<PAGE> 1
As filed with the Securities and Exchange Commission on September 10, 1999
Registration No. 33-488/811-4416
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[X]
POST-EFFECTIVE AMENDMENT NO. 47 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X]
Amendment No. 46 [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
One Logan Square
18th and Cherry Streets
Philadelphia, Pennsylvania 19103-6996
(Name and Address of Agent for Service)
Copy to:
Thomas F. Harvey, Esq.
National City Bank
National City Center
P.O. Box 5756
Cleveland, Ohio 44101-0756
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (b)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(iii) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
<PAGE> 2
previously filed post-effective amendment.
===========================
The Title of Securities Being Registered . . . . Shares of beneficial interest
<PAGE> 3
Armada Funds Prospectus - Class C Shares
ARMADA FUNDS
CLASS C SHARES
PROSPECTUS
NOVEMBER __, 1999
ARMADA INTERNATIONAL EQUITY FUND
ARMADA SMALL CAP VALUE FUND
ARMADA SMALL CAP GROWTH FUND
ARMADA EQUITY GROWTH FUND
ARMADA TAX MANAGED EQUITY FUND
ARMADA CORE EQUITY FUND
ARMADA EQUITY INDEX FUND
ARMADA EQUITY INCOME FUND
ARMADA BALANCED ALLOCATION FUND
ARMADA TOTAL RETURN ADVANTAGE FUND
ARMADA BOND FUND
ARMADA INTERMEDIATE BOND FUND
ARMADA GNMA FUND
ARMADA ENHANCED INCOME FUND
ARMADA OHIO TAX EXEMPT BOND FUND
ARMADA PENNSYLVANIA MUNICIPAL BOND FUND
ARMADA NATIONAL TAX EXEMPT BOND FUND
ARMADA MONEY MARKET FUND
ARMADA MID CAP GROWTH FUND
ARMADA LARGE CAP ULTRA FUND
ARMADA U.S. GOVERNMENT INCOME FUND
ARMADA MICHIGAN MUNICIPAL BOND FUND
INVESTMENT ADVISER
NATIONAL CITY INVESTMENT MANAGEMENT COMPANY
INVESTMENT SUB-ADVISER
NATIONAL ASSET MANAGEMENT CORPORATION
(ARMADA CORE EQUITY FUND AND ARMADA TOTAL RETURN ADVANTAGE FUND)
Page 1 of 107
<PAGE> 4
Armada Funds Prospectus - Class C Shares
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED ANY FUND SHARES OR
DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE. IT IS A CRIME FOR
ANYONE TO TELL YOU OTHERWISE.
Page 2 of 107
<PAGE> 5
Armada Funds Prospectus - Class C Shares
HOW TO READ THIS PROSPECTUS
The Armada Funds (the Trust) is a mutual fund family that offers different
classes of shares in separate investment portfolios (Funds). The Funds have
individual investment goals and strategies. This prospectus gives you important
information that you should know about the Class C Shares of the Funds before
investing. Please read this prospectus and keep it for future reference.
This prospectus has been arranged into different sections so that you can easily
review this important information. On the next page, there is some general
information you should know about the Funds. For more detailed information about
each Fund, please see:
PAGE
ARMADA INTERNATIONAL EQUITY FUND...................................XXX
ARMADA SMALL CAP VALUE FUND........................................XXX
ARMADA SMALL CAP GROWTH FUND.......................................XXX
ARMADA EQUITY GROWTH FUND..........................................XXX
ARMADA TAX MANAGED EQUITY FUND.....................................XXX
ARMADA CORE EQUITY FUND............................................XXX
ARMADA EQUITY INDEX FUND...........................................XXX
ARMADA EQUITY INCOME FUND..........................................XXX
ARMADA BALANCED ALLOCATION FUND....................................XXX
ARMADA TOTAL RETURN ADVANTAGE FUND.................................XXX
ARMADA BOND FUND...................................................XXX
ARMADA INTERMEDIATE BOND FUND......................................XXX
ARMADA GNMA FUND...................................................XXX
ARMADA ENHANCED INCOME FUND........................................XXX
ARMADA OHIO TAX EXEMPT BOND FUND...................................XXX
ARMADA PENNSYLVANIA MUNICIPAL BOND FUND............................XXX
ARMADA NATIONAL TAX EXEMPT BOND FUND...............................XXX
ARMADA MONEY MARKET FUND...........................................XXX
ARMADA MID CAP GROWTH FUND.........................................XXX
ARMADA LARGE CAP ULTRA FUND........................................XXX
ARMADA U.S. GOVERNMENT INCOME FUND.................................XXX
ARMADA MICHIGAN MUNICIPAL BOND FUND................................XXX
MORE INFORMATION ABOUT RISK........................................XXX
EACH FUND'S OTHER INVESTMENTS......................................XXX
THE INVESTMENT ADVISER, SUB-ADVISER AND
INVESTMENT TEAM....................................................XXX
PURCHASING, SELLING AND EXCHANGING FUND SHARES.....................XXX
DIVIDENDS, DISTRIBUTIONS AND TAXES.................................XXX
FINANCIAL HIGHLIGHTS...............................................XXX
HOW TO OBTAIN MORE INFORMATION ABOUT THE
ARMADA FUNDS.....................................................Back Cover
Page 3 of 107
<PAGE> 6
Armada Funds Prospectus - Class C Shares
INTRODUCTION
Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using
professional investment managers, invests it in securities.
Each Fund has its own investment goal and strategies for reaching that goal. The
investment managers invest Fund assets in a way that they believe will help a
Fund achieve its goal. Still, investing in each Fund involves risk and there is
no guarantee that a Fund will achieve its goal. An investment manager's
judgments about the markets, the economy, or companies may not anticipate actual
market movements, economic conditions or company performance, and these
judgments may affect the return on your investment. In fact, no matter how good
a job an investment manager does, you could lose money on your investment in a
Fund, just as you could with other investments. An investment in a Fund is not a
bank deposit and it is not insured or guaranteed by the Federal Deposit
Insurance Corporation (FDIC) or any government agency. In addition, although a
money market fund seeks to keep a constant price per share of $1.00, there is no
guarantee that a money market fund will achieve this goal and it is possible
that you may lose money by investing in the Fund.
The value of your investment in a Fund (other than a money market fund) is based
on the market value of the securities the Fund holds. These prices change daily
due to economic and other events that affect particular companies and other
issuers. These price movements, sometimes called volatility, may be greater or
lesser depending on the types of securities a Fund owns and the markets in which
they trade. The effect on a Fund of a change in the value of a single security
will depend on how widely the Fund diversifies its holdings.
Page 4 of 107
<PAGE> 7
Armada Funds Prospectus - Class C Shares
ARMADA INTERNATIONAL EQUITY FUND
FUND SUMMARY
***
INVESTMENT GOAL Capital appreciation
INVESTMENT FOCUS Equity securities of foreign issuers
SHARE PRICE VOLATILITY High
PRINCIPAL INVESTMENT STRATEGY Investing in equity securities of
issuers located in at least three
foreign countries
INVESTOR PROFILE Investors seeking capital appreciation,
who are willing to accept the risks of
foreign investing
***
INVESTMENT STRATEGY OF THE ARMADA INTERNATIONAL EQUITY FUND
***
The Armada International Equity Fund's investment objective is to provide
capital appreciation by investing in a portfolio of equity securities. The
investment objective may be changed without a shareholder vote. The Fund
will normally invest at least 80% of its total assets in the equity
securities of foreign issuers. The Fund focuses on issuers included in the
Morgan Stanley Capital International Europe, Australia, Far East (World
EAFE) Index. The Adviser determines the appropriate distribution of
investments among countries using criteria such as relative valuation,
growth prospects and fiscal, monetary and regulatory government policies.
Within foreign markets, the Adviser buys and sells securities based on its
analysis of issuers' competitive position and valuation.
Due to its investment strategy, the Fund may buy and sell securities
frequently. This may result in higher transaction costs and additional
capital gains tax liabilities.
PRINCIPAL RISKS OF INVESTING IN THE ARMADA INTERNATIONAL EQUITY FUND
Since it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time.
Historically, the equity markets have moved in cycles, and the value of the
Fund's equity securities may fluctuate from day-to-day. Individual
companies may report poor results or be negatively affected by industry
and/or economic trends and developments. The prices of securities issued by
such companies may decline in response. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
Investing in foreign countries poses additional risks since political and
economic events unique to a country or region will affect those markets and
their issuers. These events will not necessarily affect the U.S. economy or
similar issuers located in the United States. In addition, investments in
foreign countries are generally denominated in a foreign currency. As a
result, changes in the value of those currencies compared to the U.S.
dollar may affect (positively or negatively) the value of a Fund's
investments. These currency movements may happen separately from and in
Page 5 of 107
<PAGE> 8
Armada Funds Prospectus - Class C Shares
response to events that do not otherwise affect the value of the security
in the issuer's home country.
The Fund is also subject to the risk that its market segment, international
equity securities, may underperform other equity market segments or the
equity market as a whole.
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the volatility of
an investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
Class C Shares of the Fund have less than one calendar year's performance.
For this reason, the performance information shown below is for another
class of shares, Class A Shares, that is not offered in this Prospectus but
would have similar annual returns because both classes of shares will be
invested in the same portfolio of securities. Annual returns will differ
only to the extent that the classes do not have the same expenses. In
reviewing this performance information you should be aware that Class A
Shares have a .10% (annualized) Rule 12b-1 fee (net of voluntary waivers)
while Class C Shares have a .75% (annualized) Rule 12b-1 fee. If the
expenses of the Class C Shares were reflected, performance would be
reduced.
The chart does not reflect sales charges. If sales charges had been
reflected, returns would be less than those shown below.
1998 X.XX%
BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
The Fund's performance from January 1, 1999 to September 30, 1999 was
X.XX%.
This table compares the Fund's average annual total returns for the periods
ended December 31, 1998 to those of the Morgan Stanley EAFE Index.
CLASS A SHARES 1 YEAR SINCE INCEPTION
-----------------------------------------------------------------
ARMADA INTERNATIONAL EQUITY FUND X.XX% X.XX%*
MORGAN STANLEY EAFE INDEX X.XX% X.XX%**
*Since August 1, 1997
*Since [calc. date for index]
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest
directly in an index. Unlike a mutual fund, an index does not have an
investment adviser and does not pay any commissions or expenses. If an
index had expenses, its performance would be lower.
Page 6 of 107
<PAGE> 9
Armada Funds Prospectus - Class C Shares
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you purchase
or sell Fund shares. You would pay these fees directly from your investment
in the Fund.
CLASS C SHARES
---------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a
percentage of net asset value) 1.00%(1)
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends and other Distributions (as a percentage
of offering price) None
Redemption Fee (as a percentage of amount redeemed,
if applicable) None
Exchange Fee None
----------------------------------
(1) A contingent deferred sales charge is charged only with respect to
Class C Shares redeemed prior to eighteen months from the date of
purchase.
Every mutual fund has operating expenses to pay for services such as
professional advisory, shareholder, distribution, administration and
custody services and other costs of doing business. This table describes
the highest fees and expenses that you may pay indirectly if you hold
shares of the Fund.
ANNUAL FUND OPERATING EXPENSES
CLASS C SHARES
---------------------------------------------------------------------------
Investment Advisory Fees .XX%
Distribution and Service (12b-1) Fees .XX%
Other Expenses .XX%
----
Total Annual Fund Operating Expenses X.XX%*
---------------------------------------------------------------------------
* The Fund's total actual annual operating expenses for the most recent
fiscal year were less than the amount shown above because the Administrator
is waiving a portion of the fees in order to keep total operating expenses
at a specified level. The Administrator may discontinue all or part of
these waivers at any time. With these fee waivers, the Fund's actual total
operating expenses are as follows:
Armada International Equity Fund -- Class C Shares X.XX%
For more information about these fees, see "Investment Adviser, Sub-Adviser
and Investment Team" and "Distribution of Fund Shares."
Page 7 of 107
<PAGE> 10
Armada Funds Prospectus - Class C Shares
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and that
you sell your shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and
Fund expenses remain the same. Although your actual costs and returns might
be different, your approximate costs of investing $10,000 in the Fund would
be:
If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS C SHARES $ $ $ $
----- ------ ------ -------
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS C SHARES $ $ $ $
----- ------ ------ -------
Page 8 of 107
<PAGE> 11
Armada Funds Prospectus - Class C Shares
ARMADA SMALL CAP VALUE FUND
FUND SUMMARY
***
INVESTMENT GOAL Capital appreciation
INVESTMENT FOCUS Small cap equity securities
SHARE PRICE VOLATILITY High
PRINCIPAL INVESTMENT STRATEGY Investing in value-oriented equity
securities of small issuers
INVESTOR PROFILE Investors seeking capital
appreciation, who are willing to
accept the risk of share price
volatility that may accompany
small cap investing
***
INVESTMENT STRATEGY OF THE ARMADA SMALL CAP VALUE FUND
***
The Armada Small Cap Value Fund's investment objective is to provide
capital appreciation by investing in a diversified portfolio of publicly
traded small cap equity securities. The investment objective may be changed
without a shareholder vote. The Fund will normally invest at least 80% of
its total assets in securities of companies with small stock market
capitalizations. The Fund may invest up to 20% of its total assets at the
time of purchase in foreign securities. In buying and selling securities
for the Fund, the Adviser uses a value-oriented approach. The Adviser seeks
to invest in equity securities based upon price/earnings, price/book and
price cash/flow ratios which are lower than the market averages. The
Adviser also may consider private market value, balance sheet strength and
long term earnings potential in selecting investments.
The Fund considers a small capitalization or "small cap" company to be one
that has a comparable market capitalization to the companies in the Russell
2000 Value Index.
Due to its investment strategy, the Fund may buy and sell securities
frequently. This may result in higher transaction costs and additional
capital gains tax liabilities.
***
PRINCIPAL RISKS OF INVESTING IN THE ARMADA SMALL CAP VALUE FUND
Since it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time.
Historically, the equity markets have moved in cycles, and the value of the
Fund's equity securities may fluctuate from day-to-day. Individual
companies may report poor results or be negatively affected by industry
and/or economic trends and developments. The prices of securities issued by
such companies may decline in response. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
The smaller capitalization companies the Fund invests in may be more
vulnerable to adverse business or economic events than larger, more
established companies. In particular, these small
Page 9 of 107
<PAGE> 12
Armada Funds Prospectus - Class C Shares
companies may have limited product lines, markets and financial resources,
and may depend upon a relatively small management group. Therefore, small
cap stocks may be more volatile than those of larger companies. These
securities may be traded over-the-counter or listed on an exchange and may
or may not pay dividends.
Investing in foreign countries poses additional risks since political and
economic events unique to a country or region will affect those markets and
their issuers. These events will not necessarily affect the U.S. economy or
similar issuers located in the United States. In addition, investments in
foreign countries are generally denominated in a foreign currency. As a
result, changes in the value of those currencies compared to the U.S.
dollar may affect (positively or negatively) the value of a Fund's
investments. These currency movements may happen separately from and in
response to events that do not otherwise affect the value of the security
in the issuer's home country.
The Fund is also subject to the risk that its market segment, small cap
equity securities, may underperform other equity market segments or the
equity market as a whole.
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the volatility of
an investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
Class C Shares of the Fund have less than one calendar year's performance.
For this reason, the performance information shown below is for another
class of shares, Class A Shares, that is not offered in this Prospectus but
would have similar annual returns because both classes of shares will be
invested in the same portfolio of securities. Annual returns will differ
only to the extent that the classes do not have the same expenses. In
reviewing this performance information you should be aware that Class A
Shares have a .10% (annualized) Rule 12b-1 fee (net of voluntary waivers)
while Class C Shares have a .75% (annualized) Rule 12b-1 fee. If the
expenses of the Class C Shares were reflected, performance would be
reduced.
The chart does not reflect sales charges. If sales charges had been
reflected, returns would be less than those shown below.
1995 X.XX%
1996 X.XX%
1997 X.XX%
1998 X.XX%
BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
Page 10 of 107
<PAGE> 13
Armada Funds Prospectus - Class C Shares
The Fund's performance from January 1, 1999 to September 30, 1999 was
X.XX%.
This table compares the Fund's average annual total returns for the periods
ended December 31, 1998 to those of the Russell 2000 Value Index.
CLASS A SHARES 1 YEAR SINCE INCEPTION
-------------------------------------------------------------------
ARMADA SMALL CAP VALUE FUND X.XX% X.XX%*
RUSSELL 2000 VALUE INDEX X.XX% X.XX%**
* Since August 15, 1994
** Since [calc. date for index]
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest
directly in an index. Unlike a mutual fund, an index does not have an
investment adviser and does not pay any commissions or expenses. If an
index had expenses, its performance would be lower.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you purchase
or sell Fund shares. You would pay these fees directly from your investment
in the Fund.
CLASS C SHARES
--------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a
percentage of net asset value) 1.00%(1)
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends and other Distributions (as a
percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed,
if applicable) None
Exchange Fee None
----------------------------
(1) A contingent deferred sales charge is charged only with respect to
Class C Shares redeemed prior to eighteen months from the date of
purchase.
Page 11 of 107
<PAGE> 14
Armada Funds Prospectus - Class C Shares
Every mutual fund has operating expenses to pay for services such as
professional advisory, shareholder, distribution, administration and
custody services and other costs of doing business. This table describes
the highest fees and expenses that you may pay indirectly if you hold
shares of the Fund.
ANNUAL FUND OPERATING EXPENSES
CLASS C SHARES
---------------------------------------------------------------------------
Investment Advisory Fees .XX%
Distribution and Service (12b-1) Fees .XX%
Other Expenses .XX%
-----
Total Annual Fund Operating Expenses X.XX%*
---------------------------------------------------------------------------
* The Fund's total actual annual operating expenses for the most
recent fiscal year were less than the amount shown above because the
Administrator is waiving a portion of the fees in order to keep total
operating expenses at a specified level. The Administrator may discontinue
all or part of these waivers at any time. With these fee waivers, the
Fund's actual total operating expenses are as follows:
Armada Small Cap Value Fund -- Class C Shares X.XX%
For more information about these fees, see "Investment Adviser, Sub-Adviser
and Investment Team" and "Distribution of Fund Shares."
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and that
you sell your shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and
Fund expenses remain the same. Although your actual costs and returns might
be different, your approximate costs of investing $10,000 in the Fund would
be:
If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS C SHARES $ $ $ $
----- ------ ------ -------
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS C SHARES $ $ $ $
----- ------ ------ -------
Page 12 of 107
<PAGE> 15
Armada Funds Prospectus - Class C Shares
ARMADA SMALL CAP GROWTH FUND
FUND SUMMARY
***
INVESTMENT GOAL Capital appreciation
INVESTMENT FOCUS Small cap equity securities
SHARE PRICE VOLATILITY High
PRINCIPAL INVESTMENT STRATEGY Investing in growth-oriented
equity securities of small
issuers
INVESTOR PROFILE Investors seeking capital
appreciation, who are willing to
accept the risk of share price
volatility that may accompany
small cap investing
***
INVESTMENT STRATEGY OF THE ARMADA SMALL CAP GROWTH FUND
***
The Armada Small Cap Growth Fund's investment objective is to provide
capital appreciation by investing in a diversified portfolio of publicly
traded small cap equity securities. The investment objective may be changed
without a shareholder vote. The Fund normally invests at least 80% of its
total assets in securities of companies with small stock market
capitalizations. The Fund may invest up to 20% of its total assets at the
time of purchase in foreign securities. In buying and selling securities
for the Fund, the Adviser considers factors such as participation in a fast
growing industry, a strategic niche in a specialized market and fundamental
value. The Adviser also may consider price, trading volume and bid-ask
spreads.
The Fund considers a small capitalization or "small cap" company as one
that has a comparable market capitalization to the companies in the Russell
2000 Growth Index.
Due to its investment strategy, the Fund may buy and sell securities
frequently. This may result in higher transaction costs and additional
capital gains tax liabilities.
