Special Series 1 shares, said shares shall
not be entitled to vote (except where otherwise required by
law or permitted by the Board of Trustees) even though the
matter is submitted to a vote of the holders of shares of
beneficial interest in Armada other than Class Z-Special
Series 1 shares;
(i) on any matter that pertains to the agreements,
arrangements, expenses or liabilities described in clause (c)
above (or to any plan or other document adopted by Armada
relating to said agreements, arrangements, expenses or
liabilities) and that is submitted to a vote of shareholders
of Armada, only Class Z-Special Series 2 shares shall be
entitled to vote, except that: (i) if said matter affects
shares of beneficial interest in Armada other than Class Z-
Special Series 2 shares, such other affected shares in Armada
shall also be entitled to vote and, in such case, Class
Z-Special Series 2 shares shall be voted in the aggregate
together with such other affected shares and not by class or
series, except where otherwise required by law or permitted by
the Board of Trustees of Armada; and (ii) if said matter does
not affect Class Z-Special Series 2 shares, said shares shall
not
- 4 -
<PAGE> 5
be entitled to vote (except where otherwise required by law or
permitted by the Board of Trustees) even though the matter is
submitted to a vote of the holders of shares of beneficial
interest in Armada other than Class Z-Special Series 2 shares;
(j) on any matter that pertains to the agreements,
arrangements, expenses or liabilities described in clause (b)
or clause (c) above (or to any plan or other document adopted
by Armada relating to said agreements, arrangements, expenses
or liabilities) and that is submitted to a vote of
shareholders of Armada, Class Z shares shall not be entitled
to vote, except where otherwise required by law or permitted
by the Board of Trustees of Armada, and except that if said
matter affects Class Z shares, such shares shall be entitled
to vote and, in such case, Class Z shares shall be voted in
the aggregate together with all other shares of beneficial
interest in Armada voting on the matter and not by class or
series, except where otherwise required by law or permitted by
the Board of Trustees;
(k) on any matter that pertains to the agreements,
arrangements, expenses or liabilities described in clause (a)
or clause (c) above (or to any plan or other document adopted
by Armada relating to said agreements, arrangements, expenses
or liabilities) and that is submitted to a vote of
shareholders of Armada, Class Z-Special Series 1 shares shall
not be entitled to vote, except where otherwise required by
law or permitted by the Board of Trustees of Armada, and
except that if said matter affects Class Z-Special Series 1
shares, such shares shall be entitled to vote and, in such
case, Class Z-Special Series 1 shares shall be voted in the
aggregate together with all other shares of beneficial
interest in Armada voting on the matter and not by class or
series, except where otherwise required by law or permitted by
the Board of Trustees; and
(l) on any matter that pertains to the agreements,
arrangements, expenses or liabilities described in clause (a)
or clause (b) above (or to any plan or other document adopted
by Armada relating to said agreements, arrangements, expenses
or liabilities) and that is submitted to a vote of
shareholders of Armada, Class Z-Special Series 2 shares shall
not be entitled to vote, except where otherwise required by
law or permitted by the Board of Trustees of Armada, and
except that if said matter affects Class Z-Special Series 2
shares, such shares shall be entitled to vote and, in such
case, Class Z-Special Series 2 shares shall be voted in the
aggregate together with all other shares of
- 5 -
<PAGE> 6
beneficial interest in Armada voting on the matter and not by
class or series, except where otherwise required by law or
permitted by the Board of Trustees.
2. CREATION OF CLASS AA, CLASS AA-SPECIAL SERIES 1 AND
CLASS AA-SPECIAL SERIES 2 SHARES REPRESENTING INTERESTS
IN THE AGGRESSIVE ALLOCATION FUND.
RESOLVED, that pursuant to Section 5.1 of Armada's
Declaration of Trust, an unlimited number of authorized,
unissued and unclassified shares of beneficial interest in
Armada (no par value) be, and hereby are, classified and
designated as Class AA shares of beneficial interest;
FURTHER RESOLVED, that pursuant to Section 5.1 of
Armada's Declaration of Trust, an unlimited number of
authorized, unissued and unclassified shares of beneficial
interest in Armada (no par value) be, and hereby are,
classified and designated as Class AA-Special Series 1
shares;
FURTHER RESOLVED, that pursuant to Section 5.1 of
Armada's Declaration of Trust, an unlimited number of
authorized, unissued and unclassified shares of beneficial
interest in Armada (no par value) be, and hereby are,
classified and designated as Class AA-Special Series 2
shares;
FURTHER RESOLVED, that all consideration received by
Armada for the issue or sale of Class AA shares, Class
AA-Special Series 1 shares and Class AA-Special Series 2
shares shall be invested and reinvested with the consideration
received by Armada for the issue and sale of Class AA shares,
Class AA-Special Series 1 shares and Class AA-Special Series 2
shares and any other shares of beneficial interest in Armada
hereafter designated as Class AA shares (irrespective of
whether said shares have been designated as part of a series
of said class and, if so designated, irrespective of the
particular series designation), together with all income,
earnings, profits and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation thereof, any
funds or payments derived from any reinvestment of such
proceeds in whatever form the same may be, and any general
assets of Armada allocated to Class AA shares, Class
AA-Special Series 1 shares and Class AA-Special Series 2
shares or such other shares by the Board of Trustees in
accordance with Armada's Declaration of Trust, and each Class
AA share, Class AA-Special Series 1 share and Class AA-
Special Series 2 share shall share in proportion to
- 6 -
<PAGE> 7
their respective net asset values with each such other share
in such consideration and other assets, income, earnings,
profits and proceeds thereof, including any proceeds derived
from the sale, exchange or liquidation thereof, and any assets
derived from any reinvestment of such proceeds in whatever
form;
FURTHER RESOLVED, that each Class AA share, each
Class AA-Special Series 1 share and each Class AA-Special
Series 2 share shall be charged in proportion to their
respective net asset values with each other share of
beneficial interest in Armada now or hereafter designated as a
Class AA share of beneficial interest (irrespective of whether
said share has been designated as part of a series of said
class and, if so designated as part of a series, irrespective
of the series designation) with the expenses and liabilities
of Armada in respect of Class AA shares, Class AA-Special
Series 1 shares, Class AA-Special Series 2 shares or such
other shares and in respect of any general expenses and
liabilities of Armada allocated to Class AA shares, Class
AA-Special Series 1 shares, Class AA-Special Series 2 shares
or such other shares by the Board of Trustees in accordance
with the Declaration of Trust, except that to the extent
permitted by rule or order of the Securities and Exchange
Commission and as may be from time to time determined by the
Board of Trustees:
(a) only the Class AA shares shall bear: (i) the expenses and
liabilities arising from transfer agency services that are
directly attributable to Class AA shares; and (ii) other such
expenses and liabilities as the Board of Trustees may from
time to time determine are directly attributable to such
shares and which should therefore be borne solely by Class AA
shares;
(b) only the Class AA-Special Series 1 shares shall bear: (i)
the expenses and liabilities of payments to institutions under
any agreements entered into by or on behalf of Armada which
provide for services by the institutions exclusively for their
customers who beneficially own such shares; (ii) the expenses
and liabilities arising from transfer agency services that are
directly attributable to Class AA-Special Series 1 shares; and
(iii) such other expenses and liabilities as the Board of
Trustees may from time to time determine are directly
attributable to such shares and which should therefore be
borne solely by Class AA-Special Series 1 shares;
- 7 -
<PAGE> 8
(c) only the Class AA-Special Series 2 shall bear: (i) the
expenses and liabilities of payments to institutions under any
agreements entered into by or on behalf of Armada which
provide for services by the institutions exclusively for their
customers who beneficially own such shares; (ii) the expenses
and liabilities arising from transfer agency services that are
directly attributable to such shares; (iii) the expenses and
liabilities of distribution fees payable under Armada's
Distribution and Shareholder Services Plan for Special Series
2 shares; and (iv) such other expenses and liabilities as the
Board of Trustees may from time to time determine are directly
attributable to such shares and which should therefore be
borne solely by such shares;
(d) no Class AA shares shall bear the expenses and liabilities
described in clause (b) and clause (c) above;
(e) no Class AA-Special Series 1 shares shall bear the
expenses and liabilities described in clause (a) and clause
(c) above;
(f) no Class AA-Special Series 2 shares shall bear the
expenses and liabilities described in clause (a) and clause
(b) above;
(g) on any matter that pertains to the agreements,
arrangements, expenses or liabilities described in clause (a)
above (or to any plan or other document adopted by Armada
relating to said agreements, arrangements, expenses or
liabilities) and that is submitted to a vote of shareholders
of Armada, only Class AA shares shall be entitled to vote,
except that: (i) if said matter affects shares of beneficial
interest in Armada other than Class AA shares, such other
affected shares in Armada shall also be entitled to vote and,
in such case, Class AA shares shall be voted in the aggregate
together with such other affected shares and not by class or
series, except where otherwise required by law or permitted by
the Board of Trustees of Armada; and (ii) if said matter does
not affect Class AA shares, said shares shall not be entitled
to vote (except where otherwise required by law or permitted
by the Board of Trustees) even though the matter is submitted
to a vote of the holders of shares of beneficial interest in
Armada other than Class AA shares;
(h) on any matter that pertains to the agreements,
arrangements, expenses or liabilities described in
- 8 -
<PAGE> 9
clause (b) above (or to any plan or other document adopted by
Armada relating to said agreements, arrangements, expenses or
liabilities) and that is submitted to a vote of shareholders
of Armada, only Class AA-Special Series 1 shares shall be
entitled to vote, except that: (i) if said matter affects
shares of beneficial interest in Armada other than Class AA-
Special Series 1 shares, such other affected shares in Armada
shall also be entitled to vote and, in such case, Class
AA-Special Series 1 shares shall be voted in the aggregate
together with such other affected shares and not by class or
series, except where otherwise required by law or permitted by
the Board of Trustees of Armada; and (ii) if said matter does
not affect Class AA-Special Series 1 shares, said shares shall
not be entitled to vote (except where otherwise required by
law or permitted by the Board of Trustees) even though the
matter is submitted to a vote of the holders of shares of
beneficial interest in Armada other than Class AA-Special
Series 1 shares;
(i) on any matter that pertains to the agreements,
arrangements, expenses or liabilities described in clause (c)
above (or to any plan or other document adopted by Armada
relating to said agreements, arrangements, expenses or
liabilities) and that is submitted to a vote of shareholders
of Armada, only Class AA-Special Series 2 shares shall be
entitled to vote, except that: (i) if said matter affects
shares of beneficial interest in Armada other than Class AA-
Special Series 2 shares, such other affected shares in Armada
shall also be entitled to vote and, in such case, Class
AA-Special Series 2 shares shall be voted in the aggregate
together with such other affected shares and not by class or
series, except where otherwise required by law or permitted by
the Board of Trustees of Armada; and (ii) if said matter does
not affect Class AA-Special Series 2 shares, said shares shall
not be entitled to vote (except where otherwise required by
law or permitted by the Board of Trustees) even though the
matter is submitted to a vote of the holders of shares of
beneficial interest in Armada other than Class AA-Special
Series 2 shares;
(j) on any matter that pertains to the agreements,
arrangements, expenses or liabilities described in clause (b)
or clause (c) above (or to any plan or other document adopted
by Armada relating to said agreements, arrangements, expenses
or liabilities) and that is submitted to a vote of
shareholders of Armada, Class AA shares shall not be entitled
to vote, except where otherwise required by law or permitted
by the Board of
- 9 -
<PAGE> 10
Trustees of Armada, and except that if said matter affects
Class AA shares, such shares shall be entitled to vote and, in
such case, Class AA shares shall be voted in the aggregate
together with all other shares of beneficial interest in
Armada voting on the matter and not by class or series, except
where otherwise required by law or permitted by the Board of
Trustees;
(k) on any matter that pertains to the agreements,
arrangements, expenses or liabilities described in clause (a)
or clause (c) above (or to any plan or other document adopted
by Armada relating to said agreements, arrangements, expenses
or liabilities) and that is submitted to a vote of
shareholders of Armada, Class AA-Special Series 1 shares shall
not be entitled to vote, except where otherwise required by
law or permitted by the Board of Trustees of Armada, and
except that if said matter affects Class AA-Special Series 1
shares, such shares shall be entitled to vote and, in such
case, Class AA-Special Series 1 shares shall be voted in the
aggregate together with all other shares of beneficial
interest in Armada voting on the matter and not by class or
series, except where otherwise required by law or permitted by
the Board of Trustees; and
(l) on any matter that pertains to the agreements,
arrangements, expenses or liabilities described in clause (a)
or clause (b) above (or to any plan or other document adopted
by Armada relating to said agreements, arrangements, expenses
or liabilities) and that is submitted to a vote of
shareholders of Armada, Class AA-Special Series 2 shares shall
not be entitled to vote, except where otherwise required by
law or permitted by the Board of Trustees of Armada, and
except that if said matter affects Class AA-Special Series 2
shares, such shares shall be entitled to vote and, in such
case, Class AA-Special Series 2 shares shall be voted in the
aggregate together with all other shares of beneficial
interest in Armada voting on the matter and not by class or
series, except where otherwise required by law or permitted by
the Board of Trustees.