***
PRINCIPAL RISKS OF INVESTING IN THE ARMADA SMALL CAP GROWTH FUND
Since it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time.
Historically, the equity markets have moved in cycles, and the value of the
Fund's equity securities may fluctuate from day-to-day. Individual
companies may report poor results or be negatively affected by industry
and/or economic trends and developments. The prices of securities issued by
such companies may decline in response. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
The smaller capitalization companies the Fund invests in may be more
vulnerable to adverse business or economic events than larger, more
established companies. In particular, these small companies may have
limited product lines, markets and financial resources, and may depend
Page 13 of 107
<PAGE> 16
Armada Funds Prospectus - Class C Shares
upon a relatively small management group. Therefore, small cap stocks may
be more volatile than those of larger companies. These securities may be
traded over-the-counter or listed on an exchange and may or may not pay
dividends.
Investing in foreign countries poses additional risks since political and
economic events unique to a country or region will affect those markets and
their issuers. These events will not necessarily affect the U.S. economy or
similar issuers located in the United States. In addition, investments in
foreign countries are generally denominated in a foreign currency. As a
result, changes in the value of those currencies compared to the U.S.
dollar may affect (positively or negatively) the value of a Fund's
investments. These currency movements may happen separately from and in
response to events that do not otherwise affect the value of the security
in the issuer's home country.
The Fund is also subject to the risk that its market segment, small cap
equity securities, may underperform other equity market segments or the
equity market as a whole.
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the volatility of
an investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
Class C Shares of the Fund have less than one calendar year's performance.
For this reason, the performance information shown below is for another
class of shares, Class A Shares, that is not offered in this Prospectus but
would have similar annual returns because both classes of shares will be
invested in the same portfolio of securities. Annual returns will differ
only to the extent that the classes do not have the same expenses. In
reviewing this performance information you should be aware that Class A
Shares have a .10% (annualized) Rule 12b-1 fee (net of voluntary waivers)
while Class C Shares have a .75% (annualized) Rule 12b-1 fee. If the
expenses of the Class C Shares were reflected, performance would be
reduced.
The chart does not reflect sales charges. If sales charges had been
reflected, returns would be less than those shown below.
1998 X.XX%
BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
The Fund's performance from January 1, 1999 to September 30, 1999 was
X.XX%.
This table compares the Fund's average annual total returns for the periods
ended December 31, 1998 to those of the Russell 2000 Growth Index.
CLASS A SHARES 1 YEAR SINCE INCEPTION
---------------------------------------------------------------
ARMADA SMALL CAP GROWTH FUND X.XX% X.XX%*
RUSSELL 2000 GROWTH INDEX X.XX% X.XX%**
* Since August 1, 1997
** Since [calc. date for index]
Page 14 of 107
<PAGE> 17
Armada Funds Prospectus - Class C Shares
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest
directly in an index. Unlike a mutual fund, an index does not have an
investment adviser and does not pay any commissions or expenses. If an
index had expenses, its performance would be lower.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you purchase
or sell Fund shares. You would pay these fees directly from your investment
in the Fund.
CLASS C SHARES
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as
a percentage of net asset value) 1.00%(1)
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends and other Distributions (as a
percentage of offering price) None
Redemption Fee (as a percentage of amount
redeemed, if applicable) None
Exchange Fee None
------------------------------
(1) A contingent deferred sales charge is charged only with respect to
Class C Shares redeemed prior to eighteen months from the date of
purchase.
Every mutual fund has operating expenses to pay for services such as
professional advisory, shareholder, distribution, administration and
custody services and other costs of doing business. This table describes
the highest fees and expenses that you may pay indirectly if you hold
shares of the Fund.
ANNUAL FUND OPERATING EXPENSES
CLASS C SHARES
- --------------------------------------------------------------------------------
Investment Advisory Fees .XX%
Distribution and Service (12b-1) Fees .XX%
Other Expenses .XX%
Total Annual Fund Operating Expenses X.XX%*
- --------------------------------------------------------------------------------
* The Fund's total actual annual operating expenses for the most
recent fiscal year were less than the amount shown above because the
Administrator is waiving a portion of the fees in order to keep total
operating expenses at a specified level. The Administrator may discontinue
all or part of these waivers at any time. With these fee waivers, the
Fund's actual total operating expenses are as follows:
Armada Small Cap Growth Fund -- Class C Shares X.XX%
For more information about these fees, see "Investment Adviser, Sub-Adviser
and Investment Team" and "Distribution of Fund Shares."
Page 15 of 107
<PAGE> 18
Armada Funds Prospectus - Class C Shares
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and that
you sell your shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and
Fund expenses remain the same. Although your actual costs and returns might
be different, your approximate costs of investing $10,000 in the Fund would
be:
If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS C SHARES $ $ $ $
----- ------ ------ -------
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS C SHARES $ $ $ $
----- ------ ------ -------
Page 16 of 107
<PAGE> 19
Armada Funds Prospectus - Class C Shares
ARMADA EQUITY GROWTH FUND
FUND SUMMARY
***
INVESTMENT GOAL Capital appreciation
INVESTMENT FOCUS Large cap equity securities
SHARE PRICE VOLATILITY High
PRINCIPAL INVESTMENT STRATEGY Investing in growth-oriented
common stocks of larger issuers
INVESTOR PROFILE Investors seeking capital
appreciation and who are
willing to accept the risk of
investing in equity securities
***
INVESTMENT STRATEGY OF THE ARMADA EQUITY GROWTH FUND
***
The Armada Equity Growth Fund's investment objective is to provide capital
appreciation by investing in a diversified portfolio of publicly traded
larger cap equity securities. The investment objective may be changed
without shareholder vote. The Fund will normally invest at least 80% of its
total assets in a diversified portfolio of common stocks and securities
convertible into common stocks of companies with large stock market
capitalization. The Fund may invest up to 20% of its total assets at the
time of purchase in foreign securities. In buying and selling securities
for the Fund, the Adviser considers factors such as historical and
projected earnings growth, earnings quality and liquidity. The Fund
generally purchases common stocks that are listed on a national securities
exchange or unlisted securities with an established over-the-counter
market.
The Fund considers a large capitalization or "large cap" company to be one
that has a comparable market capitalization to the companies in the S&P 500
Index.
Due to its investment strategy, the Fund may buy and sell securities
frequently. This may result in higher transaction costs and additional
capital gains tax liabilities.
***
PRINCIPAL RISKS OF INVESTING IN THE ARMADA EQUITY GROWTH FUND
Since it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time.
Historically, the equity markets have moved in cycles, and the value of the
Fund's equity securities may fluctuate from day-to-day. Individual
companies may report poor results or be negatively affected by industry
and/or economic trends and developments. The prices of securities issued by
such companies may decline in response. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
Investing in foreign countries poses additional risks since political and
economic events unique to a country or region will affect those markets and
their issuers. These events will not necessarily
Page 17 of 107
<PAGE> 20
affect the U.S. economy or similar issuers located in the United States. In
addition, investments in foreign countries are generally denominated in a
foreign currency. As a result, changes in the value of those currencies
compared to the U.S. dollar may affect (positively or negatively) the value
of a Fund's investments. These currency movements may happen separately
from and in response to events that do not otherwise affect the value of
the security in the issuer's home country.
The Fund is also subject to the risk that its market segment, large cap
equity securities, may underperform other equity market segments or the
equity market as a whole.
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the volatility of
an investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
Class C Shares of the Fund have less than one calendar year's performance.
For this reason, the performance information shown below is for another
class of shares, Class A Shares, that is not offered in this Prospectus but
would have similar annual returns because both classes of shares will be
invested in the same portfolio of securities. Annual returns will differ
only to the extent that the classes do not have the same expenses. In
reviewing this performance information you should be aware that Class A
Shares have a .10% (annualized) Rule 12b-1 fee (net of voluntary waivers)
while Class C Shares have a .75% (annualized) Rule 12b-1 fee. If the
expenses of the Class C Shares were reflected, performance would be
reduced.
The chart does not reflect sales charges. If sales charges had been
reflected, returns would be less than those shown below.
1991 X.XX%
1992 X.XX%
1993 X.XX%
1994 X.XX%
1995 X.XX%
1996 X.XX%
1997 X.XX%
1998 X.XX%
BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
The Fund's performance from January 1, 1999 to September 30, 1999 was
X.XX%.
Page 18 of 107
<PAGE> 21
Armada Funds Prospectus - Class C Shares
This table compares the Fund's average annual total returns for the periods
ended December 31, 1998 to those of the S&P 500 Index.
CLASS A SHARES 1 YEAR 5 YEARS SINCE INCEPTION
---------------------------------------------------------------------------
ARMADA EQUITY GROWTH FUND X.XX% X.XX% X.XX%*
S&P 500 INDEX X.XX% X.XX% X.XX%**
* Since April 15, 1991
** Since [calc. date for index]
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest
directly in an index. Unlike a mutual fund, an index does not have an
investment adviser and does not pay any commissions or expenses. If an
index had expenses, its performance would be lower.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you purchase
or sell Fund shares. You would pay these fees directly from your investment
in the Fund.
CLASS C SHARES
---------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a
percentage of net asset value) 1.00%(1)
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends and other Distributions
(as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed,
if applicable) None
Exchange Fee None
- --------------------------------
(1) A contingent deferred sales charge is charged only with respect to
Class C Shares redeemed prior to eighteen months from the date of
purchase.
Page 19 of 107
<PAGE> 22
Armada Funds Prospectus - Class C Shares
Every mutual fund has operating expenses to pay for services such as
professional advisory, shareholder, distribution, administration and
custody services and other costs of doing business. This table describes
the highest fees and expenses that you may pay indirectly if you hold
shares of the Fund.
ANNUAL FUND OPERATING EXPENSES
CLASS C SHARES
---------------------------------------------------------------------------
Investment Advisory Fees .XX%
Distribution and Service (12b-1) Fees .XX%
Other Expenses .XX%
-----
Total Annual Fund Operating Expenses X.XX%*
---------------------------------------------------------------------------
* The Fund's total actual annual operating expenses for the most
recent fiscal year were less than the amount shown above because the
Administrator is waiving a portion of the fees in order to keep total
operating expenses at a specified level. The Administrator may discontinue
all or part of these waivers at any time. With these fee waivers, the
Fund's actual total operating expenses are as follows:
Armada Equity Growth Fund -- Class C Shares X.XX%
For more information about these fees, see "Investment Adviser, Sub-Adviser
and Investment Team" and "Distribution of Fund Shares."
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and that
you sell your shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and
Fund expenses remain the same. Although your actual costs and returns might
be different, your approximate costs of investing $10,000 in the Fund would
be:
If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS C SHARES $ $ $ $
----- ------ ------ -------
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS C SHARES $ $ $ $
----- ------ ------ -------
Page 20 of 107
<PAGE> 23
Armada Funds Prospectus - Class C Shares
ARMADA TAX MANAGED EQUITY FUND
FUND SUMMARY
***
INVESTMENT GOAL Capital appreciation, while minimizing
the impact of taxes
INVESTMENT FOCUS Equity securities
SHARE PRICE VOLATILITY High
PRINCIPAL INVESTMENT STRATEGY Investing in common stock using
strategies designed to minimize the
impact of taxes
INVESTOR PROFILE Investors who are seeking capital
appreciation while minimizing the
impact of taxes and who are willing to
accept the risk of investing in equity
securities
***
INVESTMENT STRATEGY OF THE ARMADA TAX MANAGED EQUITY FUND
***
The Armada Tax Managed Equity Fund's investment objective is to provide
capital appreciation while minimizing the impact of taxes on shareholders'
returns. The investment objective may be changed without a shareholder
vote. The Fund normally invests at least 80% of its total assets in common
stocks. The Fund may invest up to 20% of its total assets at the time of
purchase in foreign securities. The Adviser buys and sells common stocks
based on factors such as historical and projected long-term earnings
growth, earnings quality and liquidity. The Adviser attempts to minimize
the realization of taxable gains by investing in the securities of
companies with above average earnings predictability and stability which
the Fund expects to hold for several years. This generally results in a low
level of portfolio turnover. In addition, the Fund seeks to distribute
relatively low levels of taxable investment income by investing in stocks
with low dividend yields. The Fund is not a tax-exempt fund, and it expects
to distribute taxable dividends and capital gains from time to time.
***
PRINCIPAL RISKS OF INVESTING IN THE ARMADA TAX MANAGED EQUITY FUND
Since it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time.
Historically, the equity markets have moved in cycles, and the value of the
Fund's equity securities may fluctuate from day-to-day. Individual
companies may report poor results or be negatively affected by industry
and/or economic trends and developments. The prices of securities issued by
such companies may decline in response. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
Investing in foreign countries poses additional risks since political and
economic events unique to a country or region will affect those markets and
their issuers. These events will not necessarily affect the U.S. economy or
similar issuers located in the United States. In addition, investments in
foreign countries are generally denominated in a foreign currency. As a
result, changes in the
Page 21 of 107
<PAGE> 24
Armada Funds Prospectus - Class C Shares
value of those currencies compared to the U.S. dollar may affect
(positively or negatively) the value of a Fund's investments. These
currency movements may happen separately from and in response to events
that do not otherwise affect the value of the security in the issuer's home
country.
The Fund is also subject to the risk that its market segment, large cap
equity securities, may underperform other equity market segments or the
equity market as a whole.
PERFORMANCE INFORMATION
There is no bar chart or performance information for the Class C Shares or
other shares of the Fund because it has not completed a full calendar year
of operations.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you purchase
or sell Fund shares. You would pay these fees directly from your investment
in the Fund.
CLASS C SHARES
---------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a
percentage of net asset value) 1.00%(1)
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends and other Distributions (as a percentage
of offering price) None
Redemption Fee (as a percentage of amount redeemed,
if applicable) None
Exchange Fee None
-----------------------------
(1) A contingent deferred sales charge is charged only with respect to
Class C Shares redeemed prior to eighteen months from the date of
purchase.
Page 22 of 107
<PAGE> 25
Armada Funds Prospectus - Class C Shares
Every mutual fund has operating expenses to pay for services such as
professional advisory, shareholder, distribution, administration and
custody services and other costs of doing business. This table describes
the highest fees and expenses that you may pay indirectly if you hold
shares of the Fund.
ANNUAL FUND OPERATING EXPENSES
CLASS C SHARES
----------------------------------------------------------------------------
Investment Advisory Fees .XX%
Distribution and Service (12b-1) Fees .XX%
Other Expenses .XX%
----
Total Annual Fund Operating Expenses X.XX%*
---------------------------------------------------------------------------
* The Fund's total actual annual operating expenses for the most recent
fiscal year were less than the amount shown above because the Administrator
is waiving a portion of the fees in order to keep total operating expenses
at a specified level. The Administrator may discontinue all or part of
these waivers at any time. With these fee waivers, the Fund's actual total
operating expenses are as follows:
Armada Tax Managed Equity Fund -- Class C Shares %
----
For more information about these fees, see "Investment Adviser, Sub-Adviser
and Investment Team" and "Distribution of Fund Shares."
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and that
you sell your shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and
Fund expenses remain the same. Although your actual costs and returns might
be different, your approximate costs of investing $10,000 in the Fund would
be:
If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS C SHARES $ $ $ $
----- ------ ------ -------
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS C SHARES $ $ $ $
----- ------ ------ -------
Page 23 of 107
<PAGE> 26
Armada Funds Prospectus - Class C Shares
ARMADA CORE EQUITY FUND
FUND SUMMARY
***
INVESTMENT GOAL Capital appreciation
INVESTMENT FOCUS Large cap common stocks
SHARE PRICE VOLATILITY High
PRINCIPAL INVESTMENT STRATEGY Investing in large capitaliza-
tion common stocks
INVESTOR PROFILE Investors seeking capital
appreciation, who are willing
to accept the risk of investing
in equity securities
***
INVESTMENT STRATEGY OF THE ARMADA CORE EQUITY FUND
***
The Armada Core Equity Fund's investment objective is to provide capital
appreciation by blending value and growth investment styles. The investment
objective may be changed without a shareholder vote. The Fund normally
invests at least 80% of its total assets in a diversified portfolio of
common stocks and securities convertible into common stocks of companies
with large stock market capitalizations. The Sub-Adviser normally buys and
sells between 20% and 50% of the Fund's assets in each of three primary
groups of equity securities: common stocks that the Sub-Adviser believes
have strong growth potential, common stocks that the Sub-Adviser believes
are undervalued, and common stocks that offer above-average yields. The
Fund may invest up to 20% of its total assets at the time of purchase in
foreign securities.
Due to its investment strategy, the Fund may buy and sell securities
frequently. This may result in higher transaction costs and additional
capital gains tax liabilities.
***
PRINCIPAL RISKS OF INVESTING IN THE ARMADA CORE EQUITY FUND
Since it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time.
Historically, the equity markets have moved in cycles, and the value of the
Fund's equity securities may fluctuate from day-to-day. Individual
companies may report poor results or be negatively affected by industry
and/or economic trends and developments. The prices of securities issued by
such companies may decline in response. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
Investing in foreign countries poses additional risks since political and
economic events unique to a country or region will affect those markets and
their issuers. These events will not necessarily affect the U.S. economy or
similar issuers located in the United States. In addition, investments in
foreign countries are generally denominated in a foreign currency. As a
result, changes in the value of those currencies compared to the U.S.
dollar may affect (positively or negatively) the value of a Fund's
investments. These currency movements may happen separately from and in
response to events that do not otherwise affect the value of the security
in the issuer's home country.
Page 24 of 107
<PAGE> 27
Armada Funds Prospectus - Class C Shares
The Fund is also subject to the risk that its market segment, large cap
equity securities, may underperform other equity market segments or the
equity market as a whole.
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the volatility of
an investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
Class C Shares of the Fund have less than one calendar year's performance.
For this reason, the performance information shown below is for another
class of shares, Class A Shares, that is not offered in this Prospectus but
would have similar annual returns because both classes of shares will be
invested in the same portfolio of securities. Annual returns will differ
only to the extent that the classes do not have the same expenses. In
reviewing this performance information you should be aware that Class A
Shares have a .10% (annualized) Rule 12b-1 fee (net of voluntary waivers)
while Class C Shares have a .75% (annualized) Rule 12b-1 fee. If the
expenses of the Class C Shares were reflected, performance would be
reduced.
The chart does not reflect sales charges. If sales charges had been
reflected, returns would be less than those shown below.
1998 X.XX%
BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
The Fund's performance from January 1, 1999 to September 30, 1999 was
X.XX%.
This table compares the Fund's average annual total returns for the periods
ended December 31, 1998 to those of the S&P 500 Index.
CLASS A SHARES 1 YEAR SINCE INCEPTION
------------------------------------------------------------------
ARMADA CORE EQUITY FUND X.XX% X.XX%*
S&P 500 INDEX X.XX% X.XX%**
* Since August 1, 1997
** Since [calc. date for index]
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest
directly in an index. Unlike a mutual fund, an index does not have an
investment adviser and does not pay any commissions or expenses. If an
index had expenses, its performance would be lower.
Page 25 of 107
<PAGE> 28
Armada Funds Prospectus - Class C Shares
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you purchase
or sell Fund shares. You would pay these fees directly from your investment
in the Fund.
CLASS C SHARES
---------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering
price) None
Maximum Deferred Sales Charge (Load) (as a
percentage of net asset value) 1.00%(1)
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends and other Distributions
(as a percentage of offering price) None
Redemption Fee (as a percentage of amount
redeemed, if applicable) None
Exchange Fee None
-----------------------------
(1) A contingent deferred sales charge is charged only with respect to
Class C Shares redeemed prior eighteen months from the date of
purchase.
Every mutual fund has operating expenses to pay for services such as
professional advisory, shareholder, distribution, administration and
custody services and other costs of doing business. This table describes
the highest fees and expenses that you may pay indirectly if you hold
shares of the Fund.
ANNUAL FUND OPERATING EXPENSES
CLASS C SHARES
---------------------------------------------------------------------------
Investment Advisory Fees .XX%
Distribution and Service (12b-1) Fees .XX%
Other Expenses .XX%
----
Total Annual Fund Operating Expenses X.XX%*
---------------------------------------------------------------------------
* The Fund's total actual annual operating expenses for the most
recent fiscal year were less than the amount shown above because the
Administrator is waiving a portion of the fees in order to keep total
*operating expenses at a specified level. The Administrator may discontinue
all or part of these waivers at any time. With these fee waivers, the
Fund's actual total operating expenses are as follows:
Armada Core Equity Fund -- Class C Shares X.XX%
For more information about these fees, see "Investment Adviser, Sub-Adviser
and Investment Team" and "Distribution of Fund Shares."
Page 26 of 107
<PAGE> 29
Armada Funds Prospectus - Class C Shares
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and that
you sell your shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and
Fund expenses remain the same. Although your actual costs and returns might
be different, your approximate costs of investing $10,000 in the Fund would
be:
If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS C SHARES $ $ $ $
----- ------ ------ -------
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS C SHARES $ $ $ $
----- ------ ------ -------
Page 27 of 107
<PAGE> 30
Armada Funds Prospectus - Class C Shares
ARMADA EQUITY INDEX FUND
FUND SUMMARY
***
INVESTMENT GOAL To approximate, before Fund expenses,
the investment results of the S&P 500
Index
INVESTMENT FOCUS Common stocks of larger issuers
SHARE PRICE VOLATILITY High
PRINCIPAL INVESTMENT STRATEGY Investing in stocks that comprise the
S&P 500 Index
INVESTOR PROFILE Investors seeking returns similar to
the S&P 500 Index, who are willing to
accept the risk of investing in equity
securities
***
INVESTMENT STRATEGY OF THE ARMADA EQUITY INDEX FUND
***
The Armada Equity Index Fund's investment objective is to provide
investment results that, before Fund expenses, approximate the aggregate
price and dividend performance of the securities included in the S&P 500
Index by investing in securities comprising the S&P 500 Index. The
investment objective may be changed without a shareholder vote. The S&P 500
Index is made up of common stocks of 500 large, publicly traded companies.
The Fund may also invest in derivative instruments, such as futures,
designed to replicate the performance of the S&P 500 Index. The Fund's
ability to duplicate the performance of the S&P 500 Index will depend to
some extent on the size and timing of cash flows into and out of the Fund,
as well as on the level of the Fund's expenses. The Adviser makes no
attempt to "manage" the Fund in the traditional sense (i.e., by using
economic, financial or market analyses).
Due to its investment strategy, the Fund may buy and sell securities
frequently. This may result in higher transaction costs and additional
capital gains tax liabilities.
***
PRINCIPAL RISKS OF INVESTING IN THE ARMADA EQUITY INDEX FUND
Since it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time.
Historically, the equity markets have moved in cycles, and the value of the
Fund's equity securities may fluctuate from day-to-day. Individual
companies may report poor results or be negatively affected by industry
and/or economic trends and developments. The prices of securities issued by
such companies may decline in response. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
The Fund is also subject to the risk that its market segment, the S&P 500
Index of common stocks, may underperform other equity market segments or
the equity market as a whole.
Page 28 of 107
<PAGE> 31
Armada Funds Prospectus - Class C Shares
PERFORMANCE INFORMATION
There is no bar chart or performance information for the Class C Shares or
other shares of the Fund because it has not completed a full calendar year
of operations.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you purchase
or sell Fund shares. You would pay these fees directly from your investment
in the Fund.
CLASS C SHARES
---------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage
of net asset value) 1.00%(1)
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends and other Distributions (as a percentage
of offering price) None
Redemption Fee (as a percentage of amount redeemed,
if applicable) None
Exchange Fee None
-------------------------------
(1) A contingent deferred sales charge is charged only with respect to
Class C Shares redeemed prior to eighteen months from the date of
purchase.
Every mutual fund has operating expenses to pay for services such as
professional advisory, shareholder, distribution, administration and
custody services and other costs of doing business. This table describes
the highest fees and expenses that you may pay indirectly if you hold
shares of the Fund.
ANNUAL FUND OPERATING EXPENSES
CLASS C SHARES
-----------------------------------------------------------------------
Investment Advisory Fees .XX%
Distribution and Service (12b-1) Fees .XX%
Other Expenses .XX%
----
Total Annual Fund Operating Expenses X.XX%*
-----------------------------------------------------------------------
* The Fund's total actual annual operating expenses for the most recent
fiscal year were less than the amount shown above because the Administrator
is waiving a portion of the fees in order to keep total operating expenses
at a specified level. The Administrator may discontinue all or part of
these waivers at any time. With these fee waivers, the Fund's actual total
operating expenses are as follows:
Armada Equity Index Fund -- Class C Shares %
----
For more information about these fees, see "Investment Adviser, Sub-Adviser
and Investment Team" and "Distribution of Fund Shares."
Page 29 of 107
<PAGE> 32
Armada Funds Prospectus - Class C Shares
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and that
you sell your shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and
Fund expenses remain the same. Although your actual costs and returns might
be different, your approximate costs of investing $10,000 in the Fund would
be:
If you sell your shares at the end of the period your expenses would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS C SHARES $ $ $ $
----- ------ ------ -------
If you do not sell your shares at the end of the period your expenses would
be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS C SHARES $ $ $ $
----- ------ ------ -------
Page 30 of 107
<PAGE> 33
Armada Funds Prospectus - Class C Shares
ARMADA EQUITY INCOME FUND
FUND SUMMARY
***
INVESTMENT GOAL Capital appreciation
INVESTMENT FOCUS Income producing equity securities
SHARE PRICE VOLATILITY Medium
PRINCIPAL INVESTMENT STRATEGY Investing in equity securities
that provide a higher yield than
the general market
INVESTOR PROFILE Investors seeking an income
component as well as capital
appreciation and who are willing
to accept the risk of investing in
equity securities
***
INVESTMENT STRATEGY OF THE ARMADA EQUITY INCOME FUND
***
The Armada Equity Income Fund's investment objective is to provide capital
appreciation by investing in a diversified portfolio of publicly traded
equity securities which, in the aggregate, provide a premium current yield.
The Fund normally invests at least 80% of the value of the Fund's total
assets in income-producing large cap common stocks and securities
convertible into common stocks. The Fund may invest up to 20% of its total
assets at the time of purchase in foreign securities. The investment
objective may be changed without a shareholder vote. In buying and selling
securities for the Fund, the Adviser emphasizes equity securities that
provide a higher yield than the general market. The Fund will generally
sell securities when their yields approach a market yield or they otherwise
fail to satisfy investment criteria.
The Fund considers a large capitalization company as one that has a
comparable market capitalization to the companies in the Standard & Poor's
BARRA Value Index.
Due to its investment strategy, the Fund may buy and sell securities
frequently. This may result in higher transaction costs and additional
capital gains tax liabilities.
***
PRINCIPAL RISKS OF INVESTING IN THE ARMADA EQUITY INCOME FUND
Since it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time.
Historically, the equity markets have moved in cycles, and the value of the
Fund's equity securities may fluctuate from day-to-day. Individual
companies may report poor results or be negatively affected by industry
and/or economic trends and developments. The prices of securities issued by
such companies may decline in response. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
Investing in foreign countries poses additional risks since political and
economic events unique to a country or region will affect those markets and
their issuers. These events will not necessarily
Page 31 of 107
<PAGE> 34
Armada Funds Prospectus - Class C Shares
affect the U.S. economy or similar issuers located in the United States. In
addition, investments in foreign countries are generally denominated in a
foreign currency. As a result, changes in the value of those currencies
compared to the U.S. dollar may affect (positively or negatively) the value
of a Fund's investments. These currency movements may happen separately
from and in response to events that do not otherwise affect the value of
the security in the issuer's home country.
The Fund is also subject to the risk that its market segment, income
producing equity securities, may underperform other equity market segments
or the equity market as a whole.
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the volatility of
an investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
Class C Shares of the Fund have less than one calendar year's performance.
For this reason, the performance information shown below is for another
class of shares, Class A Shares, that is not offered in this Prospectus but
would have similar annual returns because both classes of shares will be
invested in the same portfolio of securities. Annual returns will differ
only to the extent that the classes do not have the same expenses. In
reviewing this performance information you should be aware that Class A
Shares have a .10% (annualized) Rule 12b-1 fee (net of voluntary waivers)
while Class C Shares have a .75% (annualized) Rule 12b-1 fee. If the
expenses of the Class C Shares were reflected, performance would be
reduced.
The chart does not reflect sales charges. If sales charges had been
reflected, returns would be less than those shown below.
1995 X.XX%
1996 X.XX%
1997 X.XX%
1998 X.XX%
BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
The Fund's performance from January 1, 1999 to September 30, 1999 was
X.XX%.
This table compares the Fund's average annual total returns for the periods
ended December 31, 1998 to those of the S&P Barra/Value Index.
CLASS A SHARES 1 YEAR SINCE INCEPTION
------------------------------------------------------------------------
ARMADA EQUITY INCOME FUND X.XX% X.XX%*
S&P BARRA/VALUE INDEX X.XX% X.XX%**
* Since August 22, 1994
** Since [calc. date for index]
Page 32 of 107
<PAGE> 35
Armada Funds Prospectus - Class C Shares
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest
directly in an index. Unlike a mutual fund, an index does not have an
investment adviser and does not pay any commissions or expenses. If an
index had expenses, its performance would be lower.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you purchase
or sell Fund shares. You would pay these fees directly from your investment
in the Fund.
CLASS C SHARES
---------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage
of net asset value) 1.00%(1)
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends and other Distributions (as a percentage
of offering price) None
Redemption Fee (as a percentage of amount redeemed, if
applicable) None
Exchange Fee None
--------------------------------
(1) A contingent deferred sales charge is charged only with respect to
Class C Shares redeemed prior to eighteen months from the date of
purchase.
Every mutual fund has operating expenses to pay for services such as
professional advisory, shareholder, distribution, administration and
custody services and other costs of doing business. This table describes
the highest fees and expenses that you may pay indirectly if you hold
shares of the Fund.
ANNUAL FUND OPERATING EXPENSES
CLASS C SHARES
---------------------------------------------------------------------------
Investment Advisory Fees .XX%
Distribution and Service (12b-1) Fees .XX%
Other Expenses .XX%
----
Total Annual Fund Operating Expenses X.XX%*
---------------------------------------------------------------------------
* The Fund's total actual annual operating expenses for the most recent
fiscal year were less than the amount shown above because the Administrator
is waiving a portion of the fees in order to keep total operating expenses
at a specified level. The Administrator may discontinue all or part of
these waivers at any time. With these fee waivers, the Fund's actual total
operating expenses are as follows:
Armada Equity Income Fund -- Class C Shares X.XX%
For more information about these fees, see "Investment Adviser, Sub-Adviser
and Investment Team" and "Distribution of Fund Shares."
Page 33 of 107
<PAGE> 36
Armada Funds Prospectus - Class C Shares
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and that
you sell your shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and
Fund expenses remain the same. Although your actual costs and returns might
be different, your approximate costs of investing $10,000 in the Fund would
be:
If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS C SHARES $ $ $ $
----- ------ ------ -------
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS C SHARES $ $ $ $
----- ------ ------ -------
Page 34 of 107
<PAGE> 37
Armada Funds Prospectus - Class C Shares
ARMADA BALANCED ALLOCATION FUND
FUND SUMMARY
***
INVESTMENT GOAL Long-term capital appreciation
and current income
INVESTMENT FOCUS A combination of growth-oriented
common stocks, convertible
securities, fixed income
securities and cash equivalents
SHARE PRICE VOLATILITY Medium
PRINCIPAL INVESTMENT STRATEGY Investing in a diversified
portfolio of growth-oriented
common stocks, convertible
securities, investment grade fixed
income securities and cash
equivalents
INVESTOR PROFILE Investors seeking a broad
diversification by asset class
and style to manage risk and
provide the potential for
above-average after-tax returns
***
INVESTMENT STRATEGY OF THE ARMADA BALANCED ALLOCATION FUND
***
The Armada Balanced Allocation Fund's investment objective is to provide
long-term capital appreciation and current income. The investment objective
may be changed without a shareholder vote. The Fund intends to invest 50%
to 70% of its net assets in common stocks and convertible securities, 25%
to 55% of its net assets in fixed income securities and up to 30% of its
net assets in cash and cash equivalent securities. The Adviser buys and
sells equity securities based on their potential for long-term capital
appreciation. The Fund invests the fixed income portion of its portfolio of
investments in a broad range of investment grade debt securities (which are
those rated at the time of investment in one of the four highest rating
categories by a major rating agency). The cash equivalent securities in
which the Fund normally invests are short-term obligations.
Due to its investment strategy, the Fund may buy and sell securities
frequently. This may result in higher transaction costs and additional
capital gains tax liabilities.
***
PRINCIPAL RISKS OF INVESTING IN THE ARMADA BALANCED ALLOCATION FUND
Since it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time.
Historically, the equity markets have moved in cycles, and the value of the
Fund's equity securities may fluctuate from day-to-day. Individual
companies may report poor results or be negatively affected by industry
and/or economic trends and developments. The prices of securities issued by
such companies may decline in response. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
The prices of the Fund's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers,
Page 35 of 107
<PAGE> 38
Armada Funds Prospectus - Class C Shares
including governments. Generally, the Fund's fixed income securities will
decrease in value if interest rates rise and vice versa, and the volatility
of lower rated securities is even greater than that of higher rated
securities. Also, longer-term securities are generally more volatile, so
the average maturity or duration of these securities affects risk.
The Fund is also subject to the risk that the Adviser's asset allocation
decisions will not anticipate market trends successfully. For example,
weighting common stocks too heavily during a stock market decline may
result in a failure to preserve capital. Conversely, investing too heavily
in fixed income securities during a period of stock market appreciation may
result in lower total return.
The smaller capitalization companies the Fund invests in may be more
vulnerable to adverse business or economic events than larger, more
established companies. In particular, these small companies may have
limited product lines, markets and financial resources, and may depend upon
a relatively small management group. Therefore, small cap stocks may be
more volatile than those of larger companies. These securities may be
traded over-the-counter or listed on an exchange and may or may not pay
dividends.
Investing in foreign countries poses additional risks since political and
economic events unique to a country or region will affect those markets and
their issuers. These events will not necessarily affect the U.S. economy or
similar issuers located in the United States. In addition, investments in
foreign countries are generally denominated in a foreign currency. As a
result, changes in the value of those currencies compared to the U.S.
dollar may affect (positively or negatively) the value of a Fund's
investments. These currency movements may happen separately from and in
response to events that do not otherwise affect the value of the security
in the issuer's home country.
An investment in the Fund is subject to interest rate risk, which is the
possibility that the Fund's yield will decline due to falling interest
rates.
Although the Fund's U.S. government securities are considered to be among
the safest investments, they are not guaranteed against price movements due
to changing interest rates. Obligations issued by some U.S. government
agencies and instrumentalities are backed by the U.S. Treasury, while
others are backed solely by the ability of the agency to borrow from the
U.S. Treasury or by the agency's own resources.
The Fund is also subject to the risk that its market segments, investment
grade fixed income and growth-oriented equity securities, may underperform
other fixed income or equity market segments or the fixed income or equity
markets as a whole.
PERFORMANCE INFORMATION
There is no bar chart or performance information for the Class C Shares or
other shares of the Fund because it has not completed a full calendar year
of operations.
Page 36 of 107
<PAGE> 39
Armada Funds Prospectus - Class C Shares
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you purchase
or sell Fund shares. You would pay these fees directly from your investment
in the Fund.
CLASS C SHARES
---------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage
of net asset value) 1.00%(1)
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends and other Distributions (as a percentage
of offering price) None
Redemption Fee (as a percentage of amount redeemed,
if applicable) None
Exchange Fee None
----------------------------
(1) A contingent deferred sales charge is charged only with respect to
Class C Shares redeemed prior to eighteen months from the date of
purchase.
Every mutual fund has operating expenses to pay for services such as
professional advisory, shareholder, distribution, administration and
custody services and other costs of doing business. This table describes
the highest fees and expenses that you may pay indirectly if you hold
shares of the Fund.
ANNUAL FUND OPERATING EXPENSES
CLASS C SHARES
---------------------------------------------------------------------------
Investment Advisory Fees .XX%
Distribution and Service (12b-1) Fees .XX%
Other Expenses .XX%
----
Total Annual Fund Operating Expenses X.XX%*
---------------------------------------------------------------------------
* The Fund's total actual annual operating expenses for the most recent
fiscal year were less than the amount shown above because the Administrator
is waiving a portion of the fees in order to keep total operating expenses
at a specified level. The Administrator may discontinue all or part of
these waivers at any time. With these fee waivers, the Fund's actual total
operating expenses are as follows:
Armada Balanced Allocation Fund -- Class C Shares %
---
For more information about these fees, see "Investment Adviser, Sub-Adviser
and Investment Team" and "Distribution of Fund Shares."
Page 37 of 107
<PAGE> 40
Armada Funds Prospectus - Class C Shares
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and that
you sell your shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and
Fund expenses remain the same. Although your actual costs and returns might
be different, your approximate costs of investing $10,000 in the Fund would
be:
If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS C SHARES $ $ $ $
----- ------ ------ -------
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS C SHARES $ $ $ $
----- ------ ------ -------
Page 38 of 107
<PAGE> 41
Armada Funds Prospectus - Class C Shares
ARMADA TOTAL RETURN ADVANTAGE FUND
FUND SUMMARY
***
INVESTMENT GOAL Current income as well as preservation
of capital
INVESTMENT FOCUS Investment grade debt securities
SHARE PRICE VOLATILITY Medium
PRINCIPAL INVESTMENT STRATEGY Investing in investment grade fixed
income securities, while maintaining an
average dollar-weighted maturity of
between four and twelve years
INVESTOR PROFILE Investors seeking total return with
less price volatility than would be the
case if the Fund were to invest in
equity securities, and who are willing
to accept the risks of investing in
fixed income securities
***
INVESTMENT STRATEGY OF THE ARMADA TOTAL RETURN ADVANTAGE FUND
***
The Armada Total Return Advantage Fund's investment objective is to provide
current income as well as preservation of capital by investing primarily in
a portfolio of high- and medium-grade fixed income securities. The
investment objective may be changed without a shareholder vote. The Fund
normally invests at least 80% of the value of its total assets in debt
securities of all types. Investment grade fixed income securities are those
rated in one of the four highest rating categories by a major rating
agency, or determined by the Adviser to be of equivalent quality. In
selecting investments for the Fund, the Adviser uses a number of
strategies, including duration/maturity management, sector allocation and
individual security selection. The Fund may invest up to 15% of its assets
in fixed income securities that are non-rated or rated below investment
grade.
The Fund generally maintains an average dollar-weighted maturity of between
four and twelve years.
Due to its investment strategy, the Fund may buy and sell securities
frequently. This may result in higher transaction costs and additional
capital gains tax liabilities.
***
PRINCIPAL RISKS OF INVESTING IN THE ARMADA TOTAL RETURN ADVANTAGE FUND
The prices of the Fund's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Fund's fixed income securities will decrease in value if
interest rates rise and vice versa, and the volatility of lower rated
securities is even greater than that of higher rated securities. Also,
longer-term securities are generally more volatile, so the average maturity
or duration of these securities affects risk.
Page 39 of 107
<PAGE> 42
Armada Funds Prospectus - Class C Shares
Junk bonds involve greater risks of default or downgrade and are more
volatile than investment grade securities. Junk bonds involve greater risk
of default or price declines than investment grade securities due to actual
or perceived changes in an issuer's creditworthiness. In addition, issuers
of junk bonds may be more susceptible than other issuers to economic
downturns. Junk bonds are subject to the risk that the issuer may not be
able to pay interest or dividends and ultimately to repay principal upon
maturity. Discontinuation of these payments could substantially adversely
affect the market value of the security.