3. CREATION OF CLASS BB, CLASS BB-SPECIAL SERIES 1 AND
CLASS BB-SPECIAL SERIES 2 SHARES REPRESENTING INTERESTS
IN THE BALANCED ALLOCATION FUND.
RESOLVED, that pursuant to Section 5.1 of Armada's
Declaration of Trust, an unlimited number of authorized,
unissued and unclassified shares of beneficial interest in
Armada (no par value) be, and
- 10 -
<PAGE> 11
hereby are, classified and designated as Class BB
shares of beneficial interest;
FURTHER RESOLVED, that pursuant to Section 5.1 of
Armada's Declaration of Trust, an unlimited number of
authorized, unissued and unclassified shares of beneficial
interest in Armada (no par value) be, and hereby are,
classified and designated as Class BB-Special Series 1
shares;
FURTHER RESOLVED, that pursuant to Section 5.1 of
Armada's Declaration of Trust, an unlimited number of
authorized, unissued and unclassified shares of beneficial
interest in Armada (no par value) be, and hereby are,
classified and designated as Class BB-Special Series 2
shares;
FURTHER RESOLVED, that all consideration received by
Armada for the issue or sale of Class BB shares, Class
BB-Special Series 1 shares and Class BB-Special Series 2
shares shall be invested and reinvested with the consideration
received by Armada for the issue and sale of Class BB shares,
Class BB-Special Series 1 shares and Class BB-Special Series 2
shares and any other shares of beneficial interest in Armada
hereafter designated as Class BB shares (irrespective of
whether said shares have been designated as part of a series
of said class and, if so designated, irrespective of the
particular series designation), together with all income,
earnings, profits and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation thereof, any
funds or payments derived from any reinvestment of such
proceeds in whatever form the same may be, and any general
assets of Armada allocated to Class BB shares, Class
BB-Special Series 1 shares and Class BB-Special Series 2
shares or such other shares by the Board of Trustees in
accordance with Armada's Declaration of Trust, and each Class
BB share, Class BB-Special Series 1 share and Class BB-
Special Series 2 share shall share in proportion to their
respective net asset values with each such other share in such
consideration and other assets, income, earnings, profits and
proceeds thereof, including any proceeds derived from the
sale, exchange or liquidation thereof, and any assets derived
from any reinvestment of such proceeds in whatever form;
FURTHER RESOLVED, that each Class BB share, each
Class BB-Special Series 1 share and each Class BB-Special
Series 2 share shall be charged in proportion to their
respective net asset values with each other share of
beneficial interest in Armada now or hereafter
- 11 -
<PAGE> 12
designated as a Class BB share of beneficial interest
(irrespective of whether said share has been designated as
part of a series of said class and, if so designated as part
of a series, irrespective of the series designation) with the
expenses and liabilities of Armada in respect of Class BB
shares, Class BB-Special Series 1 shares, Class BB-Special
Series 2 shares or such other shares and in respect of any
general expenses and liabilities of Armada allocated to Class
BB shares, Class BB-Special Series 1 shares, Class BB-Special
Series 2 shares or such other shares by the Board of Trustees
in accordance with the Declaration of Trust, except that to
the extent permitted by rule or order of the Securities and
Exchange Commission and as may be from time to time determined
by the Board of Trustees:
(a) only the Class BB shares shall bear: (i) the expenses and
liabilities arising from transfer agency services that are
directly attributable to Class BB shares; and (ii) other such
expenses and liabilities as the Board of Trustees may from
time to time determine are directly attributable to such
shares and which should therefore be borne solely by Class BB
shares;
(b) only the Class BB-Special Series 1 shares shall bear: (i)
the expenses and liabilities of payments to institutions under
any agreements entered into by or on behalf of Armada which
provide for services by the institutions exclusively for their
customers who beneficially own such shares; (ii) the expenses
and liabilities arising from transfer agency services that are
directly attributable to Class BB-Special Series 1 shares; and
(iii) such other expenses and liabilities as the Board of
Trustees may from time to time determine are directly
attributable to such shares and which should therefore be
borne solely by Class BB-Special Series 1 shares;
(c) only the Class BB-Special Series 2 shall bear: (i) the
expenses and liabilities of payments to institutions under any
agreements entered into by or on behalf of Armada which
provide for services by the institutions exclusively for their
customers who beneficially own such shares; (ii) the expenses
and liabilities arising from transfer agency services that are
directly attributable to such shares; (iii) the expenses and
liabilities of distribution fees payable under Armada's
Distribution and Shareholder Services Plan for Special Series
2 shares; and (iv) such other expenses and liabilities as the
Board of Trustees may from time to time determine are directly
attributable
- 12 -
<PAGE> 13
to such shares and which should therefore be borne
solely by such shares;
(d) no Class BB shares shall bear the expenses and liabilities
described in clause (b) and clause (c) above;
(e) no Class BB-Special Series 1 shares shall bear the
expenses and liabilities described in clause (a) and clause
(c) above;
(f) no Class BB-Special Series 2 shares shall bear the
expenses and liabilities described in clause (a) and clause
(b) above;
(g) on any matter that pertains to the agreements,
arrangements, expenses or liabilities described in clause (a)
above (or to any plan or other document adopted by Armada
relating to said agreements, arrangements, expenses or
liabilities) and that is submitted to a vote of shareholders
of Armada, only Class BB shares shall be entitled to vote,
except that: (i) if said matter affects shares of beneficial
interest in Armada other than Class BB shares, such other
affected shares in Armada shall also be entitled to vote and,
in such case, Class BB shares shall be voted in the aggregate
together with such other affected shares and not by class or
series, except where otherwise required by law or permitted by
the Board of Trustees of Armada; and (ii) if said matter does
not affect Class BB shares, said shares shall not be entitled
to vote (except where otherwise required by law or permitted
by the Board of Trustees) even though the matter is submitted
to a vote of the holders of shares of beneficial interest in
Armada other than Class BB shares;
(h) on any matter that pertains to the agreements,
arrangements, expenses or liabilities described in clause (b)
above (or to any plan or other document adopted by Armada
relating to said agreements, arrangements, expenses or
liabilities) and that is submitted to a vote of shareholders
of Armada, only Class BB-Special Series 1 shares shall be
entitled to vote, except that: (i) if said matter affects
shares of beneficial interest in Armada other than Class BB-
Special Series 1 shares, such other affected shares in Armada
shall also be entitled to vote and, in such case, Class
BB-Special Series 1 shares shall be voted in the aggregate
together with such other affected shares and not by class or
series, except where otherwise required by law or permitted by
the Board of
- 13 -
<PAGE> 14
Trustees of Armada; and (ii) if said matter does not affect
Class BB-Special Series 1 shares, said shares shall not be
entitled to vote (except where otherwise required by law or
permitted by the Board of Trustees) even though the matter is
submitted to a vote of the holders of shares of beneficial
interest in Armada other than Class BB-Special Series 1
shares;
(i) on any matter that pertains to the agreements,
arrangements, expenses or liabilities described in clause (c)
above (or to any plan or other document adopted by Armada
relating to said agreements, arrangements, expenses or
liabilities) and that is submitted to a vote of shareholders
of Armada, only Class BB-Special Series 2 shares shall be
entitled to vote, except that: (i) if said matter affects
shares of beneficial interest in Armada other than Class BB-
Special Series 2 shares, such other affected shares in Armada
shall also be entitled to vote and, in such case, Class
BB-Special Series 2 shares shall be voted in the aggregate
together with such other affected shares and not by class or
series, except where otherwise required by law or permitted by
the Board of Trustees of Armada; and (ii) if said matter does
not affect Class BB-Special Series 2 shares, said shares shall
not be entitled to vote (except where otherwise required by
law or permitted by the Board of Trustees) even though the
matter is submitted to a vote of the holders of shares of
beneficial interest in Armada other than Class BB-Special
Series 2 shares;
(j) on any matter that pertains to the agreements,
arrangements, expenses or liabilities described in clause (b)
or clause (c) above (or to any plan or other document adopted
by Armada relating to said agreements, arrangements, expenses
or liabilities) and that is submitted to a vote of
shareholders of Armada, Class BB shares shall not be entitled
to vote, except where otherwise required by law or permitted
by the Board of Trustees of Armada, and except that if said
matter affects Class BB shares, such shares shall be entitled
to vote and, in such case, Class BB shares shall be voted in
the aggregate together with all other shares of beneficial
interest in Armada voting on the matter and not by class or
series, except where otherwise required by law or permitted by
the Board of Trustees;
(k) on any matter that pertains to the agreements,
arrangements, expenses or liabilities described in clause (a)
or clause (c) above (or to any plan or other document adopted
by Armada relating to said agreements, arrangements, expenses
or liabilities) and that is
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<PAGE> 15
submitted to a vote of shareholders of Armada, Class
BB-Special Series 1 shares shall not be entitled to vote,
except where otherwise required by law or permitted by the
Board of Trustees of Armada, and except that if said matter
affects Class BB-Special Series 1 shares, such shares shall be
entitled to vote and, in such case, Class BB-Special Series 1
shares shall be voted in the aggregate together with all other
shares of beneficial interest in Armada voting on the matter
and not by class or series, except where otherwise required by
law or permitted by the Board of Trustees; and
(l) on any matter that pertains to the agreements,
arrangements, expenses or liabilities described in clause (a)
or clause (b) above (or to any plan or other document adopted
by Armada relating to said agreements, arrangements, expenses
or liabilities) and that is submitted to a vote of
shareholders of Armada, Class BB-Special Series 2 shares shall
not be entitled to vote, except where otherwise required by
law or permitted by the Board of Trustees of Armada, and
except that if said matter affects Class BB-Special Series 2
shares, such shares shall be entitled to vote and, in such
case, Class BB-Special Series 2 shares shall be voted in the
aggregate together with all other shares of beneficial
interest in Armada voting on the matter and not by class or
series, except where otherwise required by law or permitted by
the Board of Trustees.