An investment in the Fund is subject to interest rate risk, which is the
possibility that the Fund's yield will decline due to falling interest
rates.
Although the Fund's U.S. government securities are considered to be among
the safest investments, they are not guaranteed against price movements due
to changing interest rates. Obligations issued by some U.S. government
agencies and instrumentalities are backed by the U.S. Treasury, while
others are backed solely by the ability of the agency to borrow from the
U.S. Treasury or by the agency's own resources.
The Fund is also subject to the risk that its market segment, investment
grade fixed income securities, may underperform other fixed income market
segments or the fixed income market as a whole.
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the volatility of
an investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
Class C Shares of the Fund have less than one calendar year's performance.
For this reason, the performance information shown below is for another
class of shares, Class A Shares, that is not offered in this Prospectus but
would have similar annual returns because both classes of shares will be
invested in the same portfolio of securities. Annual returns will differ
only to the extent that the classes do not have the same expenses. In
reviewing this performance information you should be aware that Class A
Shares have a .10% (annualized) Rule 12b-1 fee (net of voluntary waivers)
while Class C Shares have a .75% (annualized) Rule 12b-1 fee. If the
expenses of the Class C Shares were reflected, performance would be
reduced.
The chart does not reflect sales charges. If sales charges had been
reflected, returns would be less than those shown below.
1995 X.XX%
1996 X.XX%
1997 X.XX%
1998 X.XX%
BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
The Fund's performance from January 1, 1999 to September 30, 1999 was
X.XX%.
Page 40 of 107
<PAGE> 43
Armada Funds Prospectus - Class C Shares
This table compares the Fund's average annual total returns for the periods
ended December 31, 1998 to those of the Lehman Brothers
Government/Corporate Bond Index.
CLASS A SHARES 1 YEAR SINCE INCEPTION
---------------------------------------------------------------------------
ARMADA TOTAL RETURN ADVANTAGE FUND X.XX% X.XX%*
LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX X.XX% X.XX%**
* Since September 6, 1994
** Since [calc. date for index]
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest
directly in an index. Unlike a mutual fund, an index does not have an
investment adviser and does not pay any commissions or expenses. If an
index had expenses, its performance would be lower.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you purchase
or sell Fund shares. You would pay these fees directly from your investment
in the Fund.
CLASS C SHARES
---------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a
percentage of net asset value) 1.00%(1)
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends and other Distributions (as a percentage
of offering price) None
Redemption Fee (as a percentage of amount redeemed,
if applicable) None
Exchange Fee None
-----------------------------
(1) A contingent deferred sales charge is charged only with respect to
Class C Shares redeemed prior to eighteen months from the date of
purchase.
Page 41 of 107
<PAGE> 44
Armada Funds Prospectus - Class C Shares
Every mutual fund has operating expenses to pay for services such as
professional advisory, shareholder, distribution, administration and
custody services and other costs of doing business. This table describes
the highest fees and expenses that you may pay indirectly if you hold
shares of the Fund.
ANNUAL FUND OPERATING EXPENSES
CLASS C SHARES
---------------------------------------------------------------------------
Investment Advisory Fees .XX%
Distribution and Service (12b-1) Fees .XX%
Other Expenses .XX%
----
Total Annual Fund Operating Expenses X.XX%*
---------------------------------------------------------------------------
* The Fund's total actual annual operating expenses for the most
recent fiscal year were less than the amount shown above because the
Administrator is waiving a portion of the fees in order to keep total
operating expenses at a specified level. The Administrator may discontinue
all or part of these waivers at any time. With these fee waivers, the
Fund's actual total operating expenses are as follows:
Armada Total Return Advantage Fund -- Class C Shares %
---
For more information about these fees, see "Investment Adviser, Sub-Adviser
and Investment Team" and "Distribution of Fund Shares."
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and that
you sell your shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and
Fund expenses remain the same. Although your actual costs and returns might
be different, your approximate costs of investing $10,000 in the Fund would
be:
If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS C SHARES $ $ $ $
----- ------ ------ -------
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS C SHARES $ $ $ $
----- ------ ------ -------
Page 42 of 107
<PAGE> 45
Armada Funds Prospectus - Class C Shares
ARMADA BOND FUND
FUND SUMMARY
***
INVESTMENT GOAL Current income as well as preservation
of capital
INVESTMENT FOCUS Investment-grade debt securities
SHARE PRICE VOLATILITY Medium
PRINCIPAL INVESTMENT STRATEGY Investing in a diversified portfolio of
investment-grade fixed income securi-
ties, which maintains a dollar-weighted
average maturity of between four and
twelve years
INVESTOR PROFILE Investors seeking current income, and
who are willing to accept the risks of
investing in fixed income securities
***
INVESTMENT STRATEGY OF THE ARMADA BOND FUND
***
The Armada Bond Fund's investment objective is to provide current income as
well as preservation of capital by investing in a portfolio of high- and
medium-grade fixed income securities. The investment objective may be
changed without a shareholder vote. The Fund normally invests at least 80%
of the value of its total assets in investment grade debt securities of all
types. Investment-grade fixed income securities are those rated in one of
the four highest rating categories by a major rating agency, or determined
by the Adviser to be of equivalent quality. The Fund generally maintains a
dollar-weighted average maturity of between four and twelve years.
Due to its investment strategy, the Fund may buy and sell securities
frequently. This may result in higher transaction costs and additional
capital gains tax liabilities.
***
PRINCIPAL RISKS OF INVESTING IN THE ARMADA BOND FUND
The prices of the Fund's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Fund's fixed income securities will decrease in value if
interest rates rise and vice versa, and the volatility of lower rated
securities is even greater than that of higher rated securities. Also,
longer-term securities are generally more volatile, so the average maturity
or duration of these securities affects risk.
An investment in the Fund is subject to interest rate risk, which is the
possibility that the Fund's yield will decline due to falling interest
rates.
The mortgages underlying mortgage-backed securities may be paid off early,
which makes it difficult to determine their actual maturity and therefore
calculate how they will respond to changes in interest rates. The Fund may
have to reinvest prepaid amounts at lower interest rates. This risk of
prepayment is an additional risk of mortgage-backed securities.
Page 43 of 107
<PAGE> 46
Armada Funds Prospectus - Class C Shares
Although the Fund's U.S. government securities are considered to be among
the safest investments, they are not guaranteed against price movements due
to changing interest rates. Obligations issued by some U.S. government
agencies and instrumentalities are backed by the U.S. Treasury, while
others are backed solely by the ability of the agency to borrow from the
U.S. Treasury or by the agency's own resources.
The Fund is also subject to the risk that its market segment, investment
grade fixed income securities, may underperform other fixed income market
segments or the fixed income market as a whole.
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the volatility of
an investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
Class C Shares of the Fund have less than one calendar year's performance.
For this reason, the performance information shown below is for another
class of shares, Class A Shares, that is not offered in this Prospectus but
would have similar annual returns because both classes of shares will be
invested in the same portfolio of securities. Annual returns will differ
only to the extent that the classes do not have the same expenses. In
reviewing this performance information you should be aware that Class A
Shares have a .10% (annualized) Rule 12b-1 fee (net of voluntary waivers)
while Class C Shares have a .75% (annualized) Rule 12b-1 fee. If the
expenses of the Class C Shares were reflected, performance would be
reduced.
The chart does not reflect sales charges. If sales charges had been
reflected, returns would be less than those shown below.
1997 X.XX%
1998 X.XX%
BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
The Fund's performance from January 1, 1999 to September 30, 1999 was
X.XX%.
This table compares the Fund's average annual total returns for the periods
ended December 31, 1998 to those of the Lehman Aggregate Bond Index.
CLASS A SHARES 1 YEAR SINCE INCEPTION
----------------------------------------------------------------
ARMADA BOND FUND X.XX% X.XX%*
LEHMAN AGGREGATE BOND INDEX X.XX% X.XX%**
Since September 11, 1996
Since [calc. date for index]
Page 44 of 107
<PAGE> 47
Armada Funds Prospectus - Class C Shares
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest
directly in an index. Unlike a mutual fund, an index does not have an
investment adviser and does not pay any commissions or expenses. If an
index had expenses, its performance would be lower.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you purchase
or sell Fund shares. You would pay these fees directly from your investment
in the Fund.
CLASS C SHARES
---------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage
of net asset value) 1.00%(1)
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends and other Distributions (as a percentage
of offering price) None
Redemption Fee (as a percentage of amount redeemed,
if applicable) None
Exchange Fee None
-----------------------------
(1) A contingent deferred sales charge is charged only with respect to
Class C Shares redeemed prior eighteen months from the date of
purchase.
Every mutual fund has operating expenses to pay for services such as
professional advisory, shareholder, distribution, administration and
custody services and other costs of doing business. This table describes
the highest fees and expenses that you may pay indirectly if you hold
shares of the Fund.
ANNUAL FUND OPERATING EXPENSES
CLASS C SHARES
---------------------------------------------------------------------------
Investment Advisory Fees .XX%
Distribution and Service (12b-1) Fees .XX%
Other Expenses .XX%
----
Total Annual Fund Operating Expenses X.XX%*
---------------------------------------------------------------------------
* The Fund's total actual annual operating expenses for the most recent
fiscal year were less than the amount shown above because the Administrator
is waiving a portion of the fees in order to keep total operating expenses
at a specified level. The Administrator may discontinue all or part of
these waivers at any time. With these fee waivers, the Fund's actual total
operating expenses are as follows:
Armada Bond Fund -- Class C Shares %
---
For more information about these fees, see "Investment Adviser, Sub-Adviser
and Investment Team" and "Distribution of Fund Shares."
Page 45 of 107
<PAGE> 48
Armada Funds Prospectus - Class C Shares
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and that
you sell your shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and
Fund expenses remain the same. Although your actual costs and returns might
be different, your approximate costs of investing $10,000 in the Fund would
be:
If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS C SHARES $ $ $ $
----- ------ ------ -------
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS C SHARES $ $ $ $
----- ------ ------ -------
Page 46 of 107
<PAGE> 49
Armada Funds Prospectus - Class C Shares
ARMADA INTERMEDIATE BOND FUND
FUND SUMMARY
***
INVESTMENT GOAL Current income as well as preservation
of capital
INVESTMENT FOCUS Investment grade debt securities
SHARE PRICE VOLATILITY Medium
PRINCIPAL INVESTMENT STRATEGY Investing in investment grade fixed
income securities, while maintaining a
dollar-weighted average maturity of
between two and ten years
INVESTOR PROFILE Investors seeking current income, and
who are willing to accept the risks of
investing in fixed income securities
***
INVESTMENT STRATEGY OF THE ARMADA INTERMEDIATE BOND FUND
***
The Armada Intermediate Bond Fund's investment objective is to provide
current income as well as preservation of capital by investing in a
portfolio of high- and medium-grade fixed income securities. The investment
objective may be changed without a shareholder vote. The Fund normally
invests at least 80% of the value of its total assets in investment grade
debt securities of all types. Investment grade fixed income securities are
those rated in one of the four highest rating categories by a major rating
agency, or determined by the Adviser to be of equivalent quality. The Fund
generally maintains an average maturity of between two and ten years.
PRINCIPAL RISKS OF INVESTING IN THE ARMADA INTERMEDIATE BOND FUND
The prices of the Fund's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Fund's fixed income securities will decrease in value if
interest rates rise and vice versa, and the volatility of lower rated
securities is even greater than that of higher rated securities. Also,
longer-term securities are generally more volatile, so the average maturity
or duration of these securities affects risk.
An investment in the Fund is subject to interest rate risk, which is the
possibility that the Fund's yield will decline due to falling interest
rates.
The mortgages underlying mortgage-backed securities may be paid off early,
which makes it difficult to determine their actual maturity and therefore
calculate how they will respond to changes in interest rates. The Fund may
have to reinvest prepaid amounts at lower interest rates. This risk of
prepayment is an additional risk of mortgage-backed securities.
Although the Fund's U.S. government securities are considered to be among
the safest investments, they are not guaranteed against price movements due
to changing interest rates. Obligations issued by some U.S. government
agencies and instrumentalities are backed by the
Page 47 of 107
<PAGE> 50
Armada Funds Prospectus - Class C Shares
U.S. Treasury, while others are backed solely by the ability of the agency
to borrow from the U.S. Treasury or by the agency's own resources.
Investing in foreign countries poses additional risks since political and
economic events unique to a country or region will affect those markets and
their issuers. These events will not necessarily affect the U.S. economy or
similar issuers located in the United States. In addition, investments in
foreign countries are generally denominated in a foreign currency. As a
result, changes in the value of those currencies compared to the U.S.
dollar may affect (positively or negatively) the value of a Fund's
investments. These currency movements may happen separately from and in
response to events that do not otherwise affect the value of the security
in the issuer's home country. These various risks will be even greater for
investments in emerging market countries since political turmoil and rapid
changes in economic conditions are more likely to occur in these countries.
The Fund is also subject to the risk that its market segment, investment
grade fixed income securities, may underperform other fixed income market
segments or the fixed income market as a whole.
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the volatility of
an investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
Class C Shares of the Fund have less than one calendar year's performance.
For this reason, the performance information shown below is for another
class of shares, Class A Shares, that is not offered in this Prospectus but
would have similar annual returns because both classes of shares will be
invested in the same portfolio of securities. Annual returns will differ
only to the extent that the classes do not have the same expenses. In
reviewing this performance information you should be aware that Class A
Shares have a .10% (annualized) Rule 12b-1 fee (net of voluntary waivers)
while Class C Shares have a .75% (annualized) Rule 12b-1 fee. If the
expenses of the Class C Shares were reflected, performance would be
reduced.
The chart does not reflect sales charges. If sales charges had been
reflected, returns would be less than those shown below.
1992 X.XX%
1993 X.XX%
1994 X.XX%
1995 X.XX%
1996 X.XX%
1997 X.XX%
1998 X.XX%
BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
The Fund's performance from January 1, 1999 to September 30, 1999 was
X.XX%.
Page 48 of 107
<PAGE> 51
Armada Funds Prospectus - Class C Shares
This table compares the Fund's average annual total returns for the periods
ended December 31, 1998 to those of the Lehman Intermediate
Government/Corporate Bond Index.
CLASS A SHARES 1 YEAR 5 YEARS SINCE INCEPTION
---------------------------------------------------------------------------
ARMADA INTERMEDIATE BOND FUND X.XX% X.XX% X.XX%*
LEHMAN INTERMEDIATE GOVERNMENT/
CORPORATE BOND INDEX X.XX% X.XX% X.XX%**
* Since April 15, 1991
** Since [calc. date for index]
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest
directly in an index. Unlike a mutual fund, an index does not have an
investment adviser and does not pay any commissions or expenses. If an
index had expenses, its performance would be lower.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you purchase
or sell Fund shares. You would pay these fees directly from your investment
in the Fund.
CLASS C SHARES
---------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a
percentage of net asset value) 1.00%(1)
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends and other Distributions (as a percentage
of offering price) None
Redemption Fee (as a percentage of amount redeemed,
if applicable) None
Exchange Fee None
------------------------------
(1) A contingent deferred sales charge is charged only with respect to
Class C Shares redeemed prior to eighteen months from the date of
purchase.
Page 49 of 107
<PAGE> 52
Armada Funds Prospectus - Class C Shares
Every mutual fund has operating expenses to pay for services such as
professional advisory, shareholder, distribution, administration and
custody services and other costs of doing business. This table describes
the highest fees and expenses that you may pay indirectly if you hold
shares of the Fund.
ANNUAL FUND OPERATING EXPENSES
CLASS C SHARES
---------------------------------------------------------------------------
Investment Advisory Fees .XX%
Distribution and Service (12b-1) Fees .XX%
Other Expenses .XX%
----
Total Annual Fund Operating Expenses X.XX%*
---------------------------------------------------------------------------
* The Fund's total actual annual operating expenses for the most recent
fiscal year were less than the amount shown above because the Administrator
is waiving a portion of the fees in order to keep total operating expenses
at a specified level. The Administrator may discontinue all or part of
these waivers at any time. With these fee waivers, the Fund's actual total
operating expenses are as follows:
Armada Intermediate Bond Fund -- Class C Shares %
---
For more information about these fees, see "Investment Adviser, Sub-Adviser
and Investment Team" and "Distribution of Fund Shares."
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and that
you sell your shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and
Fund expenses remain the same. Although your actual costs and returns might
be different, your approximate costs of investing $10,000 in the Fund would
be:
If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS C SHARES $ $ $ $
----- ------ ------ -------
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS C SHARES $ $ $ $
----- ------ ------ -------
Page 50 of 107
<PAGE> 53
Armada Funds Prospectus - Class C Shares
ARMADA GNMA FUND
FUND SUMMARY
***
INVESTMENT GOAL Current income as well as
preservation of capital
INVESTMENT FOCUS Mortgage-backed (pass-through)
securities
SHARE PRICE VOLATILITY Low
PRINCIPAL INVESTMENT STRATEGY Investing in mortgage pass-through
securities guaranteed by the
Government National Mortgage
Association (GNMA)
INVESTOR PROFILE Investors seeking current income,
and who are willing to accept the
risks of investing in pass-through
securities
***
INVESTMENT STRATEGY OF THE ARMADA GNMA FUND
The Armada GNMA Fund's investment objective is to provide current income as
well as preservation of capital by investing primarily in mortgage
pass-through securities guaranteed by GNMA. The investment objective may be
changed without a shareholder vote. The Fund normally invests at least 80%
of the value of its total assets in mortgage pass-through securities
guaranteed by GNMA, which is an agency of the U.S. government established
to supervise and finance certain types of mortgages. In addition to
mortgage pass-through securities, the Fund invests in other types of
investment grade fixed income securities.
In buying and selling securities for the Fund, the Adviser assesses current
and projected market conditions and seeks to enhance income by actively
adjusting the average maturity of the Fund to respond to changes.
The Fund's dollar-weighted average portfolio maturity will be between two
and ten years. Investment grade fixed income securities are those rated in
one of the four highest rating categories by a major rating agency, or
determined by the Adviser to be of equivalent quality.
Due to its investment strategy, the Fund may buy and sell securities
frequently. This may result in higher transaction costs and additional
capital gains tax liabilities.
***
PRINCIPAL RISKS OF INVESTING IN THE ARMADA GNMA FUND
The prices of the Fund's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Fund's fixed income securities will decrease in value if
interest rates rise and vice versa, and the volatility of lower rated
securities is even greater than that of higher rated securities. Also,
longer-term securities are generally more volatile, so the average maturity
or duration of these securities affects risk.
Page 51 of 107
<PAGE> 54
Armada Funds Prospectus - Class C Shares
Mortgage-backed securities are fixed income securities representing an
interest in a pool of underlying mortgage loans. They are sensitive to
changes in interest rates, but may respond to these changes differently
from other fixed income securities due to the possibility of prepayment of
the underlying mortgage loans. As a result, it may not be possible to
determine in advance the actual maturity date or average life of a
mortgage-backed security. Rising interest rates tend to discourage
refinancings, with the result that the average life and volatility of the
security will increase, exacerbating its decrease in market price. When
interest rates fall, however, mortgage-backed securities may not gain as
much in market value because of the expectation of additional mortgage
prepayments that must be reinvested at lower interest rates. Prepayment
risk may make it difficult to calculate the average maturity of the Fund of
mortgage-backed securities and, therefore, to assess the volatility risk of
the Fund.
The Fund is also subject to the risk that its market segment,
mortgage-backed securities, may underperform other fixed income market
segments or the fixed income market as a whole.
An investment in the Fund is subject to interest rate risk, which is the
possibility that the Fund's yield will decline due to falling interest
rates.