4. CREATION OF CLASS CC, CLASS CC-SPECIAL SERIES 1 AND
CLASS CC-SPECIAL SERIES 2 SHARES REPRESENTING INTERESTS
IN THE CONSERVATIVE ALLOCATION FUND.
RESOLVED, that pursuant to Section 5.1 of Armada's
Declaration of Trust, an unlimited number of authorized,
unissued and unclassified shares of beneficial interest in
Armada (no par value) be, and hereby are, classified and
designated as Class CC shares of beneficial interest;
FURTHER RESOLVED, that pursuant to Section 5.1 of
Armada's Declaration of Trust, an unlimited number of
authorized, unissued and unclassified shares of beneficial
interest in Armada (no par value) be, and hereby are,
classified and designated as Class CC-Special Series 1
shares;
FURTHER RESOLVED, that pursuant to Section 5.1 of
Armada's Declaration of Trust, an unlimited number of
authorized, unissued and unclassified shares of
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<PAGE> 16
beneficial interest in Armada (no par value) be, and hereby
are, classified and designated as Class CC-Special Series 2
shares;
FURTHER RESOLVED, that all consideration received by
Armada for the issue or sale of Class CC shares, Class
CC-Special Series 1 shares and Class CC-Special Series 2
shares shall be invested and reinvested with the consideration
received by Armada for the issue and sale of Class CC shares,
Class CC-Special Series 1 shares and Class CC-Special Series 2
shares and any other shares of beneficial interest in Armada
hereafter designated as Class CC shares (irrespective of
whether said shares have been designated as part of a series
of said class and, if so designated, irrespective of the
particular series designation), together with all income,
earnings, profits and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation thereof, any
funds or payments derived from any reinvestment of such
proceeds in whatever form the same may be, and any general
assets of Armada allocated to Class CC shares, Class
CC-Special Series 1 shares and Class CC-Special Series 2
shares or such other shares by the Board of Trustees in
accordance with Armada's Declaration of Trust, and each Class
CC share, Class CC-Special Series 1 share and Class CC-
Special Series 2 share shall share in proportion to their
respective net asset values with each such other share in such
consideration and other assets, income, earnings, profits and
proceeds thereof, including any proceeds derived from the
sale, exchange or liquidation thereof, and any assets derived
from any reinvestment of such proceeds in whatever form;
FURTHER RESOLVED, that each Class CC share, each
Class CC-Special Series 1 share and each Class CC-Special
Series 2 share shall be charged in proportion to their
respective net asset values with each other share of
beneficial interest in Armada now or hereafter designated as a
Class CC share of beneficial interest (irrespective of whether
said share has been designated as part of a series of said
class and, if so designated as part of a series, irrespective
of the series designation) with the expenses and liabilities
of Armada in respect of Class CC shares, Class CC-Special
Series 1 shares, Class CC-Special Series 2 shares or such
other shares and in respect of any general expenses and
liabilities of Armada allocated to Class CC shares, Class
CC-Special Series 1 shares, Class CC-Special Series 2 shares
or such other shares by the Board of Trustees in accordance
with the Declaration of Trust, except that to the extent
permitted by rule or
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<PAGE> 17
order of the Securities and Exchange Commission and as may be
from time to time determined by the Board of Trustees:
(a) only the Class CC shares shall bear: (i) the expenses and
liabilities arising from transfer agency services that are
directly attributable to Class CC shares; and (ii) other such
expenses and liabilities as the Board of Trustees may from
time to time determine are directly attributable to such
shares and which should therefore be borne solely by Class CC
shares;
(b) only the Class CC-Special Series 1 shares shall bear: (i)
the expenses and liabilities of payments to institutions under
any agreements entered into by or on behalf of Armada which
provide for services by the institutions exclusively for their
customers who beneficially own such shares; (ii) the expenses
and liabilities arising from transfer agency services that are
directly attributable to Class CC-Special Series 1 shares; and
(iii) such other expenses and liabilities as the Board of
Trustees may from time to time determine are directly
attributable to such shares and which should therefore be
borne solely by Class CC-Special Series 1 shares;
(c) only the Class CC-Special Series 2 shall bear: (i) the
expenses and liabilities of payments to institutions under any
agreements entered into by or on behalf of Armada which
provide for services by the institutions exclusively for their
customers who beneficially own such shares; (ii) the expenses
and liabilities arising from transfer agency services that are
directly attributable to such shares; (iii) the expenses and
liabilities of distribution fees payable under Armada's
Distribution and Shareholder Services Plan for Special Series
2 shares; and (iv) such other expenses and liabilities as the
Board of Trustees may from time to time determine are directly
attributable to such shares and which should therefore be
borne solely by such shares;
(d) no Class CC shares shall bear the expenses and liabilities
described in clause (b) and clause (c) above;
(e) no Class CC-Special Series 1 shares shall bear the
expenses and liabilities described in clause (a) and clause
(c) above;
PHTRANS:190239_1.WP5
- 17 -
<PAGE> 18
(f) no Class CC-Special Series 2 shares shall bear the
expenses and liabilities described in clause (a) and clause
(b) above;
(g) on any matter that pertains to the agreements,
arrangements, expenses or liabilities described in clause (a)
above (or to any plan or other document adopted by Armada
relating to said agreements, arrangements, expenses or
liabilities) and that is submitted to a vote of shareholders
of Armada, only Class CC shares shall be entitled to vote,
except that: (i) if said matter affects shares of beneficial
interest in Armada other than Class CC shares, such other
affected shares in Armada shall also be entitled to vote and,
in such case, Class CC shares shall be voted in the aggregate
together with such other affected shares and not by class or
series, except where otherwise required by law or permitted by
the Board of Trustees of Armada; and (ii) if said matter does
not affect Class CC shares, said shares shall not be entitled
to vote (except where otherwise required by law or permitted
by the Board of Trustees) even though the matter is submitted
to a vote of the holders of shares of beneficial interest in
Armada other than Class CC shares;
(h) on any matter that pertains to the agreements,
arrangements, expenses or liabilities described in clause (b)
above (or to any plan or other document adopted by Armada
relating to said agreements, arrangements, expenses or
liabilities) and that is submitted to a vote of shareholders
of Armada, only Class CC-Special Series 1 shares shall be
entitled to vote, except that: (i) if said matter affects
shares of beneficial interest in Armada other than Class CC-
Special Series 1 shares, such other affected shares in Armada
shall also be entitled to vote and, in such case, Class
CC-Special Series 1 shares shall be voted in the aggregate
together with such other affected shares and not by class or
series, except where otherwise required by law or permitted by
the Board of Trustees of Armada; and (ii) if said matter does
not affect Class CC-Special Series 1 shares, said shares shall
not be entitled to vote (except where otherwise required by
law or permitted by the Board of Trustees) even though the
matter is submitted to a vote of the holders of shares of
beneficial interest in Armada other than Class CC-Special
Series 1 shares;
(i) on any matter that pertains to the agreements,
arrangements, expenses or liabilities described in clause (c)
above (or to any plan or other document
- 18 -
<PAGE> 19
adopted by Armada relating to said agreements, arrangements,
expenses or liabilities) and that is submitted to a vote of
shareholders of Armada, only Class CC-Special Series 2 shares
shall be entitled to vote, except that: (i) if said matter
affects shares of beneficial interest in Armada other than
Class CC-Special Series 2 shares, such other affected shares
in Armada shall also be entitled to vote and, in such case,
Class CC-Special Series 2 shares shall be voted in the
aggregate together with such other affected shares and not by
class or series, except where otherwise required by law or
permitted by the Board of Trustees of Armada; and (ii) if said
matter does not affect Class CC-Special Series 2 shares, said
shares shall not be entitled to vote (except where otherwise
required by law or permitted by the Board of Trustees) even
though the matter is submitted to a vote of the holders of
shares of beneficial interest in Armada other than Class
CC-Special Series 2 shares;
(j) on any matter that pertains to the agreements,
arrangements, expenses or liabilities described in clause (b)
or clause (c) above (or to any plan or other document adopted
by Armada relating to said agreements, arrangements, expenses
or liabilities) and that is submitted to a vote of
shareholders of Armada, Class CC shares shall not be entitled
to vote, except where otherwise required by law or permitted
by the Board of Trustees of Armada, and except that if said
matter affects Class CC shares, such shares shall be entitled
to vote and, in such case, Class CC shares shall be voted in
the aggregate together with all other shares of beneficial
interest in Armada voting on the matter and not by class or
series, except where otherwise required by law or permitted by
the Board of Trustees;
(k) on any matter that pertains to the agreements,
arrangements, expenses or liabilities described in clause (a)
or clause (c) above (or to any plan or other document adopted
by Armada relating to said agreements, arrangements, expenses
or liabilities) and that is submitted to a vote of
shareholders of Armada, Class CC-Special Series 1 shares shall
not be entitled to vote, except where otherwise required by
law or permitted by the Board of Trustees of Armada, and
except that if said matter affects Class CC-Special Series 1
shares, such shares shall be entitled to vote and, in such
case, Class CC-Special Series 1 shares shall be voted in the
aggregate together with all other shares of beneficial
interest in Armada voting on the matter and not by class or
series, except where
- 19 -
<PAGE> 20
otherwise required by law or permitted by the Board of
Trustees; and
(l) on any matter that pertains to the agreements,
arrangements, expenses or liabilities described in clause (a)
or clause (b) above (or to any plan or other document adopted
by Armada relating to said agreements, arrangements, expenses
or liabilities) and that is submitted to a vote of
shareholders of Armada, Class CC-Special Series 2 shares shall
not be entitled to vote, except where otherwise required by
law or permitted by the Board of Trustees of Armada, and
except that if said matter affects Class CC-Special Series 2
shares, such shares shall be entitled to vote and, in such
case, Class CC-Special Series 2 shares shall be voted in the
aggregate together with all other shares of beneficial
interest in Armada voting on the matter and not by class or
series, except where otherwise required by law or permitted by
the Board of Trustees.
IDENTIFICATION OF SHARES WITH FUNDS.
RESOLVED, that Armada's classes or series of shares shall
represent interests in the investment funds of Armada as follows:
Class of Shares Investment Fund
--------------- ---------------
Class Z Tax Managed Equity Fund
Class Z-Special Series 1
Class Z-Special Series 2
Class AA Aggressive Allocation Fund
Class AA-Special Series 1
Class AA-Special Series 2
Class BB Balanced Allocation Fund
Class BB-Special Series 1
Class BB-Special Series 2
Class CC Conservative Allocation Fund
Class CC-Special Series 1
Class CC-Special Series 2
AUTHORIZATION OF ISSUANCE OF SHARES TO INVESTORS.
RESOLVED, that the appropriate officers of Armada be,
and each of them hereby is, authorized, at any time after
the effective date and time of Post-Effective Amendment No.
__ to Armada's Registration Statement relating to the Tax
Managed Equity, Aggressive Allocation, Balanced Allocation
- 20 -
<PAGE> 21
and Conservative Allocation Funds to issue and redeem from time to time
Class Z shares, Class Z-Special Series 1 and Class Z-Special Series 2
shares representing interests in the Tax Managed Equity Fund; Class AA
shares, Class AA-Special Series 1 shares and Class AA-Special Series 2
shares representing interests in the Aggressive Allocation Fund; Class
BB shares, Class BB-Special Series 1 shares and Class BB-Special Series
2 shares representing interests in the Balanced Allocation Fund and
Class CC Shares, Class CC-Special Series 1 shares and Class CC-Special
Series 2 shares representing interests in the Conservative Allocation
Fund, in accordance with the Registration Statement under the
Securities Act of 1933, as the same may from time to time be amended,
and the requirements of Armada's Declaration of Trust and applicable
law, and that such shares, when issued for the consideration described
in such amended Registration Statement, shall be validly issued, fully
paid and non-assessable by Armada.
IMPLEMENTATION OF RESOLUTIONS.
RESOLVED, that the officers of Armada be, and each of them
hereby is, authorized and empowered to execute, seal, and deliver any
and all documents, instruments, papers and writings, including but not
limited to, any instrument to be filed with the State Secretary of the
Commonwealth of Massachusetts or the Boston City Clerk, and to do any
and all other acts, including but not limited to, changing the
foregoing resolutions upon advice of Counsel prior to filing said any
and all documents, instruments, papers, and writings, in the name of
Armada and on its behalf, as may be necessary or desirable in
connection with or in furtherance of the foregoing resolutions, such
determination to be conclusively evidenced by said officers taking any
such actions.
- 21 -
<PAGE> 22
(4) That the foregoing resolutions remain in full force and
effect as of the date hereof.
/s/ W. Bruce McConnel, III
-----------------------------
W. Bruce McConnel, III
Dated: February __. 1998
Subscribed and sworn to before me this
__ day of February, 1998
/s/
- --------------------------------------------
Notary Public
My Commission Expires _______________, 199_
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<PAGE> 1
Exhibit (5)(m)
ARMADA FUNDS
TAX MANAGED EQUITY, AGGRESSIVE ALLOCATION, BALANCED
ALLOCATION, CONSERVATIVE ALLOCATION, EMERGING MARKETS,
MID CAP GROWTH, MICHIGAN MUNICIPAL BOND
AND TREASURY II FUNDS
ADVISORY AGREEMENT
AGREEMENT made as of ___________, 1998 between ARMADA FUNDS, a
Massachusetts business trust, located in Oaks, Pennsylvania (the "Trust") and
NATIONAL CITY BANK located in Cleveland, Ohio (the "Adviser").
WHEREAS, the Trust is registered as an open-end, management investment
company under the Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Trust desires to retain the Adviser as investment adviser
to the Tax Managed Equity, Aggressive Allocation, Balanced Allocation,
Conservative Allocation, Emerging Markets, Mid Cap Growth, Michigan Municipal
Bond and Treasury II (the "Funds");
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed among the parties hereto as follows:
1. DELIVERY OF DOCUMENTS. The Adviser acknowledges that
it has received copies of each of the following:
(a) The Trust's Declaration of Trust, as filed with the
State Secretary of the Commonwealth of Massachusetts
on January 29, 1986 and all amendments thereto (such
Declaration of Trust, as presently in effect and as
it shall from time to time be amended, is herein
called the "Declaration of Trust");
(b) The Trust's Code of Regulations, and amendments
thereto (such Code of Regulations, as presently in
effect and as it shall from time to time be amended,
is herein called the "Code of Regulations");
(c) Resolutions of the Trust's Board of Trustees
authorizing the appointment of the Adviser and
approving this Agreement;
(d) The Trust's Notification of Registration on Form N-8A
under the 1940 Act as filed with the
1
<PAGE> 2
Securities and Exchange Commission ("SEC") on
September 26, 1985 and all amendments thereto;
(e) The Trust's Registration Statement on Form N-1A under
the Securities Act of 1933, as amended ("1933 Act")
(File No. 33-488) and under the 1940 Act as filed
with the SEC on September 26, 1985 and all amendments
thereto; and
(f) The Trust's most recent prospectuses and statements
of additional information with respect to the Funds
(such prospectuses and statements of additional
information, as presently in effect and all
amendments and supplements thereto are herein called
individually, a "Prospectus", and collectively, the
"Prospectuses").
The Trust will furnish the Adviser from time to time with
execution copies of all amendments of or supplements to the foregoing.
2. SERVICES. The Trust hereby appoints the Adviser to act as investment
adviser to the Funds for the period and on the terms set forth in this
Agreement. Intending to be legally bound, the Adviser accepts such
appointment and agrees to furnish the services required herein to the
Funds for the compensation hereinafter provided.
Subject to the supervision of the Trust's Board of Trustees,
the Adviser will provide a continuous investment program for each Fund,
including investment research and management with respect to all
securities and investments and cash equivalents in each Fund. The
Adviser will determine from time to time what securities and other
investments will be purchased, retained or sold by each Fund. The
Adviser will provide the services under this Agreement in accordance
with each Fund's investment objective, policies, and restrictions as
stated in the Prospectus and resolutions of the Trust's Board of
Trustees applicable to such Fund.
3. SUBCONTRACTORS. It is understood that the Adviser may from time to
time employ or associate with itself such person or persons as the
Adviser may believe to be particularly fitted to assist in the
performance of this Agreement; provided, however, that the compensation
of such person or persons shall be paid by the Adviser and that the
Adviser shall be as fully responsible to the Trust for the acts and
omissions of any subcontractor as it is for its own acts and omissions.
Without limiting the generality or the foregoing, it is agreed that
investment advisory service to any Fund may be provided by a
subcontractor agreeable to the
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<PAGE> 3
Adviser and approved in accordance with the provision of the 1940 Act.
Any such sub-advisers are hereinafter referred to as the
"Sub-Advisers." In the event that any Sub-Adviser appointed hereunder
is terminated, the Adviser may provide investment advisory services
pursuant to this Agreement to the Fund without further shareholder
approval. Notwithstanding the employment of any Sub-Adviser, the
Adviser shall in all events: (a) establish and monitor general
investment criteria and policies for the fund; (b) review investments
in each fund on a periodic basis for compliance with its fund's
investment objective, policies and restrictions as stated in the
Prospectus; (c) review periodically any Sub-Adviser's policies with
respect to the placement of orders for the purchase and sale of
portfolio securities; (d) review, monitor, analyze and report to the
Board of Trustees on the performance of any Sub-Adviser; (e) furnish to
the Board of Trustees or any Sub-Adviser, reports, statistics and
economic information as may be reasonably requested; and (f) recommend,
either in its sole discretion or in conjunction with any Sub-Adviser,
potential changes in investment policy. Pursuant to this paragraph, on
the date hereof, the Adviser has entered into a Sub-Advisory Agreement
with Wellington Management Company, LLP with respect to the Small Cap
Growth Fund.
4. COVENANTS BY ADVISER. The Adviser agrees with respect to the
services provided to each Fund that it:
(a) will comply with all applicable Rules and Regulations
of the SEC and will in addition conduct its
activities under this Agreement in accordance with
other applicable law;
(b) will use the same skill and care in providing such
services as it uses in providing services to similar
fiduciary accounts for which it has investment
responsibilities;
(c) will not make loans to any person to purchase or
carry shares in the Funds, or make interest-bearing
loans to the Trust or the Funds;
(d) will maintain a policy and practice of conducting
its investment management activities independently
of the Commercial Departments of all banking
affiliates. In making investment recommendations
for the Funds, personnel will not inquire or take
into consideration whether the issuers (or related
supporting institutions) of securities proposed
for purchase or sale for the Funds' accounts are
customers of the Commercial Department. In
dealing with commercial customers, the Commercial
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<PAGE> 4
Department will not inquire or take into
consideration whether securities of those customers
are held by the Funds;
(e) will place orders pursuant to its investment
determinations for the Funds either directly with
the issuer or with any broker or dealer. In
executing portfolio transactions and selecting
brokers or dealers, the Adviser will use its best
efforts to seek on behalf of the Trust and each
Fund the best overall terms available. In
assessing the best overall terms available for any
transaction the Adviser shall consider all factors
it deems relevant, including the breadth of the
market in the security, the price of the security,
the financial condition and execution capability
of the broker or dealer, and the reasonableness of
the commission, if any, both for the specific
transaction and on a continuing basis. In
evaluating the best overall terms available, and
in selecting the broker or dealer to execute a
particular transaction, the Adviser may also
consider the brokerage and research services (as
those terms are defined in Section 28(e) of the
Securities Exchange Act of 1934, as amended)
provided to any Fund and/or other accounts over
which the Adviser or any affiliate of the Adviser
exercises investment discretion. The Adviser is
authorized, subject to the prior approval of the
Board, to negotiate and pay to a broker or dealer
who provides such brokerage and research services
a commission for executing a portfolio transaction
for any Fund which is in excess of the amount of
commission another broker or dealer would have
charged for effecting that transaction if, but
only if, the Adviser determines in good faith that
such commission was reasonable in relation to the
value of the brokerage and research services
provided by such broker or dealer viewed in terms
of that particular transaction or in terms of the
overall responsibilities of the Adviser to the
particular Fund and to the Trust. In no instance
will fund securities be purchased from or sold to
the Adviser, any Sub-Adviser, SEI Investments
Distribution Co. ("SEI") (or any other principal
underwriter to the Trust) or an affiliated person
of either the Trust, the Adviser, Sub-Adviser, or
SEI (or such other principal underwriter) unless
permitted by an order of the SEC or applicable
rules. In executing portfolio transactions for
any Fund, the Adviser may, but shall not be
obligated to, to the extent permitted by
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<PAGE> 5
applicable laws and regulations, aggregate the
securities to be sold or purchased with those of
other Funds and its other clients where such
aggregation is not inconsistent with the policies set
forth in the Trust's registration statement. In such
event, the Adviser will allocate the securities so
purchased or sold, and the expenses incurred in the
transaction, in the manner it considers to be the
most equitable and consistent with its fiduciary
obligations to the Funds and such other clients;
(f) will maintain all books and records with respect to
the securities transactions for the Funds and furnish
the Trust's Board of Trustees such periodic and
special reports as the Board may request; and
(g) will treat confidentially and as proprietary
information of the Trust all records and other
information relative to the Funds and prior,
present or potential shareholders, and will not
use such records and information for any purpose
other than performance of its responsibilities and
duties hereunder (except after prior notification
to and approval in writing by the Trust, which
approval shall not be unreasonably withheld and
may not be withheld and will be deemed granted
where the Adviser may be exposed to civil or
criminal contempt proceedings for failure to
comply, when requested to divulge such information
by duly constituted authorities, or when so
requested by the Trust).