Although the Fund's U.S. government securities are considered to be among
the safest investments, they are not guaranteed against price movements due
to changing interest rates. Obligations issued by some U.S. government
agencies and instrumentalities are backed by the U.S. Treasury, while
others are backed solely by the ability of the agency to borrow from the
U.S. Treasury or by the agency's own resources.
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the volatility of
an investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
Class C Shares of the Fund have less than one calendar year's performance.
For this reason, the performance information shown below is for another
class of shares, Class A Shares, that is not offered in this Prospectus but
would have similar annual returns because both classes of shares will be
invested in the same portfolio of securities. Annual returns will differ
only to the extent that the classes do not have the same expenses. In
reviewing this performance information you should be aware that Class A
Shares have a .10% (annualized) Rule 12b-1 fee (net of voluntary waivers)
while Class C Shares have a .75% (annualized) Rule 12b-1 fee. If the
expenses of the Class C Shares were reflected, performance would be
reduced.
The chart does not reflect sales charges. If sales charges had been
reflected, returns would be less than those shown below.
1997 X.XX%
1998 X.XX%
BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
The Fund's performance from January 1, 1999 to September 30, 1999 was
X.XX%.
Page 52 of 107
<PAGE> 55
Armada Funds Prospectus - Class C Shares
This table compares the Fund's average annual total returns for the periods
ended December 31, 1998 to those of the Lehman GNMA Index.
CLASS A SHARES 1 YEAR SINCE INCEPTION
----------------------------------------------------------------------
ARMADA GNMA FUND X.XX% X.XX%*
LEHMAN GNMA INDEX X.XX% X.XX%**
* Since September 11, 1996
** Since [calc. date for index]
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest
directly in an index. Unlike a mutual fund, an index does not have an
investment adviser and does not pay any commissions or expenses. If an
index had expenses, its performance would be lower.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you purchase
or sell Fund shares. You would pay these fees directly from your investment
in the Fund.
CLASS C SHARES
---------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a
percentage of net asset value) 1.00%(1)
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends and other Distributions (as a percentage
of offering price) None
Redemption Fee (as a percentage of amount redeemed,
if applicable) None
Exchange Fee None
---------------------------------
(1) A contingent deferred sales charge is charged only with respect to
Class C Shares redeemed prior eighteen months from the date of
purchase.
Page 53 of 107
<PAGE> 56
Armada Funds Prospectus - Class C Shares
Every mutual fund has operating expenses to pay for services such as
professional advisory, shareholder, distribution, administration and
custody services and other costs of doing business. This table describes
the highest fees and expenses that you may pay indirectly if you hold
shares of the Fund.
ANNUAL FUND OPERATING EXPENSES
CLASS C SHARES
--------------------------------------------------------------------------
Investment Advisory Fees .XX%
Distribution and Service (12b-1) Fees .XX%
Other Expenses .XX%
----
Total Annual Fund Operating Expenses X.XX%*
---------------------------------------------------------------------------
* The Fund's total actual annual operating expenses for the most recent
fiscal year were less than the amount shown above because the Administrator
is waiving a portion of the fees in order to keep total operating expenses
at a specified level. The Administrator may discontinue all or part of
these waivers at any time. With these fee waivers, the Fund's actual total
operating expenses are as follows:
Armada GNMA Fund -- Class C Shares %
---
For more information about these fees, see "Investment Adviser, Sub-Adviser
and Investment Team" and "Distribution of Fund Shares."
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and that
you sell your shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and
Fund expenses remain the same. Although your actual costs and returns might
be different, your approximate costs of investing $10,000 in the Fund would
be:
If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS C SHARES $ $ $ $
----- ------ ------ -------
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS C SHARES $ $ $ $
----- ------ ------ -------
Page 54 of 107
<PAGE> 57
Armada Funds Prospectus - Class C Shares
ARMADA ENHANCED INCOME FUND
FUND SUMMARY
***
INVESTMENT GOAL Current income as well as
preservation of capital
INVESTMENT FOCUS Investment grade debt securities
SHARE PRICE VOLATILITY Low
PRINCIPAL INVESTMENT STRATEGY Investing in investment grade fixed
income securities, while maintaining
a dollar-weighted average maturity
of between one and five years
INVESTOR PROFILE Investors seeking total return
and who are willing to accept some
risks of price volatility
***
INVESTMENT STRATEGY OF THE ARMADA ENHANCED INCOME FUND
***
The Armada Enhanced Income Fund's investment objective is to provide
current income as well as preservation of capital by investing in a
portfolio of high- and medium-grade fixed income securities. The investment
objective may be changed without a shareholder vote. The Fund normally
invests at least 80% of the value of its total assets in investment grade
debt securities of all types. Investment grade fixed income securities are
those rated in one of the four highest rating categories by a major rating
agency, or determined by the Adviser to be of equivalent quality. In buying
and selling securities for the Fund, the Adviser considers a number of
factors, including yield to maturity, maturity, quality and the outlook for
particular issuers and market sectors. The Fund generally maintains an
average dollar-weighted portfolio maturity of between one and five years.
Due to its investment strategy, the Fund may buy and sell securities
frequently. This may result in higher transaction costs and additional
capital gains tax liabilities.
***
PRINCIPAL RISKS OF INVESTING IN THE ARMADA ENHANCED INCOME FUND
The prices of the Fund's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Fund's fixed income securities will decrease in value if
interest rates rise and vice versa, and the volatility of lower rated
securities is even greater than that of higher rated securities. Also,
longer-term securities are generally more volatile, so the average maturity
or duration of these securities affects risk.
An investment in the Fund is subject to interest rate risk, which is the
possibility that the Fund's yield will decline due to falling interest
rates.
Page 55 of 107
<PAGE> 58
Armada Funds Prospectus - Class C Shares
The Fund invests in leveraged instruments, such as futures and options
contracts. The more the Fund invests in these leveraged instruments, the
greater the possibility for gains or losses on those investments.
The mortgages underlying mortgage-backed securities may be paid off early,
which makes it difficult to determine their actual maturity and therefore
calculate how they will respond to changes in interest rates. The Fund may
have to reinvest prepaid amounts at lower interest rates. This risk of
prepayment is an additional risk of mortgage-backed securities.
Although the Fund's U.S. government securities are considered to be among
the safest investments, they are not guaranteed against price movements due
to changing interest rates. Obligations issued by some U.S. government
agencies and instrumentalities are backed by the U.S. Treasury, while
others are backed solely by the ability of the agency to borrow from the
U.S. Treasury or by the agency's own resources.
The Fund is also subject to the risk that its market segment, investment
grade fixed income securities, may underperform other fixed income market
segments or the fixed income market as a whole.
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the volatility of
an investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
Class C Shares of the Fund have less than one calendar year's performance.
For this reason, the performance information shown below is for another
class of shares, Class A Shares, that is not offered in this Prospectus but
would have similar annual returns because both classes of shares will be
invested in the same portfolio of securities. Annual returns will differ
only to the extent that the classes do not have the same expenses. In
reviewing this performance information you should be aware that Class A
Shares have a .10% (annualized) Rule 12b-1 fee (net of voluntary waivers)
while Class C Shares have a .75% (annualized) Rule 12b-1 fee. If the
expenses of the Class C Shares were reflected, performance would be
reduced.
The chart does not reflect sales charges. If sales charges had been
reflected, returns would be less than those shown below.
1995 X.XX%
1996 X.XX%
1997 X.XX%
1998 X.XX%
BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
The Fund's performance from January 1, 1999 to September 30, 1999 was
X.XX%.
Page 56 of 107
<PAGE> 59
Armada Funds Prospectus - Class C Shares
This table compares the Fund's average annual total returns for the periods
ended December 31, 1998 to those of the Merrill Lynch 1-3 Year Treasury
Index.
CLASS A SHARES 1 YEAR SINCE INCEPTION
---------------------------------------------------------------------------
ARMADA ENHANCED INCOME FUND X.XX% X.XX%*
MERRILL LYNCH 1-3 YEAR TREASURY INDEX X.XX% X.XX%**
* Since September 9, 1994
** Since [calc. date for index]
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest
directly in an index. Unlike a mutual fund, an index does not have an
investment adviser and does not pay any commissions or expenses. If an
index had expenses, its performance would be lower.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you purchase
or sell Fund shares. You would pay these fees directly from your investment
in the Fund.
CLASS C SHARES
---------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a
percentage of net asset value) 1.00%(1)
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends and other Distributions (as a percentage
of offering price) None
Redemption Fee (as a percentage of amount redeemed,
if applicable) None
Exchange Fee None
-----------------------------
(1) A contingent deferred sales charge is charged only with respect to
Class C Shares redeemed prior to eighteen months from the date of
purchase.
Page 57 of 107
<PAGE> 60
Armada Funds Prospectus - Class C Shares
Every mutual fund has operating expenses to pay for services such as
professional advisory, shareholder, distribution, administration and
custody services and other costs of doing business. This table describes
the highest fees and expenses that you may pay indirectly if you hold
shares of the Fund.
ANNUAL FUND OPERATING EXPENSES
CLASS C SHARES
---------------------------------------------------------------------------
Investment Advisory Fees .XX%
Distribution and Service (12b-1) Fees .XX%
Other Expenses .XX%
-----
Total Annual Fund Operating Expenses X.XX%*
---------------------------------------------------------------------------
* The Fund's total actual annual operating expenses for the most recent
fiscal year were less than the amount shown above because the Administrator
is waiving a portion of the fees in order to keep total operating expenses
at a specified level. The Administrator may discontinue all or part of
these waivers at any time. With these fee waivers, the Fund's actual total
operating expenses are as follows:
Armada Enhanced Income Fund -- Class C Shares %
---
For more information about these fees, see "Investment Adviser, Sub-Adviser
and Investment Team" and "Distribution of Fund Shares."
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and that
you sell your shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and
Fund expenses remain the same. Although your actual costs and returns might
be different, your approximate costs of investing $10,000 in the Fund would
be:
If you sell your shares at the end of the period your expenses would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS C SHARES $ $ $ $
----- ------ ------ -------
If you do not sell your shares at the end of the period your expenses would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS C SHARES $ $ $ $
----- ------ ------ -------
Page 58 of 107
<PAGE> 61
Armada Funds Prospectus - Class C Shares
ARMADA OHIO TAX EXEMPT BOND FUND
FUND SUMMARY
***
INVESTMENT GOAL Current income exempt from
Federal income and, to the
extent possible, Ohio personal
income taxes, consistent with
conservation of capital
INVESTMENT FOCUS Ohio municipal securities
SHARE PRICE VOLATILITY Medium
PRINCIPAL INVESTMENT STRATEGY Investing in municipal
obligations that pay interest
that is exempt from Federal
income and Ohio personal
income taxes
INVESTOR PROFILE Investors seeking tax-exempt
current income, and who are
willing to accept moderate
share price volatility
***
INVESTMENT STRATEGY OF THE ARMADA OHIO TAX EXEMPT BOND FUND
***
The Armada Ohio Tax Exempt Bond Fund's investment objective is to provide
current income exempt from Federal income tax and, to the extent possible,
from Ohio personal income tax, as is consistent with the conservation of
capital. The investment objective may be changed without a shareholder
vote. Under normal conditions, at least 80% of the value of the Fund's
total assets will be invested in municipal securities. The Fund invests at
least 65% of its total assets in debt securities issued by the State of
Ohio, its political subdivisions and their agencies and instrumentalities
that generate income exempt from Federal income and Ohio personal income
taxes (Ohio municipal securities). The Fund may invest up to 20% of its
total assets in private activity bonds which may be treated as a specific
tax preference item under the federal alternative minimum tax. In selecting
securities for the Fund to buy and sell, the Adviser considers each
security's yield and total return potential relative to other available
municipal securities.
The Fund invests in investment grade securities, which are those rated in
one of the four highest rating categories by a major rating agency, or
determined by the Adviser to be of equivalent quality. The Fund ordinarily
will maintain an average weighted portfolio maturity of between two and ten
years.
Due to its investment strategy, the Fund may buy and sell securities
frequently. This may result in higher transaction costs and capital gains
tax liabilities.
***
PRINCIPAL RISKS OF INVESTING IN THE ARMADA OHIO TAX EXEMPT BOND FUND
The prices of the Fund's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Fund's fixed income securities will decrease in value if
Page 59 of 107
<PAGE> 62
Armada Funds Prospectus - Class C Shares
interest rates rise and vice versa, and the volatility of lower rated
securities is even greater than that of higher rated securities. Also,
longer-term securities are generally more volatile, so the average maturity
or duration of these securities affects risk.
The Fund is also subject to the risk that its market segment, tax exempt
municipal securities, may underperform other fixed income market segments
or the fixed income market as a whole.
An investment in the Fund is subject to interest rate risk, which is the
possibility that the Fund's yield will decline due to falling interest
rates.
There may be economic or political changes that impact the ability of
municipal issuers to repay principal and to make interest payments on
municipal securities. Changes in the financial condition or credit rating
of municipal issuers also may adversely affect the value of the Fund's
securities.
Since the Fund may purchase securities supported by credit enhancements
from banks and other financial institutions, changes in the credit quality
of these institutions could cause losses to the Fund and affect its share
price.
The Fund's concentration of investments in securities of issuers located in
a single state subjects the Fund to economic and government policies of
that state.
The Fund is non-diversified, which means that it may invest in the
securities of relatively few issuers. As a result, the Fund may be more
susceptible to a single adverse economic or political and regulatory
occurrences affecting one or more of these issuers, and may experience
increased volatility due to its investments in those securities.
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the volatility of
an investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how the Fund will perform in the future. The table
measures performance in terms of total return. However, this Fund is
managed for yield and not total return.
Class C Shares of the Fund have less than one calendar year's performance.
For this reason, the performance information shown below is for another
class of shares, Class A Shares, that is not offered in this Prospectus but
would have similar annual returns because both classes of shares will be
invested in the same portfolio of securities. Annual returns will differ
only to the extent that the classes do not have the same expenses. In
reviewing this performance information you should be aware that Class A
Shares have a .10% (annualized) Rule 12b-1 fee (net of voluntary waivers)
while Class C Shares have a .75% (annualized) Rule 12b-1 fee. If the
expenses of the Class C Shares were reflected, performance would be
reduced.
Page 60 of 107
<PAGE> 63
Armada Funds Prospectus - Class C Shares
The chart does not reflect sales charges. If sales charges had been
reflected, returns would be less than those shown below.
1992 X.XX%
1993 X.XX%
1994 X.XX%
1995 X.XX%
1996 X.XX%
1997 X.XX%
1998 X.XX%
BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
The Fund's performance from January 1, 1999 to September 30, 1999 was
X.XX%.
This table compares the Fund's average annual total returns for the periods
ended December 31, 1998 to those of the Lehman Brothers Mutual Fund
Intermediate Index and the Lehman 7 Year Muni Bond Index.
CLASS A SHARES 1 YEAR 5 YEARS SINCE INCEPTION
---------------------------------------------------------------------------
ARMADA OHIO TAX EXEMPT BOND FUND X.XX% X.XX% X.XX%*
LEHMAN BROTHERS MUTUAL FUND
INTERMEDIATE INDEX X.XX% X.XX% X.XX%**
LEHMAN 7 YEAR MUNI BOND INDEX X.XX% X.XX% X.XX%**
* Since April 15, 1991
** Since [calc. date for index]
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest
directly in an index. Unlike a mutual fund, an index does not have an
investment adviser and does not pay any commissions or expenses. If an
index had expenses, its performance would be lower.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you purchase
or sell Fund shares. You would pay these fees directly from your investment
in the Fund.
CLASS C SHARES
---------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a
percentage of net asset value) 1.00%(1)
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends and other Distributions (as a percentage
of offering price) None
Redemption Fee (as a percentage of amount redeemed,
if applicable) None
Exchange Fee None
Page 61 of 107
<PAGE> 64
Armada Funds Prospectus - Class C Shares
-----------------------------
(1) A contingent deferred sales charge is charged only with respect to
Class C Shares redeemed prior to eighteen months from the date of
purchase.
Every mutual fund has operating expenses to pay for services such as
professional advisory, shareholder, distribution, administration and
custody services and other costs of doing business. This table describes
the highest fees and expenses that you may pay indirectly if you hold
shares of the Fund.
ANNUAL FUND OPERATING EXPENSES
CLASS C SHARES
---------------------------------------------------------------------------
Investment Advisory Fees .XX%
Distribution and Service (12b-1) Fees .XX%
Other Expenses .XX%
----
Total Annual Fund Operating Expenses X.XX%*
---------------------------------------------------------------------------
* The Fund's total actual annual operating expenses for the most recent
fiscal year were less than the amount shown above because the Administrator
is waiving a portion of the fees in order to keep total operating expenses
at a specified level. The Administrator may discontinue all or part of
these waivers at any time. With these fee waivers, the Fund's actual total
operating expenses are as follows:
Armada Ohio Tax Exempt Bond Fund -- Class C Shares X.XX%
For more information about these fees, see "Investment Adviser, Sub-Adviser
and Investment Team" and "Distribution of Fund Shares."
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and that
you sell your shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and
Fund expenses remain the same. Although your actual costs and returns might
be different, your approximate costs of investing $10,000 in the Fund would
be:
If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS C SHARES $ XXX $ XXX $ XXX $ XXX
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS C SHARES $ XXX $ XXX $ XXX $ XXX
Page 62 of 107
<PAGE> 65
Armada Funds Prospectus - Class C Shares
ARMADA PENNSYLVANIA MUNICIPAL BOND FUND
FUND SUMMARY
***
INVESTMENT GOAL Current income exempt from both
regular Federal income tax and, to
the extent possible, Pennsylvania
personal income tax as is consis-
tent with conservation of capital
INVESTMENT FOCUS Pennsylvania municipal securities
SHARE PRICE VOLATILITY Medium
PRINCIPAL INVESTMENT STRATEGY Investing in municipal obligations
that pay interest that is exempt
from Federal income and Pennsyl-
vania personal income taxes
INVESTOR PROFILE Investors seeking tax-exempt
current income, and who are
willing to accept moderate share
price volatility
***
INVESTMENT STRATEGY OF THE ARMADA PENNSYLVANIA MUNICIPAL BOND FUND
***
The Armada Pennsylvania Municipal Bond Fund's investment objective is to
provide current income exempt from Federal income tax and, to the extent
possible, from Pennsylvania personal income tax as is consistent with
conservation of capital. The investment objective may be changed without a
shareholder vote. The Fund invests primarily in debt securities issued by
the Commonwealth of Pennsylvania, its political subdivisions and their
agencies and instrumentalities that generate income exempt from Federal
income and Pennsylvania personal income taxes (Pennsylvania municipal
securities). The Fund may invest up to 100% of its total assets in private
activity bonds which may be treated as a specific tax preference item under
the federal alternative minimum tax. In selecting securities for the Fund
to buy and sell, the Adviser considers each security's yield and total
return potential relative to other available municipal securities.
The Fund invests in investment grade securities, which are those rated in
one of the four highest rating categories by a major rating agency, or
determined by the Adviser to be of equivalent quality. The Fund ordinarily
will maintain an average weighted portfolio maturity of between two and ten
years.
Due to its investment strategy, the Fund may buy and sell securities
frequently. This may result in higher transaction costs and capital gains
tax liabilities.
***
PRINCIPAL RISKS OF INVESTING IN THE ARMADA PENNSYLVANIA MUNICIPAL BOND FUND
The prices of the Fund's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Fund's fixed income securities will decrease in value if
Page 63 of 107
<PAGE> 66
Armada Funds Prospectus - Class C Shares
interest rates rise and vice versa, and the volatility of lower rated
securities is even greater than that of higher rated securities. Also,
longer-term securities are generally more volatile, so the average maturity
or duration of these securities affects risk.
The Fund is also subject to the risk that its market segment, tax free
municipal securities, may underperform other fixed income market segments
or the fixed income market as a whole.
An investment in the Fund is subject to interest rate risk, which is the
possibility that the Fund's yield will decline due to falling interest
rates.