5. SERVICES NOT EXCLUSIVE. The services furnished by the Adviser
hereunder are deemed not to be exclusive, and the Adviser shall be free
to furnish similar services to others so long as its services under
this Agreement are not impaired thereby.
6. BOOKS AND RECORDS. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Adviser hereby agrees that all records which it
maintains for the Trust are the property of the Trust and further
agrees to surrender promptly to the Trust any of such records upon the
Trust's request. The Adviser further agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act the records required to be
maintained by Rule 31a-1 under the 1940 Act.
7. EXPENSES. During the term of this Agreement, the
Adviser will pay all expenses incurred by it in connection
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<PAGE> 6
with its activities under this Agreement other than the cost of
securities (including brokerage commissions, if any) purchased for the
Funds.
8. COMPENSATION. For the services provided and the expenses assumed
pursuant to this Agreement, the Trust will pay the Adviser from the
assets belonging to the Fund and the Adviser will accept as full
compensation therefor fees, computed daily and paid monthly, at the
following annual rates: .75% of the average daily net assets of the Tax
Managed Equity Fund; ____% of the average daily net assets of the
Aggressive Allocation Fund; ____% of the Average daily net assets of
the Balanced Allocation Fund; ____% of the average daily net assets of
the Conservative Allocation Fund; ____% of the average daily net assets
of the Emerging Markets Fund; ____% of the average daily net assets of
the Mid Cap Growth Fund; ____% of the average daily net assets of the
Michigan Municipal Bond Fund; and ____% of the average daily net assets
of the Treasury II Fund.
The fee attributable to each Fund shall be the several (and
not joint or joint and several) obligation of each Fund.
If in any fiscal year the aggregate expenses of a Fund (as
defined under the securities regulations of any state having
jurisdiction over the Fund) exceed the expense limitations of any such
state, the Adviser will reimburse the Trust for such excess expenses to
the extent described in any written undertaking provided by the Adviser
to such state.
9. LIMITATION OF LIABILITY. The Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the
Trust in connection with the performance of this Agreement, except a
loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Adviser
in the performance of its duties or from reckless disregard by it of
its obligations and duties under this Agreement.
10. DURATION AND TERMINATION. This Agreement will become effective with
respect to each Fund upon approval of this Agreement by vote of a
majority of the outstanding voting securities of each such Fund, and,
unless sooner terminated as provided herein, shall continue in effect
until _________, 1999. Thereafter, if not terminated, this Agreement
shall continue in effect with respect to a particular Fund for
successive twelve month periods ending on ____________, PROVIDED such
continuance is specifically
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<PAGE> 7
approved at least annually (a) by the vote of a majority of those
members of the Trust's Board of Trustees who are not interested persons
of any party to this Agreement, cast in person at a meeting called for
the purpose of voting on such approval, and (b) by the Trust's Board of
Trustees or by vote of a majority of the outstanding voting securities
of the Funds. Notwithstanding the foregoing, this Agreement may be
terminated as to any Fund at any time, without the payment of any
penalty, by the Trust (by the Trust's Board of Trustees or by vote of a
majority of the outstanding voting securities of the particular Fund),
or by the Adviser on 60 days' written notice. This Agreement will
immediately terminate in the event of its assignment. (As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested persons" and "assignment" shall have the same meaning of
such terms in the 1940 Act.)
11. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of
the change, waiver, discharge or termination is sought. No amendment of
this Agreement shall be effective with respect to a Fund until approved
by vote of a majority of the outstanding voting securities of that
Fund.
12. MISCELLANEOUS. The Adviser expressly agrees that notwithstanding
the termination of or failure to continue this Agreement with respect
to a particular Fund, the Adviser shall continue to be legally bound to
provide the services required herein for the other Funds for the period
and on the terms set forth in this Agreement. The captions in this
Agreement are included for convenience of reference only and in no way
define or delimit any of the provisions hereof or otherwise affect
their construction or effect. If any provision of this Agreement shall
be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected
thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall
be governed by Delaware law.
13. NAMES. The names "ARMADA FUNDS" and "Trustees of ARMADA FUNDS"
refer respectively to the Trust created and the Trustees, as trustees
but not individually or personally, acting from time to time under a
Declaration of Trust dated January 28, 1986 which is hereby referred to
and a copy of which is on file at the office of the State Secretary of
the Commonwealth of Massachusetts and the principal office of the
Trust. The obligations of "ARMADA FUNDS" entered into in the name or on
behalf thereof by any of the Trustees, representatives or agents are
made not
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<PAGE> 8
individually, but in such capacities, and are not binding upon any of
the Trustees, shareholders, or representatives of the Trust personally,
but bind only the Trust property, and all persons dealing with any
class of shares of the Trust must look solely to the Trust property
belonging to such class for the enforcement of any claims against the
Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
ARMADA FUNDS
By:
--------------------------------
Title:
-----------------------------
NATIONAL CITY BANK
By:
--------------------------------
Title:
-----------------------------
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<PAGE> 1
EXHIBIT (8)(d)
PORTFOLIOS
This EXHIBIT A, dated _____________, 1998, is that certain
Exhibit A to a Custodian Services Agreement dated as of
___________, 1998 between the undersigned parties. This Exhibit
A supersedes all previously dated Exhibits A.
Money Market Fund
Government Money Market Fund
Treasury Money Market Fund
Tax Exempt Money Market Fund
Intermediate Bond Fund
Ohio Tax Exempt Fund
National Tax Exempt Fund
Equity Growth Fund
Equity Income Fund
Small Cap Value Fund
Enhanced Income Fund
Total Return Advantage Fund
Pennsylvania Tax Exempt Money Market Fund
Bond Fund
GNMA Fund
Pennsylvania Municipal Fund
International Equity Fund
Equity Index Fund
Core Equity Fund
Small Cap Growth Fund
Real Return Advantage Fund
Tax Managed Equity Fund
Equity Index Fund
Aggressive Allocation Fund
Balanced Allocation Fund
Conservative Allocation Fund
Emerging Markets Fund
Mid Cap Growth Fund
Michigan Municipal Bond Fund
Treasury II Fund
NATIONAL CITY BANK
By:
--------------------------------
Title:
------------------------------
ARMADA FUNDS
By:
--------------------------------
Title:
-----------------------------
<PAGE> 1
EXHIBIT (9)(d)
ADDENDUM NO. 1 TO AMENDED AND RESTATED
TRANSFER AGENCY AND DIVIDEND DISBURSEMENT AGREEMENT
This Addendum, dated as of the ___ day of __________, 1998, is
entered into between ARMADA FUNDS (the "Trust"), a Massachusetts business trust,
located in Oaks, Pennsylvania and STATE STREET BANK AND TRUST COMPANY ("STATE
STREET"), located in Boston, Massachusetts.
WHEREAS, the Trust and STATE STREET have entered into a
Transfer Agency and Service Agreement dated March 1, 1997 (the "Transfer Agency
Agreement"), pursuant to which the Trust appointed STATE STREET to act as
transfer agent and dividend disbursing agent (the "Transfer Agent") to the
Trust's Armada Money Market, Fund Institutional, Armada Tax Exempt Fund
Institutional, Armada Government Fund Institutional, Armada Treasury Fund
Institutional, Armada Equity Fund Institutional, Armada Fixed Income Fund
Institutional, Armada Ohio Tax Exempt Fund Institutional, Armada Enhanced Income
Fund Institutional, Armada Equity Income Fund Institutional, Armada Total Return
Advantage Fund Institutional, Armada Mid Cap Regional Fund Institutional, Armada
Treasury Fund Retail, Armada Money Market Fund Retail, Armada Government Fund
Retail, Armada Tax Exempt Fund Retail, Armada Equity Fund Retail, Armada Fixed
Income Fund Retail, Armada Ohio Tax Exempt Fund Retail, Armada Enhanced Income
Fund Retail, Armada Equity Income Fund Retail, Armada Total Return Advantage
Fund, Armada Mid Cap Regional Fund Retail, Armada Pennsylvania Tax Exempt Fund
Institutional, Armada Pennsylvania Municipal Fund Institutional, Armada
Intermediate Government Fund Institutional, GNMA Fund Institutional, Armada
Pennsylvania Tax Exempt Fund Retail, Armada Pennsylvania Municipal Fund Retail,
Armada Intermediate Government Fund Retail, GNMA Fund Retail, Armada Core Equity
Fund Institutional, Armada Equity Index Fund Institutional, Armada Foreign
Equity Fund Institutional, Armada Small Cap Growth Fund Institutional, Armada
Inflation Protected Securities Fund Institutional, Armada Core Equity Fund
Retail, Armada Equity Index Fund Retail, Armada Foreign Equity Fund Retail,
Armada Small Cap Growth Fund Retail and Armada Inflation Protected Securities
Fund Retail (each a "Fund");
WHEREAS, Article 10 of the Transfer Agency Agreement provides
that in the event the Trust establishes one or more series of shares with
respect to which it desires to have State Street render services as Transfer
Agent under the terms of the Transfer Agency Agreement, the Trust shall so
notify State Street in writing and if State Street agrees in writing to provide
such
<PAGE> 2
services, such Series of Shares shall become a Portfolio
hereunder;
WHEREAS, pursuant to Article 10 of the Transfer Agency
Agreement, the Trust has notified State Street that it has established the
National Tax Exempt, Tax Managed Equity, Aggressive Allocation, Balanced
Allocation, Conservative Allocation, Emerging Markets, Mid Cap Growth, Michigan
Municipal Bond and Treasury II Funds; and that it desires to retain State Street
to act as the Transfer Agent therefor, and State Street has notified the Trust
that it is willing to serve as Transfer Agent for each of these Funds.
NOW THEREFORE, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. APPOINTMENT. The Trust hereby appoints State Street to act
as Transfer Agent to the Trust for the National Tax Exempt, Tax Managed Equity,
Aggressive Allocation, Balanced Allocation, Conservative Allocation, Emerging
Markets, Mid Cap Growth, Michigan Municipal Bond and Treasury II Funds for the
period and on the terms set forth in the Transfer Agency Agreement, as amended.
National City hereby accepts such appointment and agrees to render the services
set forth in the Transfer Agency Agreement, as amended, for the compensation
agreed to by the Trust and State Street pursuant to Article 2 of the Transfer
Agency Agreement;
In the event that the Fund establishes one or more series of
Shares in addition to the National Tax Exempt, Tax Managed Equity, Aggressive
Allocation, Balanced Allocation, Conservative Allocation, Emerging Markets, Mid
Cap Growth, Michigan Municipal Bond and Treasury II Funds, the additional series
will be described and set forth on one or more exhibits to this Agreement.
2. COMPENSATION. Article 2 entitled "Fees and
Expenses" in the Transfer Agency Agreement shall be amended to
add the following:
["As compensation for all services rendered by the Bank
pursuant to this Agreement with respect to the Managed Assets
Conservative, Managed Assets Growth, Equity Income, Small-Cap
Opportunity, International Major Markets, Income, International Bond
and Intermediate Municipal Bond Funds, the Trust shall pay to the Bank
$15 annually per account in each such Fund for the preparation of
statements of account, and $1.00 for each confirmation of purchase and
redemption transactions. The Trust shall pay the Bank a monthly charge
of $350 with respect to each Fund for computer equipment and
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<PAGE> 3
services. NBD shall be entitled to receive a minimum annual fee with
respect to each such Fund of $11,000 for its services hereunder. The
Trust will reimburse the Bank for any out-of-pocket expenses for forms
and mailing costs used in performing its functions."]
3. CAPITALIZED TERMS. From and after the date hereof, the
terms "Fund" and "Funds" as used in the Transfer Agency Agreement, as amended,
shall be deemed to include the National Tax Exempt, Tax Managed Equity,
Aggressive Allocation, Balanced Allocation, Conservative Allocation, Emerging
Markets, Mid Cap Growth, Michigan Municipal Bond and Treasury II Funds.
Capitalized terms used herein and not otherwise defined shall have the meanings
ascribed to them in the Transfer Agency Agreement, as amended.
4. MISCELLANEOUS. Except to the extent supplemented hereby,
the Transfer Agency Agreement, as amended, shall remain unchanged and in full
force and effect and is hereby ratified and confirmed in all respects as
supplemented hereby.
IN WITNESS WHEREOF, the undersigned have executed this
Addendum as of the date and year first above written.
ARMADA FUNDS
By: ________________________
President
NATIONAL CITY BANK
By: _______________________
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<PAGE> 1
EXHIBIT (11)
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. 41 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
February 23, 1998
<PAGE> 1
EXHIBIT (13)(f)
PURCHASE AGREEMENT
AGREEMENT dated this day of , 1998, by and between Armada
Funds (the "Trust"), a Massachusetts business trust, and SEI Investments
Distribution Co. ("SEI"), a Massachusetts corporation.
1. The Trust hereby offers SEI and SEI hereby purchases one each of
Class AA - Special Series 1, Class AA - Special Series 2, Class BB, Class BB -
Special Series 1, Class BB - Special Series 2, Class CC, Class CC - Special
Series 1 and Class CC - Special Series 2 shares of beneficial interest (no par
value per share) representing interests in the Trust's Aggressive Allocation,
Balanced Allocation and Conservative Allocation Funds at a price of $10 per
share (collectively knows as "Shares").
2. SEI hereby acknowledges receipt of one Share each of Class AA -
Special LSeries 1, Class AA - Special Series 2, Class BB, Class BB - Special
Series 1, Class BB - Special Series 2, Class CC, Class CC - Special Series 1
and Class CC - Special Series 2 shares. The Trust hereby acknowledges receipt
from SEI of funds in the amount of $10 for each such Share.
3. SEI represents and warrants to the Trust that the Shares are being
acquired for investment purposes and not with a view to the distribution
thereof.
4. The names "Armada Funds" and "Trustees of Armada Funds" refer
respectively to the Trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under a Declaration of
Trust dated as of January 28, 1986 which is hereby referred to and a copy of
which is on file at the office of the State Secretary of the Commonwealth of
Massachusetts and at the principal office of the Trust. The obligations of
"Armada Funds" entered into in the name or on behalf thereof by any of the
Trustees, representatives or agents are made not individually, but in such
capacities, and are not binding upon any of the Trustees, Shareholders or
representatives of the Trust personally, but bind only the Trust Property, and
all persons dealing with any class of shares of the Trust must look solely to
the Trust Property belonging to such class for the enforcement of any claims
against the Trust.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day of , 1998.
ARMADA FUNDS
Attest:
By:
- ----------------------- -------------------------------------
Robert D. Neary, Chairman
SEI INVESTMENTS DISTRIBUTION CO.
Attest
By:
- ----------------------- ------------------------------------
Title:
----------------------------------
(Please Print or Type)
<PAGE> 1
EXHIBIT (18)
Adopted: February 17, 1998
ARMADA FUNDS
(THE "TRUST")
REVISED PLAN PURSUANT TO RULE 18F-3 FOR OPERATION OF
A TRIPLE-CLASS SYSTEM
I. INTRODUCTION
On February 23, 1995, the Securities and Exchange Commission (the
"Commission") promulgated Rule 18f-3 under the Investment Company Act of 1940,
as amended (the "1940 Act"), which permits the creation and operation of a
multi-class distribution structure without the need to obtain an exemptive order
under Section 18 of the 1940 Act. Rule 18f-3, which became effective on April 3,
1995, requires an investment company to file with the Commission, a written plan
specifying all of the differences among the classes, including the various
services offered to shareholders, the different distribution arrangements for
each class, the methods for allocating expenses relating to those differences
and any conversion features or exchange privileges. On September 17, 1997, the
Board of Trustees of the Trust authorized the Trust to operate its current
three-class distribution structure in compliance with Rule 18f-3. This Plan is
pursuant to Rule 18f-3. This revised plan shall become effective with respect to
each Fund of the Trust and supersedes a Plan pursuant to Rule 18f-3 approved by
the Board of Trustees on September 17, 1997.
II. ATTRIBUTES OF CLASSES
A. GENERALLY
The Trust shall offer three classes of shares for all Funds (except the
Treasury Money Market, Government Money Market and Pennsylvania Tax Exempt Money
Market Funds) as follows:
MONEY MARKET FUNDS
Class A shares ("Institutional shares"), Class A-Special Series 1
shares ("Retail shares") and Class A-Special Series 2 shares ("B shares") in the
Money Market Fund, Class B shares ("Institutional shares") and Class-B Special
Series 1 shares ("Retail shares") in the Government Money Market Fund, Class C
shares ("Institutional shares") and Class C-Special Series 1 shares ("Retail
shares") in the Treasury Money Market Fund, Class D shares ("Institutional
shares"), Class D-Special Series 1 shares ("Retail shares") and Class D-Special
Series 2 shares ("B shares") in the Tax Exempt Money Market Fund, Class Q shares
<PAGE> 2
Adopted February 17, 1998
("Institutional Shares") and Class Q-Special Series 1 shares ("Retail shares")
in the Pennsylvania Tax Exempt Money Market Fund and Class GG shares
("Institutional shares"), Class GG-Special Series 1 shares ("Retail shares") and
Class GG-Special Series 2 shares ("B shares") in the Treasury II Fund.
FIXED INCOME FUNDS
Class I shares ("Institutional shares"), Class I-Special Series 1
shares ("Retail shares") and Class I-Special Series 2 shares ("B shares") in the
Intermediate Bond Fund, Class O Shares ("Institutional shares"), Class O-Special
Series 1 shares ("Retail shares") and Class O-Special Series 2 shares ("B
shares") in the Enhanced Income Fund, Class P shares ("Institutional shares"),
Class P-Special Series 1 shares ("Retail shares") and Class P-Special Series 2
shares ("B shares") in the Total Return Advantage Fund, Class R shares
("Institutional shares"), Class R-Special Series 1 shares ("Retail shares") and
Class R-Special Series 2 shares ("B shares") in the Bond Fund, Class S shares
("Institutional shares"), Class S-Special Series 1 shares ("Retail shares") and
Class S-Special Series 2 shares ("B shares") in the GNMA Fund, Class Y shares
("Institutional shares"), Class Y-Special Series 1 shares ("Retail shares") and
Class Y-Special Series 2 shares ("B shares") in the Real Return Advantage Fund
and Class FF shares ("Institutional shares"), Class FF-Special Series 1 shares
("Retail shares") and Class FF-Special Series 2 shares ("B shares") in the
Michigan Municipal Bond Fund.
EQUITY FUNDS
Class H shares ("Institutional shares"), Class H-Special Series 1
shares ("Retail shares") and Class H-Special Series 2 shares ("B shares") in the
Equity Growth Fund, Class M shares ("Institutional shares"), Class M-Special
Series 1 shares ("Retail shares") and Class M-Special Series 2 shares ("B
shares") in the Equity Income Fund, Class N shares ("Institutional shares"),
Class N-Special Series 1 shares ("Retail shares") and Class N-Special Series 2
shares ("B shares") in the Small Cap Value Fund, Class U shares ("Institutional
Shares"), Class U-Special Series 1 shares ("Retail Shares") and Class U-Special
Series 2 shares ("B shares") in the International Equity Fund, Class V shares
("Institutional Shares"), Class V-Special Series 1 shares ("Retail Shares") and
Class V-Special Series 2 shares ("B shares") in the Equity Index Fund, Class W
shares ("Institutional Shares"), Class W-Special Series 1 shares ("Retail
Shares") and
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<PAGE> 3
Class W-Special Series 2 shares ("B shares") in the Core Equity Fund, Class X
shares ("Institutional shares"), Class X-Special Series 1 shares ("Retail
shares") and Class X-Special Series 2 shares ("B shares") in the Small Cap
Growth Fund, Class Z shares ("Institutional shares"), Class Z-Special Series 1
shares ("Retail shares") and Class Z-Special Series 2 shares ("B shares") in the
Tax Managed Equity Fund, Class AA shares ("Institutional shares"), Class
AA-Special Series 1 shares ("Retail shares") and Class AA-Special Series 2
shares ("B shares") in the Aggressive Allocation Fund, Class BB shares
("Institutional shares"), Class BB-Special Series 1 shares ("Retail shares") and
Class BB-Special Series 2 shares ("B shares") in the Balanced Allocation Fund,
Class CC shares ("Institutional shares"), Class CC-Special Series 1 shares
("Retail shares") and Class CC-Special Series 2 shares ("B shares") in the
Conservative Allocation Fund, Class DD shares ("Institutional shares"), Class
DD-Special Series 1 shares ("Retail shares") and Class DD-Special Series 2
shares ("B shares") in the Emerging Markets Fund, Class EE shares
("Institutional shares"), Class EE-Special Series 1 shares ("Retail shares") and
Class EE-Special Series 2 shares ("B shares") in the MidCap Growth Fund.
TAX EXEMPT FUNDS
Class K shares ("Institutional shares"), Class K-Special Series 1
shares ("Retail shares") and Class K-Special Series 2 shares ("B shares") in the
Ohio Tax Exempt Fund, Class L shares ("Institutional shares"), Class L-Special
Series 1 shares ("Retail shares") and Class L-Special Series 2 shares ("B
shares") in the National Tax Exempt Fund, and Class T shares ("Institutional
shares"), Class T-Special Series 1 shares ("Retail shares") and Class T-Special
Series 2 shares ("B shares") in the Pennsylvania Municipal Fund.
In general, shares of each class shall be identical except for
different expense variables (which will result in different returns for each
class), certain related rights and certain distribution and shareholder
services. More particularly, the Institutional, Retail and B shares of each Fund
shall represent interests in the same portfolio of investments of the particular
Fund, and shall be identical in all respects, except for: (a) the impact of (i)
expenses assessed to a class pursuant to the Shareholder Services Plan, Service
and Distribution Plan and B Shares Distribution and Servicing Plan adopted for
the class and (ii) any other incremental expenses identified from time to time
that should be properly allocated to one class so long as any changes in expense
allocations are reviewed and approved by a vote of the Board of Trustees,
including a majority of the independent trustees; (b) the fact that a class
shall vote separately on any matter submitted to the shareholders that pertains
to (i) the Shareholder Services Plan, Service and
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<PAGE> 4
Distribution Plan, or B Shares Distribution and Servicing Plan adopted for that
class and (ii) the class expenses borne by the class; (c) the exchange
privileges of each class of shares; (d) the legal designation of each class of
shares; and (e) the different distribution and shareholder services relating to
a class of shares.