There may be economic or political changes that impact the ability of
municipal issuers to repay principal and to make interest payments on
municipal securities. Changes in the financial condition or credit rating
of municipal issuers also may adversely affect the value of the Fund's
securities.
Since the Fund may purchase securities supported by credit enhancements
from banks and other financial institutions, changes in the credit quality
of these institutions could cause losses to the Fund and affect its share
price.
The Fund's concentration of investments in securities of issuers located in
a single state subjects the Fund to economic conditions and government
policies within that state.
The Fund is non-diversified, which means that it may invest in the
securities of relatively few issuers. As a result, the Fund may be more
susceptible to a single adverse economic or political and regulatory
occurrences affecting one or more of these issuers, and may experience
increased volatility due to its investments in those securities.
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the volatility of
an investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how the Fund will perform in the future. The table
measures performance in terms of total return. However, this Fund is
managed for yield and not total return.
Class C Shares of the Fund have less than one calendar year's performance.
For this reason, the performance information shown below is for another
class of shares, Class A Shares, that is not offered in this Prospectus but
would have similar annual returns because both classes of shares will be
invested in the same portfolio of securities. Annual returns will differ
only to the extent that the classes do not have the same expenses. In
reviewing this performance information you should be aware that Class A
Shares have a .10% (annualized) Rule 12b-1 fee (net of voluntary waivers)
while Class C Shares have a .75% (annualized) Rule 12b-1 fee. If the
expenses of the Class C Shares were reflected, performance would be
reduced.
Page 64 of 107
<PAGE> 67
Armada Funds Prospectus - Class C Shares
The chart does not reflect sales charges. If sales charges had been
reflected, returns would be less than those shown below.
1997 X.XX%
1998 X.XX%
BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
The Fund's performance from January 1, 1999 to September 30, 1999 was
X.XX%.
This table compares the Fund's average annual total returns for the periods
ended December 31, 1998, to those of the Lehman Brothers Mutual Fund
Intermediate Index and the Lehman 7 Year Muni Bond Index.
CLASS A SHARES 1 YEAR SINCE INCEPTION
---------------------------------------------------------------------------
ARMADA PENNSYLVANIA MUNICIPAL BOND FUND X.XX% X.XX%*
LEHMAN BROTHERS MUTUAL FUND INTERMEDIATE INDEX X.XX% X.XX%**
LEHMAN 7 YEAR MUNI BOND INDEX X.XX% X.XX%**
* Since September 11, 1996
** Since [calc. date for index]
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest
directly in an index. Unlike a mutual fund, an index does not have an
investment adviser and does not pay any commissions or expenses. If an
index had expenses, its performance would be lower.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you purchase
or sell Fund shares. You would pay these fees directly from your investment
in the Fund.
CLASS C SHARES
---------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a
percentage of net asset value) 1.00%(1)
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends and other Distributions (as a percentage
of offering price) None
Redemption Fee (as a percentage of amount redeemed,
if applicable) None
Exchange Fee None
-----------------------------
(1) A contingent deferred sales charge is charged only with respect to
Class C Shares redeemed prior to eighteen months from the date of
purchase.
Page 65 of 107
<PAGE> 68
Armada Funds Prospectus - Class C Shares
Every mutual fund has operating expenses to pay for services such as
professional advisory, shareholder, distribution, administration and
custody services and other costs of doing business. This table describes
the highest fees and expenses that you may pay indirectly if you hold
shares of the Fund.
ANNUAL FUND OPERATING EXPENSES
CLASS C SHARES
---------------------------------------------------------------------------
Investment Advisory Fees .XX%
Distribution and Service (12b-1) Fees .XX%
Other Expenses .XX%
----
Total Annual Fund Operating Expenses X.XX%*
---------------------------------------------------------------------------
* The Fund's total actual annual operating expenses for the most recent
fiscal year were less than the amount shown above because the Administrator
is waiving a portion of the fees in order to keep total operating expenses
at a specified level. The Administrator may discontinue all or part of
these waivers at any time. With these fee waivers, the Fund's actual total
operating expenses are as follows:
Armada Pennsylvania Municipal Bond Fund -- Class C Shares X.XX%
For more information about these fees, see "Investment Adviser, Sub-Adviser
and Investment Team" and "Distribution of Fund Shares."
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and that
you sell your shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and
Fund expenses remain the same. Although your actual costs and returns might
be different, your approximate costs of investing $10,000 in the Fund would
be:
If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS C SHARES $ XXX $ XXX $ XXX $ XXX
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS C SHARES $ XXX $ XXX $ XXX $ XXX
Page 66 of 107
<PAGE> 69
Armada Funds Prospectus - Class C Shares
ARMADA NATIONAL TAX EXEMPT BOND FUND
FUND SUMMARY
***
INVESTMENT GOAL Current income exempt from Federal
income tax as is consistent with
conservation of capital
INVESTMENT FOCUS Municipal securities
SHARE PRICE VOLATILITY Medium
PRINCIPAL INVESTMENT STRATEGY Investing in municipal obligations
that pay interest that is exempt from
Federal income tax
INVESTOR PROFILE Investors seeking tax-exempt current
income, and who are willing to accept
moderate share price volatility
***
INVESTMENT STRATEGY OF THE ARMADA NATIONAL TAX EXEMPT BOND FUND
***
The Armada National Tax Exempt Bond Fund's investment objective is to
provide current income exempt from Federal income tax as is consistent with
conservation of capital. The investment objective may be changed without a
shareholder vote. The Fund invests primarily in debt securities that
generate income exempt from Federal income tax. The Fund may invest up to
20% of its total assets in private activity bonds, the income of which may
be treated as a specific tax preference item under the federal alternative
minimum tax. The Fund invests in municipal securities issued by or on
behalf of states, territories and possessions of the United States, the
District of Columbia and their political subdivisions, agencies,
instrumentalities and authorities. In selecting securities for the Fund to
buy and sell, the Adviser considers each security's yield and total return
potential relative to other available municipal securities.
The Fund invests only in investment grade securities. Investment grade
municipal securities are those rated in one of the four highest rating
categories as determined by a major rating agency. The Fund ordinarily will
maintain a dollar-weighted average portfolio maturity of between two and
ten years.
Due to its investment strategy, the Fund may buy and sell securities
frequently. This may result in higher transaction costs and capital gains
tax liabilities.
***
PRINCIPAL RISKS OF INVESTING IN THE ARMADA NATIONAL TAX EXEMPT BOND FUND
The prices of the Fund's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Fund's fixed income securities will decrease in value if
interest rates rise and vice versa, and the volatility of lower rated
securities is even greater than that of higher rated securities. Also,
longer-term securities are generally more volatile, so the average maturity
or duration of these securities affects risk.
Page 67 of 107
<PAGE> 70
Armada Funds Prospectus - Class C Shares
An investment in the Fund is subject to interest rate risk, which is the
possibility that the Fund's yield will decline due to falling interest
rates.
There may be economic or political changes that impact the ability of
municipal issuers to repay principal and to make interest payments on
municipal securities. Changes in the financial condition or credit rating
of municipal issuers also may adversely affect the value of the Fund's
securities.
Since the Fund may purchase securities supported by credit enhancements
from banks and other financial institutions, changes in the credit quality
of these institutions could cause losses to the Fund and affect its share
price.
The Fund is also subject to the risk that its market segment, tax exempt
securities, may underperform other fixed income market segments or the
fixed income market as a whole.
PERFORMANCE INFORMATION
There is no bar chart or performance information for the Class C Shares or
other shares of the Fund because it has not completed a full calendar year
of operations.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you purchase
or sell Fund shares. You would pay these fees directly from your investment
in the Fund.
CLASS C SHARES
---------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a
percentage of net asset value) 1.00%(1)
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends and other Distributions
(as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed,
if applicable) None
Exchange Fee None
--------------------------------
(1) A contingent deferred sales charge is charged only with respect to
Class C Shares redeemed prior to eighteen months from the date of
purchase.
Page 68 of 107
<PAGE> 71
Armada Funds Prospectus - Class C Shares
Every mutual fund has operating expenses to pay for services such as
professional advisory, shareholder, distribution, administration and
custody services and other costs of doing business. This table describes
the highest fees and expenses that you may pay indirectly if you hold
shares of the Fund.
ANNUAL FUND OPERATING EXPENSES
CLASS C SHARES
---------------------------------------------------------------------------
Investment Advisory Fees .XX%
Distribution and Service (12b-1) Fees .XX%
Other Expenses .XX%
----
Total Annual Fund Operating Expenses X.XX%*
---------------------------------------------------------------------------
* The Fund's total actual annual operating expenses for the most recent
fiscal year were less than the amount shown above because the Administrator
is waiving a portion of the fees in order to keep total operating expenses
at a specified level. The Administrator may discontinue all or part of
these waivers at any time. With these fee waivers, the Fund's actual total
operating expenses are as follows:
Armada National Tax Exempt Bond Fund -- Class C Shares X.XX%
For more information about these fees, see "Investment Adviser, Sub-Adviser
and Investment Team" and "Distribution of Fund Shares."
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and that
you sell your shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and
Fund expenses remain the same. Although your actual costs and returns might
be different, your approximate costs of investing $10,000 in the Fund would
be:
If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS C SHARES $ XXX $ XXX $ XXX $ XXX
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS C SHARES $ XXX $ XXX $ XXX $ XXX
Page 69 of 107
<PAGE> 72
Armada Funds Prospectus - Class C Shares
ARMADA MONEY MARKET FUND
FUND SUMMARY
***
INVESTMENT GOAL High current income consistent
with stability of principal
while maintaining liquidity
INVESTMENT FOCUS Money market instruments
SHARE PRICE VOLATILITY Very low
PRINCIPAL INVESTMENT STRATEGY Investing in a portfolio of high
quality short-term debt
securities designed to allow the
Fund to maintain a stable net
asset value of $1.00 per share
INVESTOR PROFILE Conservative investors seeking
current income through a liquid
investment
***
INVESTMENT STRATEGY OF THE ARMADA MONEY MARKET FUND
***
The Armada Money Market Fund's investment objective is to provide as high a
level of current income as is consistent with liquidity and stability of
principal. The investment objective may be changed without a shareholder
vote. The Fund invests in a variety of high quality money market
securities, including certificates of deposit and other obligations issued
by domestic and foreign banks, as well as commercial paper. The Adviser
also invests in securities issued or guaranteed by the U.S. government or
its agencies (government obligations) and repurchase agreements
collateralized by government obligations and issued by financial
institutions such as banks and broker-dealers. High quality money market
instruments are securities that present minimal credit risks as determined
by the Adviser and generally include securities that are rated at the time
of purchase by a major rating agency in the highest two rating categories
for such securities, and certain securities that are not so rated but are
of comparable quality as determined by the Adviser.
In selecting investments for the Fund, the Adviser seeks to add value
through yield analysis and positioning on the yield curve. Investments are
made in money market instruments with the most attractive risk/return
trade-offs.
As a money market fund, the Fund invests only in money market instruments
with remaining maturities of 397 days or less that the Adviser believes
present minimal credit risk. The Fund maintains an average weighted
maturity of 90 days or less.
***
PRINCIPAL RISKS OF INVESTING IN THE ARMADA MONEY MARKET FUND
An investment in the Fund is subject to interest rate risk, which is the
possibility that the Fund's yield will decline due to falling interest
rates.
The Fund is also subject to the risk that its market segment, money market
securities, may underperform other fixed income market segments or the
fixed income market as a whole.
Page 70 of 107
<PAGE> 73
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the volatility of
an investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
Class C Shares of the Fund have less than one calendar year's performance.
For this reason, the performance information shown below is for another
class of shares, Class A Shares, that is not offered in this Prospectus but
would have similar annual returns because both classes of shares will be
invested in the same portfolio of securities. Annual returns will differ
only to the extent that the classes do not have the same expenses. In
reviewing this performance information you should be aware that Class A
Shares have a .10% (annualized) Rule 12b-1 fee (net of voluntary waivers)
while Class C Shares have a .75% (annualized) Rule 12b-1 fee. If the
expenses of the Class C Shares were reflected, performance would be
reduced.
The chart does not reflect sales charges. If sales charges had been
reflected, returns would be less than those shown below.
1992 X.XX%
1993 X.XX%
1994 X.XX%
1995 X.XX%
1996 X.XX%
1997 X.XX%
1998 X.XX%
BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
The Fund's performance from January 1, 1999 to September 30, 1999 was
X.XX%.
This table shows the Fund's average annual total returns for the periods
ended December 31, 1998.
CLASS A SHARES 1 YEAR 5 YEARS SINCE INCEPTION
---------------------------------------------------------------------
ARMADA MONEY MARKET FUND X.XX% X.XX% X.XX%*
* Since April 1, 1991
Page 71 of 107
<PAGE> 74
Armada Funds Prospectus - Class C Shares
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you purchase
or sell Fund shares. You would pay these fees directly from your investment
in the Fund.
CLASS C SHARES
---------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None(1)
Maximum Deferred Sales Charge (Load) (as a
percentage of net asset value) 1.00%(2)
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends and other Distributions (as a percentage
of offering price) None
Redemption Fee (as a percentage of amount redeemed,
if applicable) None
Exchange Fee None
-------------------------------
(1) Shareholders may not make an initial purchase into the Class C Shares
of the Armada Money Market Fund. Class C Shares of the Armada Money
Market Fund are only available as an exchange option from Class C
Shares of any other Fund.
(2) A contingent deferred sales charge is charged only with respect to
Class C Shares redeemed prior to eighteen months from the date of
purchase.
Every mutual fund has operating expenses to pay for services such as
professional advisory, shareholder, distribution, administration and
custody services and other costs of doing business. This table describes
the highest fees and expenses that you may pay indirectly if you hold
shares of the Fund.
ANNUAL FUND OPERATING EXPENSES
CLASS C SHARES
---------------------------------------------------------------------------
Investment Advisory Fees .XX%
Distribution and Service (12b-1) Fees .XX%
Other Expenses .XX%
----
Total Annual Fund Operating Expenses X.XX%*
---------------------------------------------------------------------------
* The Fund's total actual annual operating expenses for the most recent
fiscal year were less than the amount shown above because the Administrator
is waiving a portion of the fees in order to keep total operating expenses
at a specified level. The Administrator may discontinue all or part of
these waivers at any time. With these fee waivers, the Fund's actual total
operating expenses are as follows:
Armada Money Market Fund -- Class C Shares %
---
For more information about these fees, see "Investment Adviser, Sub-Adviser
and Investment Team" and "Distribution of Fund Shares."
Page 72 of 107
<PAGE> 75
Armada Funds Prospectus - Class C Shares
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and that
you sell your shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and
Fund expenses remain the same. Although your actual costs and returns might
be different, your approximate costs of investing $10,000 in the Fund would
be:
If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS C SHARES $ $ $ $
----- ------ ------ -------
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS C SHARES $ $ $ $
----- ------ ------ -------
Page 73 of 107
<PAGE> 76
Armada Funds Prospectus - Class C Shares
ARMADA MID CAP GROWTH FUND
FUND SUMMARY
***
INVESTMENT GOAL Capital appreciation
INVESTMENT FOCUS Mid-cap equity securities
SHARE PRICE VOLATILITY High
PRINCIPAL INVESTMENT STRATEGY Investing in growth-oriented
equity securities of
medium-sized issuers
INVESTOR PROFILE Investors seeking capital
growth, and who are willing
to accept the risks of
investing in equity securities
INVESTMENT STRATEGY OF THE ARMADA MID CAP GROWTH FUND
The Armada Mid Cap Growth Fund's investment objective is to provide capital
appreciation by investing in a diversified portfolio of publicly traded mid
cap equity securities. The investment objective may be changed without a
shareholder vote. The Fund will normally invest at least 80% of its total
assets in securities of companies with mid cap stock market capitalization.
The Fund may invest up to 20% of its total assets at the time of purchase
in foreign securities. In selecting investments for the Fund to buy and
sell, the Adviser invests in companies that have typically exhibited
consistent, above-average growth in revenues and earnings, strong
management, sound and improving financial fundamentals and presently
exhibit the potential for growth.
The Fund considers a "mid-capitalization (mid cap)" company to be one that
has a comparable market capitalization as the companies in the Russell Mid
Cap Growth Index.
Due to its investment strategy, the Fund may buy and sell securities
frequently. This may result in higher transaction costs and additional
capital gains tax liabilities.
PRINCIPAL RISKS OF INVESTING IN THE ARMADA MID CAP GROWTH FUND
Since it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time.
Historically, the equity markets have moved in cycles, and the value of the
Fund's equity securities may fluctuate from day-to-day. Individual
companies may report poor results or be negatively affected by industry
and/or economic trends and developments. The prices of securities issued by
such companies may decline in response. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
Investing in foreign countries poses additional risks since political and
economic events unique to a country or region will affect those markets and
their issuers. These events will not necessarily affect the U.S. economy or
similar issuers located in the United States. In addition, investments in
foreign countries are generally denominated in a foreign currency. As a
result, changes in the value of those currencies compared to the U.S.
dollar may affect (positively or negatively) the
Page 74 of 107
<PAGE> 77
Armada Funds Prospectus - Class C Shares
value of a Fund's investments. These currency movements may happen
separately from and in response to events that do not otherwise affect the
value of the security in the issuer's home country.
The Fund is also subject to the risk that its market segment, mid cap
equity securities, may underperform other equity market segments or the
equity market as a whole.
PERFORMANCE INFORMATION
There is no bar chart or performance table for the Class C Shares or other
shares of the Fund because it has not completed a full calendar year of
operations.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you purchase
or sell Fund shares. You would pay these fees directly from your investment
in the Fund.
CLASS C SHARES
---------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a
percentage of net asset value) 1.00%(1)
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends and other Distributions (as a percentage
of offering price) None
Redemption Fee (as a percentage of amount redeemed,
if applicable) None
Exchange Fee None
------------------------------
(1) A contingent deferred sales charge is charged only with respect to
Class C Shares redeemed prior to eighteen months from the date of
purchase.
Every mutual fund has operating expenses to pay for services such as
professional advisory, shareholder, distribution, administration and
custody services and other costs of doing business. This table describes
the highest fees and expenses that you may pay indirectly if you hold
shares of the Fund.
ANNUAL FUND OPERATING EXPENSES
CLASS C SHARES
---------------------------------------------------------------------------
Investment Advisory Fees .XX%
Distribution and Service (12b-1) Fees .XX%
Other Expenses .XX%
----
Total Annual Fund Operating Expenses X.XX%
Page 75 of 107
<PAGE> 78
Armada Funds Prospectus - Class C Shares
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and that
you sell your shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and
Fund expenses remain the same. Although your actual costs and returns might
be different, your approximate costs of investing $10,000 in the Fund would
be:
If you sell your shares at the end of the period:
1 YEAR 3 YEARS
CLASS C SHARES $XXX $XXX
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS
CLASS C SHARES $XXX $XXX
Page 76 of 107
<PAGE> 79
Armada Funds Prospectus - Class C Shares
ARMADA LARGE CAP ULTRA FUND
FUND SUMMARY
***
INVESTMENT GOAL Capital appreciation
INVESTMENT FOCUS Large cap equity securities
SHARE PRICE VOLATILITY High
PRINCIPAL INVESTMENT STRATEGY Investing in equity securities of
large companies that the Adviser
believes have the potential for
long-term above-average growth
INVESTOR PROFILE Investors seeking growth of
capital, and who are willing to
accept the risks of investing in
equity securities
***
INVESTMENT STRATEGY OF THE ARMADA LARGE CAP ULTRA FUND
***
The Armada Large Cap Ultra Fund's investment objective is to provide
capital appreciation by investing in a diversified portfolio of publicly
traded larger cap equity securities. The investment objective may be
changed without a shareholder vote. The Fund will normally invest at least
80% of its total assets in a diversified portfolio of common stocks and
securities convertible into common stocks of companies with large stock
market capitalizations.