B. DISTRIBUTION AND SHAREHOLDER SERVICING ARRANGEMENTS,
EXPENSES AND SALES CHARGES
1. MONEY MARKET FUNDS
RETAIL SHARES
Retail shares of each money market fund shall be available for
purchase by the public, primarily through financial institutions such as banks,
brokers and dealers.
Retail shares of each money market fund shall not be subject
to a sales charge. Retail shares shall be subject to a fee payable pursuant to
the Shareholder Services Plan adopted for the class which shall not as of the
date hereof exceed .15% (on an annualized basis) of the average daily net asset
value of those shares beneficially owned by customers of the financial
institutions who have entered into agreements with the Trust pursuant to the
Shareholder Services Plan adopted for the class.
Services provided under the Shareholder Services Plan adopted
for the class may include (i) aggregating and processing purchase and redemption
requests from customers; (ii) providing customers with a service that invests
the assets of their accounts in Retail shares; (iii) processing dividend
payments from the fund; (iv) providing information periodically to customers
showing their position in Retail shares; (v) arranging for bank wires; (vi)
responding to customer inquiries relating to the services performed with respect
to Retail shares beneficially owned by customers; (vii) forwarding shareholder
communications; and (viii) other similar services requested by the Trust.
Pursuant to the Trust's Distribution Agreement and Rule 12b-1
under the 1940 Act, the Trust has adopted a Service and Distribution Plan
relating to the Retail and Institutional classes of shares of the money market
funds (the "Retail and Institutional Plan"). The Retail and Institutional Plan
provides that each fund will compensate the distributor for distribution
expenses related to the distribution of the Retail and Institutional shares in
an amount not to exceed .10% of the average aggregate net assets of such Retail
and Institutional share classes.
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<PAGE> 5
B SHARES
B shares of the money market funds that offer such shares
shall not be available to new investors or for new investments in the Trust, but
shall be available upon exchange only to existing shareholders of B shares of
the Trust's other Funds. Of the money market funds, B shares of only the Money
Market Fund and Tax Exempt Money Market Fund shall be available for purchase by
the public, primarily through financial institutions such as banks, brokers and
dealers.
B shares of the Money Market and Tax Exempt Money Market Funds
shall not be subject to a sales charge, unless a shareholder holding such shares
obtained them as a result of an exchange from B shares of another Fund. Pursuant
to the Trust's Distribution Agreement as it relates to B shares and the Class B
Shares Distribution and Servicing Plan, total distribution costs, expenses and
payments in connection with the distribution of the Trust's B shares may not
exceed an annual rate of 1.00% (.75% of which is allocable to distribution fees
and .25% to administrative fees) of the average net assets of each fund's B
shares.
B shares shall be subject to a distribution fee payable
pursuant to the B Shares Distribution and Servicing Plan adopted for the class
which shall not as of the date hereof exceed .75% (on an annualized basis) of
the average daily net asset value of those shares beneficially owned by
customers of the financial institutions who have entered into agreements with
the Trust pursuant to the B Shares Distribution and Servicing Plan.
The Trust may also pay securities dealers, brokers, financial
institutions or other industry professionals, such as investment advisors,
accountants, and estate planning firms (individually, a "Service Organization"
and collectively, the "Service Organizations") for administrative support
services provided with respect to their customers' B shares. Such services shall
be provided pursuant to administrative servicing agreements ("Servicing
Agreements"). Any organization providing distribution assistance may also become
a Service Organization and receive administrative servicing fees pursuant to a
Servicing Agreement under the B Shares Distribution and Servicing Plan. Fees
paid to a Service Organization shall be in consideration for the administrative
support services provided pursuant to its Servicing Agreement and may be paid at
an annual rate of up to .15% of the daily net asset value of B shares of the
Money Market, Government Money Market, Treasury Money Market, Tax Exempt Money
Market, Pennsylvania Tax Exempt Money Market and Treasury II Funds purchased by
the Service Organizations on behalf of their customers. Such fees shall be
calculated and accrued daily, paid monthly and computed in the manner set forth
in the Servicing Agreement.
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<PAGE> 6
Services provided under the B Shares Distribution and
Servicing Plan 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 B shares; (iii) processing dividend
payments from the fund; (iv) providing information periodically to customers
showing their position in B shares; (v) arranging for bank wires; (vi)
responding to customer inquiries relating to the services performed with respect
to B shares beneficially owned by customers; (vii) forwarding shareholder
communications; and (viii) other similar services requested by the Trust.
INSTITUTIONAL SHARES
Institutional shares of each money market fund shall be
available for purchase by banks and National Asset Management Corporation
customers.
Institutional shares of each money market fund shall not be
subject to a sales charge or to a shareholder servicing fee under a non-12b-1
Plan.
Pursuant to the Trust's Distribution Agreement and Rule 12b-1
under the 1940 Act, the Trust has adopted a Service and Distribution Plan
relating to the Retail and Institutional classes of shares of the money market
funds (the "Retail and Institutional Plan"). The Retail and Institutional Plan
provides that each fund will compensate the distributor for distribution
expenses related to the distribution of the Retail and Institutional shares in
an amount not to exceed .10% of the average aggregate net assets of such Retail
and Institutional share classes.
2. FIXED INCOME FUNDS
RETAIL SHARES
Retail shares of each fixed income fund shall be available for
purchase by the public, primarily through financial institutions such as banks,
brokers and dealers.
Retail shares of the Intermediate Bond, Enhanced Income, Total
Return Advantage, Bond, GNMA, Real Return Advantage and Michigan Municipal Bond
Funds shall be subject to a sales charge which shall not as of the date hereof
exceed 4.75%, 2.75%, 4.75%, 4.75%, 4.75%, 4.75% and __%, respectively, of the
offering price of those shares. Retail shares also shall be subject to a fee
payable pursuant to the Shareholder Services Plan adopted for the class which
shall not exceed .10% (on an annualized basis) with respect to the Enhanced
Income Fund and .25% (on an annualized basis) with respect to the Intermediate
Bond, Total Return Advantage, Bond, GNMA, Real Return Advantage and Michigan
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<PAGE> 7
Municipal Bond Funds of the average daily net asset value of those shares
beneficially owned by customers of the financial institutions who have entered
into agreements with the Trust pursuant to the Shareholder Services Plan adopted
for the class.
Services provided under the Shareholder Services Plan adopted
for the class may include: (i) aggregating and processing purchase and
redemption requests from customers; (ii) providing customers with a service that
invests the assets of their accounts in Retail shares; (iii) processing dividend
payments from the fund; (iv) providing information periodically to customers
showing their position in Retail shares; (v) arranging for bank wires; (vi)
responding to customer inquiries relating to the services performed with respect
to Retail shares beneficially owned by customers; (vii) forwarding shareholder
communications; and (viii) other similar services requested by the Trust.
Pursuant to the Trust's Distribution Agreement and Rule 12b-1
under the 1940 Act, the Trust has adopted a Service and Distribution Plan
relating to the Retail and Institutional classes of shares of the fixed income
funds (the "Retail and Institutional Plan"). The Retail and Institutional Plan
provides that each fund will compensate the distributor for distribution
expenses related to the distribution of the Retail and Institutional shares in
an amount not to exceed .10% of the average aggregate net assets of such Retail
and Institutional share classes.
B SHARES
B shares of each fixed income fund shall be available for
purchase by the public, primarily through financial institutions such as banks,
brokers and dealers.
B shares of the Intermediate Bond, Enhanced Income, Total
Return Advantage, Bond, GNMA, Real Return Advantage and Michigan Municipal Bond
Funds shall be subject to a contingent deferred sales charge ("CDSC") upon
redemption which shall not exceed 5.0% of the redemption price of those shares.
Pursuant to the Trust's Distribution Agreement as it relates to B shares and the
Class B Shares Distribution and Servicing Plan, total distribution costs,
expenses and payments in connection with the distribution of the Trust's B
shares may not exceed an annual rate of 1.00% (.75% of which is allocable to
distribution fees and .25% to administrative fees) of the average net assets of
each fund's B shares.
B shares shall be subject to a distribution fee payable
pursuant to the B Shares Distribution and Servicing Plan adopted for the class
which shall not as of the date hereof exceed .75% (on an annualized basis) of
the average daily net asset value of
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<PAGE> 8
those shares beneficially owned by customers of the financial institutions who
have entered into agreements with the Trust pursuant to the B Shares
Distribution and Servicing Plan.
The Trust may also pay Service Organizations for
administrative support services provided with respect to their customers' B
shares. Such services shall be provided pursuant to Servicing Agreements. Any
organization providing distribution assistance may also become a Service
Organization and receive administrative servicing fees pursuant to a Servicing
Agreement under the B Shares Distribution and Servicing Plan. Fees paid to a
Service Organization shall be in consideration for the administrative support
services provided pursuant to its Servicing Agreement and may be paid at an
annual rate of up to .25% of the daily net asset value of the B shares of the
Intermediate Bond, Total Return Advantage, Bond, GNMA, Real Return Advantage and
Michigan Municipal Bond Funds and up to .10% of the daily net asset value of the
B shares of the Enhanced Income Fund purchased by the Service Organizations on
behalf of their customers. Such fees shall be calculated and accrued daily, paid
monthly and computed in the manner set forth in the Servicing Agreement.
Services provided under the B Shares Distribution and
Servicing Plan 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 B shares; (iii) processing dividend
payments from the fund; (iv) providing information periodically to customers
showing their position in B shares; (v) arranging for bank wires; (vi)
responding to customer inquiries relating to the services performed with respect
to B shares beneficially owned by customers; (vii) forwarding shareholder
communications; and (viii) other similar services requested by the Trust.
INSTITUTIONAL SHARES
Institutional shares of each of the fixed income funds shall
be available for purchase by banks and National Asset Management Corporation
customers.
Institutional shares of each of the fixed income funds shall
not be subject to a sales charge or to a shareholder servicing fee under a
non-12b-1 Plan.
Pursuant to the Trust's Distribution Agreement and Rule 12b-1
under the 1940 Act, the Trust has adopted a Service and Distribution Plan
relating to the Retail and Institutional classes of shares of the fixed income
funds (the "Retail and Institutional Plan"). The Retail and Institutional Plan
provides that each fund will compensate the distributor for distribution
expenses related to the distribution of the Retail and
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Institutional shares in an amount not to exceed .10% of the average aggregate
net assets of such Retail and Institutional share classes.
3. EQUITY FUNDS
RETAIL SHARES
Retail shares of each equity fund shall be available for
purchase by the public, primarily through financial institutions such as banks,
brokers and dealers.
Retail shares of each equity fund shall be subject to a sales
charge which shall not as of the date hereof exceed 5.50% of the offering price
of those shares. Retail shares of each equity fund also shall be subject to a
fee payable pursuant to the Shareholder Services Plan adopted for the class
which shall not exceed .25% (on an annualized basis) of the average daily net
asset value of those shares beneficially owned by customers of the financial
institutions who have entered into agreements with the Trust pursuant to the
Shareholder Services Plan adopted for the class.
Services provided under the Shareholder Services Plan adopted
for the class may include (i) aggregating and processing purchase and redemption
requests from customers; (ii) providing customers with a service that invests
the assets of their accounts in Retail shares; (iii) processing dividend
payments from the fund; (iv) providing information periodically to customers
showing their position in Retail shares; (v) arranging for bank wires; (vi)
responding to customer inquiries relating to the services performed with respect
to Retail shares beneficially owned by customers; (vii) forwarding shareholder
communications; and (viii) other similar services requested by the Trust.
Pursuant to the Trust's Distribution Agreement and Rule 12b-1
under the 1940 Act, the Trust has adopted a Service and Distribution Plan
relating to the Retail and Institutional classes of shares of the equity funds
(the "Retail and Institutional Plan"). The Retail and Institutional Plan
provides that each fund will compensate the distributor for distribution
expenses related to the distribution of the Retail and Institutional shares in
an amount not to exceed .10% of the average aggregate net assets of such Retail
and Institutional share classes.
B SHARES
B shares of each equity fund shall be available for purchase
by the public, primarily through financial institutions such as banks, brokers
and dealers.
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B shares of the Equity Growth, Equity Income, Mid Cap
Regional, Small Cap Growth, International Equity, Core Equity, Equity Index, Tax
Managed Equity, Aggressive Allocation, Balanced Allocation, Conservative
Allocation, Emerging Markets and MidCap Growth Funds shall be subject to a CDSC
upon redemption which shall not initially exceed 5.0% of the redemption price of
those shares. Pursuant to the Trust's Distribution Agreement as it relates to B
shares and the Class B Shares Distribution and Servicing Plan, total
distribution costs, expenses and payments in connection with the distribution of
the Trust's B shares may not exceed an annual rate of 1.00% of the average net
assets of each fund's B shares of the Trust.
B shares shall be subject to a distribution fee payable
pursuant to the B Shares Distribution and Servicing Plan adopted for the class
which shall not as of the date hereof exceed .75% (on an annualized basis) of
the average daily net asset value of those shares beneficially owned by
customers of the financial institutions who have entered into agreements with
the Trust pursuant to the B Shares Distribution and Servicing Plan.
The Trust may also pay Service Organizations for
administrative support services provided with respect to their customers' B
shares. Such services shall be provided pursuant to Servicing Agreements. Any
organization providing distribution assistance may also become a Service
Organization and receive administrative servicing fees pursuant to a Servicing
Agreement under the Distribution and Servicing Plan. Fees paid to a Service
Organization shall be in consideration for the administrative support services
provided pursuant to its Servicing Agreement and may be paid at an annual rate
of up to .25% of the daily net asset value of the B shares of the Equity Growth,
Equity Income, Small Cap Value, International Equity, Equity Index, Small Cap
Growth, Core Equity, Tax Managed Equity, Aggressive Allocation, Balanced
Allocation, Conservative Allocation, Emerging Markets and MidCap Growth Funds
purchased by the Service Organizations on behalf of their customers. Such fees
shall be calculated and accrued daily, paid monthly and computed in the manner
set forth in the Servicing Agreement.
Services provided under the B Shares Distribution and
Servicing Plan 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 B shares; (iii) processing dividend
payments from the fund; (iv) providing information periodically to customers
showing their position in B shares; (v) arranging for bank wires; (vi)
responding to customer inquiries relating to the services performed with respect
to B shares beneficially owned by customers; (vii) forwarding shareholder
communications; and (viii) other similar services requested by the Trust.
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INSTITUTIONAL SHARES
Institutional shares of each equity fund shall be available
for purchase by banks and National Asset Management Corporation customers.
Institutional shares of each equity fund shall not be subject
to a sales charge or to a shareholder servicing fee under a non-12b-1 Plan.
Pursuant to the Trust's Distribution Agreement and Rule 12b-1
under the 1940 Act, the Trust has adopted a Service and Distribution Plan
relating to the Retail and Institutional classes of shares of the equity funds
(the "Retail and Institutional Plan"). The Retail and Institutional Plan
provides that each fund will compensate the distributor for distribution
expenses related to the distribution of the Retail and Institutional shares in
an amount not to exceed .10% of the average aggregate net assets of such Retail
and Institutional share classes.
4. TAX EXEMPT FUNDS
RETAIL SHARES
Retail shares of the Ohio Tax Exempt, National Tax Exempt and
Pennsylvania Municipal Funds shall be available for purchase by the public,
primarily through financial institutions such as banks, brokers and dealers.
Retail shares of the tax exempt funds shall be subject to a
sales charge which shall not as of the date hereof exceed 3.00% of the offering
price of those shares for the Ohio Tax Exempt and Pennsylvania Municipal Funds
and 3.75% for the National Tax Exempt Fund. Retail shares of the tax exempt
funds also shall be subject to a fee payable pursuant to the Shareholder
Services Plan adopted for the class which shall not exceed .10% (on an
annualized basis) of the average daily net asset value of the Retail shares of
the Ohio Tax Exempt, National Tax Exempt and Pennsylvania Municipal Funds of the
average daily net asset value of the Retail shares of the National Tax Exempt
Fund, beneficially owned by customers of the financial institutions who have
entered into agreements with the Trust pursuant to the Shareholder Services Plan
adopted for the class.
Services provided under the Shareholder Services Plan adopted
for the class may include (i) aggregating and processing purchase and redemption
requests from customers; (ii) providing customers with a service that invests
the assets of their accounts in Retail shares; (iii) processing dividend
payments from the fund; (iv) providing information periodically to customers
showing their position in Retail shares; (v) arranging
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<PAGE> 12
for bank wires; (vi) responding to customer inquiries relating to the services
performed with respect to Retail shares beneficially owned by customers; (vii)
forwarding shareholder communications; and (viii) other similar services
requested by the Trust.
Pursuant to the Trust's Distribution Agreement and Rule 12b-1
under the 1940 Act, the Trust has adopted a Service and Distribution Plan
relating to the Retail and Institutional classes of shares of the tax exempt
funds (the "Retail and Institutional Plan"). The Retail and Institutional Plan
provides that each fund will compensate the distributor for distribution
expenses related to the distribution of the Retail and Institutional shares in
an amount not to exceed .10% of the average aggregate net assets of such Retail
and Institutional share classes.
B SHARES
B shares of each tax exempt fund shall be available for
purchase by the public, primarily through financial institutions such as banks,
brokers and dealers.
B shares of the Ohio Tax Exempt, National Tax Exempt and
Pennsylvania Municipal Funds shall be subject to a CDSC upon redemption which
shall not exceed 5.0% of the redemption price of those shares. Pursuant to the
Trust's Distribution Agreement as it relates to B shares and the Class B Shares
Distribution and Servicing Plan, total distribution costs, expenses and payments
in connection with the distribution of the Trust's B shares may not exceed an
annual rate of 1.00% (.75% of which is allocable to distribution fees and .25%
to administrative fees) of the average net assets of each fund's B shares of the
Trust.
B shares shall be subject to a distribution fee payable
pursuant to the B Shares Distribution and Servicing Plan adopted for the class
which shall not as of the date hereof exceed .75% (on an annualized basis) of
the average daily net asset value of those shares beneficially owned by
customers of the financial institutions who have entered into agreements with
the Trust pursuant to the B Shares Distribution and Servicing Plan.
The Trust may also pay Service Organizations for
administrative support services provided with respect to their customers' B
shares. Such services shall be provided pursuant to Servicing Agreements. Any
organization providing distribution assistance may also become a Service
Organization and receive administrative servicing fees pursuant to a Servicing
Agreement under the Distribution and Servicing Plan. Fees paid to a Service
Organization shall be in consideration for the administrative support services
provided pursuant to its Servicing Agreement and may be paid at an annual rate
of up to .10% of the average daily net asset value of B shares of the Ohio
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<PAGE> 13
Tax Exempt, National Tax Exempt and Pennsylvania Municipal Funds purchased by
the Service Organizations on behalf of their customers. Such fees shall be
calculated and accrued daily, paid monthly and computed in the manner set forth
in the Servicing Agreement.
Services provided under the B Shares Distribution and
Servicing Plan 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 B shares; (iii) processing dividend
payments from the fund; (iv) providing information periodically to customers
showing their position in B shares; (v) arranging for bank wires; (vi)
responding to customer inquiries relating to the services performed with respect
to B shares beneficially owned by customers; (vii) forwarding shareholder
communications; and (viii) other similar services requested by the Trust.
INSTITUTIONAL SHARES
Institutional shares of the tax exempt funds shall be
available for purchase by banks and National Asset Management Corporation
customers.
Institutional shares of the Ohio Tax Exempt, National Tax
Exempt and Pennsylvania Municipal Funds shall not be subject to a sales charge
or a shareholder servicing fee under a non-12b-1 Plan.
Pursuant to the Trust's Distribution Agreement and Rule 12b-1
under the 1940 Act, the Trust has adopted a Service and Distribution Plan
relating to the Retail and Institutional classes of shares of the tax exempt
funds (the "Retail and Institutional Plan"). The Retail and Institutional Plan
provides that each fund will compensate the distributor for distribution
expenses related to the distribution of the Retail and Institutional shares in
an amount not to exceed .10% of the average aggregate net assets of such Retail
and Institutional share classes.
C. EXCHANGE PRIVILEGES
RETAIL SHARES
Holders of Retail shares generally shall be permitted to
exchange their Retail shares in a Fund for Retail shares of other Funds of the
Trust in which the shareholders maintain an existing account. No additional
sales charge will be incurred when exchanging Retail shares of a Fund for Retail
shares of another Fund that imposes a sales charge. The Trust shall not
initially charge any exchange fee.
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B SHARES
Holders of B Shares generally shall be permitted to exchange
their B Shares in a Fund for B Shares of other Funds of the Trust without paying
any exchange fee or CDSC at the time the exchange is made.
INSTITUTIONAL SHARES
Holders of Institutional shares generally shall be permitted
to exchange those shares for Institutional shares of another Fund of the Trust.
D. CONVERSION FEATURES
RETAIL SHARES
The Trust shall not offer a conversion feature to holders of
Retail shares.
B SHARES
B shares acquired by purchase generally shall convert
automatically to Retail shares, based on relative net asset value, eight years
after the beginning of the calendar month in which the shares were purchased.
B shares acquired through a reinvestment of dividends or
distributions generally shall convert automatically to Retail shares, based on
relative net asset value, at the earlier of (a) eight years after the beginning
of the calendar month in which the reinvestment occurred or (b) the date of the
most recently purchased B shares that were not acquired through reinvestment of
dividends or distributions.
INSTITUTIONAL SHARES
The Trust shall not offer a conversion feature to holders of
Institutional shares.
E. METHODOLOGY FOR ALLOCATING EXPENSES AMONG CLASSES
Class-specific expenses of a Fund shall be allocated to the
specific class of shares of that Fund. Non-class-specific expenses of a Fund
shall be allocated in accordance with Rule 18f-3(c) under the 1940 Act.
Approved by the Board of Trustees
February 17, 1998
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