The Adviser takes a long-term approach to managing the Fund and typically
invests in companies that have exhibited consistent, above-average growth
in revenues and earnings, strong management, and sound and improving
financial fundamentals.
The Fund considers a "large capitalization (large cap)" company to be one
that has a comparable market capitalization as the companies in the S&P 500
Barra Growth Index.
***
PRINCIPAL RISKS OF INVESTING IN THE ARMADA LARGE CAP ULTRA FUND
Since it purchases equity securities, the Fund is subject to the risk that
stock prices will fall over short or extended periods of time.
Historically, the equity markets have moved in cycles, and the value of the
Fund's equity securities may fluctuate from day-to-day. Individual
companies may report poor results or be negatively affected by industry
and/or economic trends and developments. The prices of securities issued by
such companies may decline in response. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
The Fund is also subject to the risk that its market segment, large cap
equity securities, may underperform other equity market segments or the
equity market as a whole.
Page 77 of 107
<PAGE> 80
Armada Funds Prospectus - Class C Shares
PERFORMANCE INFORMATION
There is no bar chart or performance table for the Class C Shares or other
shares of the Fund because it has not completed a full calendar year of
operations.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you purchase
or sell Fund shares. You would pay these fees directly from your investment
in the Fund.
CLASS C SHARES
---------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a
percentage of net asset value) 1.00%(1)
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends and other Distributions (as a percentage
of offering price) None
Redemption Fee (as a percentage of amount redeemed,
if applicable) None
Exchange Fee None
----------------------------
(1) A contingent deferred sales charge is charged only with respect to
Class C Shares redeemed prior to eighteen months from the date of
purchase.
Every mutual fund has operating expenses to pay for services such as
professional advisory, shareholder, distribution, administration and
custody services and other costs of doing business. This table describes
the highest fees and expenses that you may pay indirectly if you hold
shares of the Fund.
ANNUAL FUND OPERATING EXPENSES
CLASS C SHARES
---------------------------------------------------------------------------
Investment Advisory Fees .XX%
Distribution and Service (12b-1) Fees .XX%
Other Expenses .XX%
----
Total Annual Fund Operating Expenses X.XX%
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and that
you sell your shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and
Fund expenses remain the same. Although your actual costs and returns might
be different, your approximate costs of investing $10,000 in the Fund would
be:
If you sell your shares at the end of the period:
1 YEAR 3 YEARS
Page 78 of 107
<PAGE> 81
Armada Funds Prospectus - Class C Shares
CLASS C SHARES $XXX $XXX
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS
CLASS C SHARES $XXX $XXX
ARMADA U.S. GOVERNMENT INCOME FUND
FUND SUMMARY
***
INVESTMENT GOAL Current income as well as
preservation of capital
INVESTMENT FOCUS U.S. government securities
SHARE PRICE VOLATILITY Low
PRINCIPAL INVESTMENT STRATEGY Investing in mortgage-related
securities issued or guaranteed by
the U.S. government
INVESTOR PROFILE Investors seeking current income,
and who are willing to accept the
risks of investing in fixed income
securities
***
INVESTMENT STRATEGY OF THE ARMADA U.S. GOVERNMENT INCOME FUND
***
The Armada U.S. Government Income Fund's investment objective is to provide
current income as well as preservation of capital by investing primarily in
U.S. government securities. The investment objective may be changed without
a shareholder vote. The Fund normally invests normally at least 80% of its
total assets in obligations issued or guaranteed by the U.S. government or
its agencies or instrumentalities. The Fund may invest up to 20% of the
value of its total assets in debt securities and preferred stock of
non-governmental issues and the same proportion of its total assets in
non-governmental asset backed securities. The Fund generally maintains a
dollar-weighted average maturity of between two and ten years.
Due to its investment strategy, the Fund may buy and sell securities
frequently. This may result in higher transaction costs and additional
capital gains tax liabilities.
***
PRINCIPAL RISKS OF INVESTING IN THE ARMADA U.S. GOVERNMENT INCOME FUND
The prices of the Fund's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Fund's fixed income securities will decrease in value if
interest rates rise and vice versa, and the volatility of lower rated
securities is even greater than that of higher rated securities. Also,
longer-term securities are generally more volatile, so the average maturity
or duration of these securities affects risk.
Page 79 of 107
<PAGE> 82
The Fund is also subject to the risk that its market segment, U.S.
Government securities, may underperform other fixed income market segments
or the fixed income market as a whole.
An investment in the Fund is subject to interest rate risk, which is the
possibility that the Fund's yield will decline due to falling interest
rates.
The mortgages underlying mortgage-backed securities may be paid off early,
which makes it difficult to determine their actual maturity and therefore
calculate how they will respond to changes in interest rates. The Fund may
have to reinvest prepaid amounts at lower interest rates. This risk of
prepayment is an additional risk of mortgage-backed securities.
Although the Fund's U.S. government securities are considered to be among
the safest investments, they are not guaranteed against price movements due
to changing interest rates. Obligations issued by some U.S. government
agencies and instrumentalities are backed by the U.S. Treasury, while
others are backed solely by the ability of the agency to borrow from the
U.S. Treasury or by the agency's own resources.
PERFORMANCE INFORMATION
There is no bar chart or performance table for the Class C Shares or other
shares of the Fund because it has not completed a full calendar year of
operations.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you purchase
or sell Fund shares. You would pay these fees directly from your investment
in the Fund.
CLASS C SHARES
---------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage
of net asset value) 1.00%(1)
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends and other Distributions (as a percentage
of offering price) None
Redemption Fee (as a percentage of amount redeemed,
if applicable) None
Exchange Fee None
--------------------------------
(1) A contingent deferred sales charge is charged only with respect to
Class C Shares redeemed prior eighteen months from the date of
purchase.
Every mutual fund has operating expenses to pay for services such as
professional advisory, shareholder, distribution, administration and
custody services and other costs of doing business. This table describes
the highest fees and expenses that you may pay indirectly if you hold
shares of the Fund.
Page 80 of 107
<PAGE> 83
Armada Funds Prospectus - Class C Shares
ANNUAL FUND OPERATING EXPENSES
CLASS C SHARES
---------------------------------------------------------------------------
Investment Advisory Fees .XX%
Distribution and Service (12b-1) Fees .XX%
Other Expenses .XX%
----
Total Annual Fund Operating Expenses X.XX%
Page 81 of 107
<PAGE> 84
Armada Funds Prospectus - Class C Shares
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and that
you sell your shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and
Fund expenses remain the same. Although your actual costs and returns might
be different, your approximate costs of investing $10,000 in the Fund would
be:
If you sell your shares at the end of the period:
1 YEAR 3 YEARS
CLASS C SHARES $XXX $XXX
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS
CLASS C SHARES $XXX $XXX
Page 82 of 107
<PAGE> 85
Armada Funds Prospectus - Class C Shares
ARMADA MICHIGAN MUNICIPAL BOND FUND
FUND SUMMARY
***
INVESTMENT GOAL Current income exempt from Federal
income tax and, to the extent possible,
from Michigan personal income tax,
as is consistent with conservation of
capital
INVESTMENT FOCUS Michigan municipal securities
SHARE PRICE VOLATILITY Medium
PRINCIPAL INVESTMENT STRATEGY Investing in municipal obligations that
pay interest that is exempt from
Federal and Michigan state income taxes
INVESTOR PROFILE Investors seeking tax-exempt current
income, and who are willing to accept
moderate share price volatility
***
INVESTMENT STRATEGY OF THE ARMADA MICHIGAN MUNICIPAL BOND FUND
***
The Armada Michigan Municipal Bond Fund's investment objective is to
provide current income exempt from Federal income tax and, to the extent
possible, from Michigan personal income tax, as is consistent with
conservation of capital. Such income may be subject to the federal
alternative minimum tax when received by certain shareholders. The
investment objective may be changed without a shareholder vote. The Fund
invests primarily in debt securities issued by or on behalf of the State of
Michigan, its political subdivisions and its agencies and instrumentalities
that generate income exempt from Federal and Michigan state income taxes,
but may be treated as a preference item for individuals for purposes of the
Federal alternative minimum tax (Michigan municipal securities). The Fund
also invests in municipal securities issued by or on behalf of territories
and possessions of the United States, the District of Columbia and their
political subdivisions, agencies, instrumentalities and authorities. In
selecting securities for the Fund to buy and sell, the Adviser considers
each security's yield and total return potential relative to other
available municipal securities. Under normal market conditions, at least
80% of the value of the Fund's total assets will be invested in Michigan
municipal securities. The Fund may invest up to 100% of its total assets in
private activity bonds which may be treated as a specific tax preference
item under the Federal alternative minimum tax.
The Fund ordinarily will maintain a dollar-weighted average portfolio
maturity of between two and ten years. The Fund invests in investment grade
securities, which are those rated in one of the four highest rating
categories by a major rating agency, or determined by the Adviser to be of
equivalent quality.
Due to its investment strategy, the Fund may buy and sell securities
frequently. This may result in higher transaction costs and additional
capital gains tax liabilities.
***
Page 83 of 107
<PAGE> 86
Armada Funds Prospectus - Class C Shares
PRINCIPAL RISKS OF INVESTING IN THE ARMADA MICHIGAN MUNICIPAL BOND FUND
The prices of the Fund's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Fund's fixed income securities will decrease in value if
interest rates rise and vice versa, and the volatility of lower rated
securities is even greater than that of higher rated securities. Also,
longer-term securities are generally more volatile, so the average maturity
or duration of these securities affects risk.
The Fund is also subject to the risk that its market segment, tax free
municipal securities, may underperform other fixed income market segments
or the fixed income market as a whole.
An investment in the Fund is subject to interest rate risk, which is the
possibility that the Fund's yield will decline due to falling interest
rates.
There may be economic or political changes that impact the ability of
municipal issuers to repay principal and to make interest payments on
municipal securities. Changes in the financial condition or credit rating
of municipal issuers also may adversely affect the value of the Fund's
securities.
Since the Fund may purchase securities supported by credit enhancements
from banks and other financial institutions, changes in the credit quality
of these institutions could cause losses to the Fund and affect its share
price.
The Fund's concentration of investments in securities of issuers located in
a single state subjects the Fund to economic and government policies of
that state.
The Fund is non-diversified, which means that it may invest in the
securities of relatively few issuers. As a result, the Fund may be more
susceptible to a single adverse economic or political and regulatory
occurrences affecting one or more of these issuers, and may experience
increased volatility due to its investments in those securities.
PERFORMANCE INFORMATION
There is no bar chart or performance table for the Class C Shares or other
shares of the Fund because it has not completed a full calendar year of
operations.
Page 84 of 107
<PAGE> 87
Armada Funds Prospectus - Class C Shares
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you purchase
or sell Fund shares. You would pay these fees directly from your investment
in the Fund.
CLASS C SHARES
---------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage
of net asset value) 1.00%(1)
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends and other Distributions (as a percentage
of offering price) None
Redemption Fee (as a percentage of amount redeemed,
if applicable) None
Exchange Fee None
-----------------------------
(1) A contingent deferred sales charge is charged only with respect to
Class C Shares redeemed prior to eighteen months from the date of
purchase.
Every mutual fund has operating expenses to pay for services such as
professional advisory, shareholder, distribution, administration and
custody services and other costs of doing business. This table describes
the highest fees and expenses that you may pay indirectly if you hold
shares of the Fund.
ANNUAL FUND OPERATING EXPENSES
CLASS C SHARES
---------------------------------------------------------------------------
Investment Advisory Fees .XX%
Distribution and Service (12b-1) Fees .XX%
Other Expenses .XX%
----
Total Annual Fund Operating Expenses X.XX%
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and that
you sell your shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and
Fund expenses remain the same. Although your actual costs and returns might
be different, your approximate costs of investing $10,000 in the Fund would
be:
If you sell your shares at the end of the period:
1 YEAR 3 YEARS
CLASS C SHARES $XXX $XXX
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS
CLASS C SHARES $XXX $XXX
Page 85 of 107
<PAGE> 88
Armada Funds Prospectus - Class C Shares
MORE INFORMATION ABOUT RISK
<TABLE>
<S> <C>
EQUITY RISK-- Equity securities include public and Armada International Equity Fund
privately issued equity securities, common and preferred Armada Small Cap Value Fund
stocks, warrants, rights to subscribe to common stock and Armada Small Cap Growth Fund
convertible securities, as well as instruments that attempt Armada Equity Growth Fund
to track the price movement of equity indices. Investments Armada Tax Managed Equity Fund
in equity securities and equity derivatives in general are Armada Core Equity Fund
subject to market risks that may cause their prices to Armada Equity Index Fund
fluctuate over time. The value of securities convertible Armada Equity Income Fund
into equity securities, such as warrants or convertible Armada Balanced Allocation Fund
debt, is also affected by prevailing interest rates, the Armada Total Return Advantage Fund
credit quality of the issuer and any call provision. Armada Enhanced Income Fund
Fluctuations in the value of equity securities in which a Armada Mid Cap Growth Fund
mutual fund invests will cause a fund's net asset value to Armada Large Cap Ultra Fund
fluctuate. An investment in a portfolio of equity
securities may be more suitable for long-term investors who
can bear the risk of these share price fluctuations.
CONVERTIBLE SECURITIES -- Convertible securities Armada Equity Growth Fund
have characteristics of both fixed income and Armada Equity Income Fund
equity securities. The value of the convertible Armada Balanced Allocation Fund
security tends to move with the market value of Armada Mid Cap Growth Fund
the underlying stock, but may also be affected by Armada Large Cap Ultra Fund
interest rates, credit quality of the
issuer and any call provisions.
FIXED INCOME RISK-- The market value of fixed income Armada Balanced Allocation Fund
investments change in response to interest rate changes and Armada Total Return Advantage Fund
other factors. During periods of falling interest rates, Armada Bond Fund
the values of outstanding fixed income securities generally Armada Intermediate Bond Fund
rise. Moreover, while securities with longer maturities Armada GNMA Fund
tend to produce higher yields, the prices of longer Armada Enhanced Income Fund
maturity securities are also subject to greater market Armada Ohio Tax Exempt Bond Fund
fluctuations as a result of changes in interest rates. In Armada Pennsylvania Municipal Bond Fund
addition to these fundamental risks, different types of Armada National Tax Exempt Bond Fund
fixed income securities may be subject to the following Armada Money Market Fund
additional risks: Armada U.S. Government Income Fund
Armada Michigan Municipal Bond Fund
</TABLE>
Page 86 of 107
<PAGE> 89
<TABLE>
<CAPTION>
Armada Funds Prospectus - Class C Shares
<S> <C>
CALL RISK -- During periods of falling interest Armada Balanced Allocation Fund
rates, certain debt obligations with high interest Armada Total Return Advantage Fund
rates may be prepaid (or "called") by the issuer Armada Bond Fund
prior to maturity. This may cause a Fund's Armada Intermediate Bond Fund
average weighted maturity to fluctuate, and may Armada GNMA Fund
require a Fund to invest the resulting proceeds at Armada Enhanced Income Fund
lower interest rates. Armada Ohio Tax Exempt Bond Fund
Armada Pennsylvania Municipal Bond Fund
Armada National Tax Exempt Bond Fund
Armada Mid Cap Growth Fund
Armada U.S. Government Income Fund
Armada Michigan Municipal Bond Fund
CREDIT RISK -- The possibility that an issuer will Armada Balanced Allocation Fund
be unable to make timely payments of either Armada Total Return Advantage Fund
principal or interest. Armada Bond Fund
Armada Intermediate Bond Fund
Armada GNMA Fund
Armada Enhanced Income Fund
Armada Ohio Tax Exempt Bond Fund
Armada Pennsylvania Municipal Bond Fund
Armada National Tax Exempt Bond Fund
Armada Money Market Fund
Armada Mid Cap Growth Fund
Armada Michigan Municipal Bond Fund
EVENT RISK -- Securities may suffer declines in Armada Tax Managed Equity Fund
credit quality and market value due to issuer Armada Balanced Allocation Fund
restructurings or other factors. This risk should Armada Total Return Advantage Fund
be reduced because of the diversification provided Armada Bond Fund
by the Fund's multiple holdings. Armada Intermediate Bond Fund
Armada GNMA Fund
Armada Enhanced Income Fund
Armada Ohio Tax Exempt Bond Fund
Armada Pennsylvania Municipal Bond Fund
Armada National Tax Exempt Bond Fund
Armada Money Market Fund
Armada Mid Cap Growth Fund
Armada Michigan Municipal Bond Fund
</TABLE>
Page 87 of 107
<PAGE> 90
<TABLE>
<CAPTION>
Armada Funds Prospectus - Class C Shares
<S> <C>
- HIGH-YIELD, LOWER RATED SECURITIES (or "junk Armada Total Return Advantage Fund
bonds") are subject to additional risks associated
with investing in high-yield securities, including:
- High-yield, lower rated securities involve greater
risk of default or price declines than investments
in investment grade securities (e.g., securities
rated BBB or higher by S&P or Baa or higher by
Moody's) due to changes in the issuer's
creditworthiness.
- The market for high-yield, lower rated securities
may be thinner and less active, causing market price
volatility and limited liquidity in the secondary
market. This may limit the ability of a Fund to sell
these securities at their fair market values either
to meet redemption Requests, or in response to
changes in the economy or the financial markets.
- Market prices for high-yield, lower rated securities
may also be affected by investors' perception of the
issuer's credit quality and the outlook for economic
growth. Thus, prices for high-yield, lower rated
securities may move independently of interest rates
and the overall bond market.
- The market for high-yield, lower rated securities
may be adversely affected by legislative and
regulatory developments.
MUNICIPAL ISSUER RISK-- There may be economic or Armada Ohio Tax Exempt Bond Fund
political changes that impact the ability of Armada Pennsylvania Municipal Bond Fund
municipal issuers to repay principal and to make Armada National Tax Exempt Bond Fund
interest payments on municipal securities. Armada Money Market Fund
Changes to the financial condition or credit Armada Michigan Municipal Bond Fund
rating of municipal issuers may also adversely
affect the value of the Fund's municipal
securities. Constitutional or legislative limits
on borrowing by municipal issuers may result in
reduced supplies of municipal securities.
Moreover, certain municipal securities are backed
only by a municipal issuer's ability to levy and
collect taxes.
</TABLE>
Page 88 of 107
<PAGE> 91
<TABLE>
<CAPTION>
Armada Funds Prospectus - Class C Shares
<S> <C>
In addition, the Fund's concentration of Armada Ohio Tax Exempt Bond
Fund investments in issuers located in a single Armada Pennsylvania Municipal Bond Fund
state makes the Fund more susceptible to adverse Armada Money Market Fund
political or economic developments affecting that Armada Michigan Municipal Bond Fund
state. The Fund also may be riskier than mutual
funds that buy securities of issuers in numerous
states.
MORTGAGE-BACKED SECURITIES-- Mortgage-backed Armada Total Return Advantage Fund
securities are fixed income securities representing Armada Bond Fund
an interest in a pool of underlying mortgage Armada Intermediate Bond Fund
loans. They are sensitive to changes in interest Armada GNMA Fund
rates, but may respond to these changes differently Armada Enhanced Income Fund
from other fixed income securities due to the Armada U.S. Government Income Fund
possibility of prepayment of the underlying
mortgage loans. As a result, it may not be
possible to determine in advance the actual
maturity date or average life of a mortgage-backed
security. Rising interest rates tend to discourage
refinancings, with the result that the average life
and volatility of the security will increase
exacerbating its decrease in market price. When
interest rates fall, however, mortgage-backed
securities may not gain as much in market value
because of the expectation of additional mortgage
prepayments that must be reinvested at lower
interest rates. Prepayment risk may make it
difficult to calculate the average maturity of a
portfolio of mortgage-backed securities and,
therefore, to assess the volatility risk of that
portfolio.
FOREIGN SECURITY RISKS-- Investments in securities of Armada International Equity Fund
foreign companies or governments can be more volatile Armada Small Cap Value Fund
than investments in U.S. companies or governments. Armada Small Cap Growth Fund
Diplomatic, political, or economic developments, Armada Equity Growth Fund
including nationalization or appropriation, could Armada Tax Managed Equity Fund
affect investments in foreign countries. Foreign Armada Core Equity Fund
securities markets generally have less trading volume Armada Equity Income Fund
and less liquidity than U.S. markets. In addition, Armada Balanced Allocation Fund
the value of securities denominated in foreign Armada Total Return Advantage Fund
currencies, and of dividends from such securities, Armada Intermediate Bond Fund
can change significantly when foreign currencies Armada Enhanced Income Fund
strengthen or weaken relative to the U.S. dollar. Armada Mid Cap Growth Fund
Foreign companies or governments generally are not Armada U.S. Government Income Fund
subject to uniform accounting, auditing, and financial
reporting standards comparable to those applicable to
domestic U.S. companies or
</TABLE>
Page 89 of 107
<PAGE> 92
<TABLE>
<CAPTION>
Armada Funds Prospectus - Class C Shares
<S> <C>
governments. Transaction costs are generally higher than
those in the U.S. and expenses for custodial arrange-
ments of foreign securities may be somewhat greater than
typical expenses for custodial arrangements of similar
U.S. securities. Some foreign governments levy with-
holding taxes against dividend and interest income.
Although in some countries a portion of these taxes are
recoverable, the non-recovered portion will reduce the
income received from the securities comprising the
portfolio.
In addition to these risks, certain foreign securities
may be subject to the following additional risks factors:
CURRENCY RISK -- Investments in foreign securities Armada International Equity Fund
denominated in foreign currencies involve Armada Small Cap Value Fund
additional risks, including: Armada Small Cap Growth Fund
Armada Equity Growth Fund
- The value of a Fund's assets measured in U.S. Armada Tax Managed Equity Fund
dollars may be affected by changes in currency Armada Core Equity Fund
rates and in exchange control regulations. Armada Equity Income Fund
- A Fund may incur substantial costs in connection Armada Balanced Allocation Fund
with conversions between various currencies. Armada Total Return Advantage Fund
- A Fund may be unable to hedge against possible Armada Intermediate Bond Fund
variations in foreign exchange rates or to hedge a Armada Enhanced Income Fund
specific security transaction or portfolio Armada Mid Cap Growth Fund
position. Armada U.S. Government Income Fund
- Only a limited market currently exists for hedging
transactions relating to currencies in certain
emerging markets.
HEDGING RISK -- Hedging is a strategy designed to offset Armada International Equity Fund
investment risks. Hedging activities include, among Armada Small Cap Value Fund
other things, the use of forwards, options and futures. Armada Small Cap Growth Fund
There are risks associated with hedging activities, Armada Equity Growth Fund
including: Armada Tax Managed Equity Fund
- The success of a hedging strategy may depend on an Armada Core Equity Fund
ability to predict movements in the prices of Armada Equity Index Fund
individual securities, fluctuations in markets, and Armada Equity Income Fund
movements in interest and currency exchange rates. Armada Balanced Allocation Fund
- There may be an imperfect or no correlation between Armada Total Return Advantage Fund
the changes in market value of the securities held Armada Bond Fund
by the Fund or the currencies in Armada Intermediate Bond Fund
</TABLE>
Page 90 of 107
<PAGE> 93
<TABLE>
<CAPTION>
Armada Funds Prospectus - Class C Shares
<S> <C>
which those securities are denominated and the Armada GNMA Fund
forward contracts, futures and options on futures. Armada Enhanced Income Fund
- There may not be a liquid secondary market for a Armada Mid Cap Growth Fund
futures contract or option. Armada U.S. Government Income Fund
- Trading restrictions or limitations may be imposed Armada Michigan Municipal Bond Fund
by an exchange, and government regulations may
restrict trading in currencies, futures contracts
and options.
LEVERAGING RISK -- Leveraging activities include, among Armada International Equity Fund
other things, borrowing and the use of short sales, Armada Small Cap Value Fund
options and futures. There are risks associated with Armada Small Cap Growth Fund
leveraging activities, including: Armada Equity Growth Fund
Armada Tax Managed Equity Fund
- A fund experiencing losses over certain ranges Armada Core Equity Fund
in the market that exceed losses experienced by a Armada Equity Index Fund
non-leveraged Fund. Armada Equity Income Fund
- There may be an imperfect or no correlation between Armada Balanced Allocation Fund
the changes in market value of the securities held Armada Total Return Advantage Fund
by a fund and the prices of futures and options on Armada Intermediate Bond Fund
futures.
- Although the funds will only purchase Armada GNMA Fund
exchange-traded futures and options, due to market Armada Enhanced Income Fund
conditions there may not be a liquid secondary Armada Money Market Fund
market for a futures contract or option. As a Armada Mid Cap Growth Fund
result, the funds may be unable to close out their Armada U.S. Government Income Fund
futures or options contracts at a time which is Armada Michigan Municipal Bond Fund
advantageous.
- Trading restrictions or limitations may be imposed
by an exchange, and government regulations may
restrict trading in futures contracts and options.
In addition, the following leveraged instruments are
subject to certain specific risks:
DERIVATIVES RISK -- The Funds use derivatives to Armada International Equity Fund
attempt to achieve their investment objectives, Armada Small Cap Value Fund
while at the same time maintaining liquidity. To Armada Small Cap Growth Fund
collateralize (or cover) these derivatives Armada Equity Growth Fund
transactions, the Funds hold cash or U.S. Armada Tax Managed Equity Fund
government securities. Armada Core Equity Fund
Armada Equity Index Fund
Armada Equity Income Fund
Armada Balanced Allocation Fund
Armada Total Return Advantage Fund
Armada Bond Fund
Armada Intermediate Bond Fund
Armada GNMA Fund
</TABLE>
Page 91 of 107
<PAGE> 94
<TABLE>
<CAPTION>
Armada Funds Prospectus - Class C Shares
<S> <C>
Armada Enhanced Income Fund
Armada Money Market Fund
Armada Mid Cap Growth Fund
Armada U.S. Government Income Fund
FUTURES-- Futures contracts and options on futures Armada International Equity Fund
contracts provide for the future sale by one party Armada Small Cap Value Fund
and purchase by another party of a specified amount Armada Small Cap Growth Fund
of a specific security at a specified future time Armada Equity Growth Fund
and at a specified price. An option on a futures Armada Tax Managed Equity Fund
contract gives the purchaser the right, in exchange Armada Equity Index Fund
for a premium, to assume a position in a futures Armada Equity Income Fund
contract at a specified exercise price during the Armada Balanced Allocation Fund
term of the option. Index futures are futures Armada Total Return Advantage Fund
contracts for various indices that are traded on Armada Bond Fund
registered securities exchanges. Armada GNMA Fund
Armada Enhanced Income Fund
The Funds may use futures contracts and related Armada Mid Cap Growth Fund
options for bona fide hedging purposes to offset Armada U.S. Government Income Fund
changes in the value of securities held or expected
to be acquired. They may also be used to gain
exposure to a particular market or instrument, to
create a synthetic money market position, and for
certain other tax-related purposes. The Funds will
only enter into futures contracts traded on a
national futures exchange or board of trade.
OPTIONS-- The buyer of an option acquires the right Armada International Equity Fund
to buy (a call option) or sell (a put option) a Armada Small Cap Value Fund
certain quantity of a security (the underlying Armada Small Cap Growth Fund
security) or instrument at a certain price up to a Armada Equity Growth Fund
specified point in time. The seller or writer of Armada Tax Managed Equity Fund
an option is obligated to sell (a call option) or Armada Core Equity Fund
buy (a put option) the underlying security. When Armada Equity Income Fund
writing (selling) call options on securities, the Armada Balanced Allocation Fund
Funds may cover its position by owning the Armada Total Return Advantage Fund
underlying security on which the option is written Armada Bond Fund
or by owning a call option on the underlying Armada GNMA Fund
security. Alternatively, the Funds may cover its Armada Enhanced Income Fund
position by maintaining in a segregated account Armada Mid Cap Growth Fund
cash or liquid securities equal in value to the Armada U.S. Government Income Fund
exercise price of the call option written by the Armada Michigan Municipal Bond Fund
Funds.
Because option premiums paid or received by the
Funds are small in relation to the market
</TABLE>
Page 92 of 107
<PAGE> 95
<TABLE>
<CAPTION>
Armada Funds Prospectus - Class C Shares
<S> <C>
value of the investments underlying the options,
buying and selling put and call options can be more
speculative than investing directly in securities.
SHORT SALES-- Short sales are transactions in which Armada Balanced Allocation Fund
a Fund sells a security it does not own. To Armada GNMA Fund
complete a short sale, a Fund must borrow the Armada Mid Cap Growth Fund
security to deliver to the buyer. The Fund is then Armada U.S. Government Income Fund
obligated to replace the borrowed security by
purchasing the security at the market price at the
time of replacement. This price may be more or
less than the price at which the security was sold
by the Fund.
REAL ESTATE INVESTING-- The Fund's investments in the Armada Mid Cap Growth Fund
securities of real estate investment trusts (REITs) and
companies principally engaged in the real estate industry
may subject the Fund to the risks associated with the
direct ownership of real estate. Risks commonly
associated with the direct ownership of real estate
include fluctuations in the value of underlying
properties and defaults by borrowers or tenants. In
addition to these risks, REITs are dependent on
specialized management skills and some REITs may have
investments in relatively few properties, or in a small
geographic area or a single type of property. These
factors may increase the volatility of the Fund's
investments in REITs.
REGIONAL RISK-- To the extent that a Fund's investments Armada Ohio Tax Exempt Bond Fund
are concentrated in a specific geographic region, Armada Pennsylvania Municipal Bond Fund
the Fund may be subject to the political and other Armada Money Market Fund
developments affecting that region. Regional economies Armada Michigan Municipal Bond Fund
are often closely interrelated, and political and
economic developments affecting one region, country or
state often affect other regions, countries or states,
thus subjecting a Fund to additional risks.
TRACKING ERROR RISK-- Factors such as Fund expenses, Armada Equity Index Fund
imperfect correlation between the Fund's investments and Armada Total Return Advantage Fund
those of their benchmarks, rounding of share prices, Armada Bond Fund
changes to the benchmark, regulatory policies, and Armada Intermediate Bond Fund
leverage, may affect their ability to achieve perfect Armada GNMA Fund
correlation. The magnitude of any tracking error may be Armada Enhanced Income Fund
affected by a higher portfolio turnover rate. Because
an index is just a composite of the prices of the
securities it represents rather than an actual portfolio
of those securities, an index will have no expenses. As
a result, a Fund, which will
</TABLE>
Page 93 of 107
<PAGE> 96
<TABLE>
<CAPTION>
Armada Funds Prospectus - Class C Shares
<S> <C>
have expenses such as taxes,
custody, management fees and other operational costs,
and brokerage, may not achieve its investment objective
of accurately correlating to an index.
YEAR 2000 RISK-- The Funds depend on the smooth All Funds
functioning of computer systems in almost every aspect
of their business. Like other mutual funds, businesses
and individuals around the world, the Funds could be
adversely affected if the computer systems used by its
service providers do not properly process dates on and
after January 1, 2000, and distinguish between the year
2000 and the year 1900. The Funds have asked their
service providers whether they expect to have their
computer systems adjusted for the year 2000 transition,
and is seeking assurances from each service provider
that they are devoting significant resources to prevent
material adverse consequences to the Funds. While it is
likely that such assurances will be obtained, the Funds
and their shareholders may experience losses if these
assurances prove to be incorrect or as a result of year
2000 computer difficulties experienced by issuers of
portfolio securities or third parties, such as
custodians, banks, broker-dealers or others with which
the Funds do business. In addition, to the extent that
the operations of issuers of securities held by a Fund
are impaired by the year 2000 transition, or prices of
securities held by a Fund decline as a result of real or
perceived problems relating to the year 2000, the value
of such Fund's shares may be materially affected.
Furthermore, many foreign countries are not as prepared Armada International Equity Fund
as the U.S. for the year 2000 transition. As a result, Armada Small Cap Value Fund
computer difficulties in foreign markets and with Armada Small Cap Growth Fund
foreign institutions as a result of the year 2000 may Armada Equity Growth Fund
add to the possibility of losses to the Funds and their Armada Tax Managed Equity Fund
shareholders. Armada Core Equity Fund
Armada Equity Income Fund
Armada Balanced Allocation Fund
Armada Total Return Advantage Fund
Armada Intermediate Bond Fund
Armada Enhanced Income Fund
Armada Mid Cap Growth Fund
Armada U.S. Government Income Fund
</TABLE>
Page 94 of 107
<PAGE> 97
Armada Funds Prospectus - Class C Shares
EACH FUND'S OTHER INVESTMENTS
In addition to the investments and strategies described in this prospectus,
each Fund also may invest in other securities, use other strategies and
engage in other investment practices. These investments and strategies, as
well as those described in this prospectus, are described in detail in our
Statement of Additional Information. Of course, the Trust cannot guarantee
that any Fund will achieve its investment goal.
The investments and strategies described in this prospectus are those that
we use under normal conditions. During unusual economic, market, political
or other conditions, or for temporary defensive or liquidity purposes, each
Fund (except for the Armada Money Market Fund) may invest up to 100% of its
assets in short-term high quality debt instruments that would not
ordinarily be consistent with a Fund's principal investment strategies. A
Fund will do so only if the Adviser or Sub-Adviser believes that the risk
of loss outweighs the opportunity for achieving a Fund's investment
objective.
INVESTMENT ADVISER, SUB-ADVISER AND INVESTMENT TEAM
The Investment Adviser makes investment decisions for the Funds and
continuously reviews, supervises and administers each Fund's respective
investment program.
The Investment Adviser oversees the Sub-Adviser to ensure compliance with
the Funds' investment policies and guidelines, and monitors the
Sub-Adviser's adherence to its investment style. The Adviser pays the
Sub-Adviser out of the Investment Advisory fees it receives (described
below).
The Board of Trustees of the Trust supervises the Adviser and establishes
policies that the Adviser must follow in its management activities.
National City Investment Management Company ("IMC"), with its principal
offices at 1900 East Ninth Street, Cleveland, Ohio 44114, serves as Adviser
to the Funds. On March 31, 1999, IMC had approximately $23.7 billion in
assets under management.
IMC utilizes a team approach for management of the Funds. No one person is
primarily responsible for making investment recommendations to the team. In
the case of the Armada Core Equity and the Armada Total Return Advantage
Funds, National Asset Management Corporation ("NAM") serves as Sub-Adviser
and manages these funds on a day-to-day basis; NAM selects, buys and sells
the securities of these Funds under the supervision of the Adviser and the
Board of Trustees.
The table below shows the IMC management team responsible for each fund as
well as the advisory fees IMC received for each fund for the fiscal period
ended May 31, 1999.
***
Page 95 of 107
<PAGE> 98
Armada Funds Prospectus - Class C Shares
<TABLE>
<CAPTION>
- ------------------------------------------ ---------------------------------- ------------------------------
ADVISORY FEES PAID AS A
PERCENTAGE OF AVERAGE NET
MANAGEMENT ASSETS FOR THE FISCAL YEAR
FUND NAME TEAM/INVESTMENT ADVISER ENDED MAY 31, 1999
- ------------------------------------------ ---------------------------------- ------------------------------
<S> <C> <C>
International Equity Fund International Equity Team [ ]%
- ------------------------------------------ ---------------------------------- ------------------------------
Small Cap Value Fund Equity Value Team [ ]%
- ------------------------------------------ ---------------------------------- ------------------------------
Small Cap Growth Fund Small Cap Growth Team [ ]%
- ------------------------------------------ ---------------------------------- ------------------------------
Equity Growth Fund Large Cap Growth Team [ ]%
- ------------------------------------------ ---------------------------------- ------------------------------
Tax Managed Equity Fund Large Cap Growth Team [ ]%
- ------------------------------------------ ---------------------------------- ------------------------------
National Asset Management [ ]%
Core Equity Fund (sub-adviser)
- ------------------------------------------ ---------------------------------- ------------------------------
Equity Index Fund Equity Team [ ]%
- ------------------------------------------ ---------------------------------- ------------------------------
Equity Income Fund Equity Value Team [ ]%
- ------------------------------------------ ---------------------------------- ------------------------------
Large Cap Growth and [ ]%
Balanced Allocation Fund Fixed Income Teams
- ------------------------------------------ ---------------------------------- ------------------------------
National Asset Management [ ]%
Total Return Advantage Fund (sub-adviser)
- ------------------------------------------ ---------------------------------- ------------------------------
Bond Fund Fixed Income Team [ ]%
- ------------------------------------------ ---------------------------------- ------------------------------
Intermediate Bond Fund Fixed Income Team [ ]%
- ------------------------------------------ ---------------------------------- ------------------------------
GNMA Fund Fixed Income Team [ ]%
- ------------------------------------------ ---------------------------------- ------------------------------
Enhanced Income Fund Fixed Income Team [ ]%
- ------------------------------------------ ---------------------------------- ------------------------------
Ohio Tax Exempt Bond Fund Tax Free Fixed Income [ ]%
Team
- ------------------------------------------ ---------------------------------- ------------------------------
Pennsylvania Municipal Bond Tax Free Fixed Income [ ]%
Fund Team
- ------------------------------------------ ---------------------------------- ------------------------------
National Tax Exempt Bond Fund Tax Free Fixed Income [ ]%
Team
- ------------------------------------------ ---------------------------------- ------------------------------
Tax Exempt Money Market Fund [ ] [ ]%
- ------------------------------------------ ---------------------------------- ------------------------------
Money Market Fund [ ] [ ]%
- ------------------------------------------ ---------------------------------- ------------------------------
Mid Cap Growth Fund Mid Cap Growth Team Fund has not yet
commenced operations
- ------------------------------------------ ---------------------------------- ------------------------------
Large Cap Ultra Fund Large Cap Growth Team Fund has not yet
commenced operations
- ------------------------------------------ ---------------------------------- ------------------------------
U.S. Government Income Fund Fixed Income Team Fund has not yet
commenced operations
- ------------------------------------------ ---------------------------------- ------------------------------
Michigan Municipal Bond Fund Tax Free Fixed Income Team Fund has not yet
commenced operations
- ------------------------------------------ ---------------------------------- ------------------------------
</TABLE>
***
Page 96 of 107
<PAGE> 99
Armada Funds Prospectus - Class C Shares
PURCHASING, SELLING AND EXCHANGING FUND SHARES
This section tells you how to buy, sell (sometimes called "redeem") or
exchange Class C Shares of the Funds.
CLASS C SHARES HAVE:
- A contingent deferred sales charge
- 12b-1 fees
- $500 minimum initial investment
For some investors the minimum initial investment for Class C Shares may be
lower.
Class C Shares are for individual investors and retirement plans.
***
You may not purchase Class C Shares of the Armada Money Market Fund as part
of your initial investment. Class C Shares of the Armada Money Market Fund
are only available via an exchange from Class C Shares of another Fund of
the Trust.
HOW TO PURCHASE FUND SHARES
You may purchase shares directly by:
- Mail,
- Telephone,
- Wire,
- Internet, or
- Automated Clearing House (ACH).
***
To purchase shares directly from us, please call 1-800-622-FUND (3863), or
complete and send in the enclosed application. Unless you arrange to pay by
wire (** or through ACH/blank **), write your check, payable in U.S.
dollars, to "Armada Funds (Fund name)." The Trust cannot accept third-party
checks, credit cards, credit card checks or cash.
***
You may also buy shares through accounts with brokers and other
institutions that are authorized to place trades in Fund shares for their
customers. If you invest through an authorized institution, you will have
to follow its procedures. Your institution may charge a fee for its
services, in addition to the fees charged by the Trust. You will also
generally have to address your correspondence or questions regarding a Fund
to your institution.
You may not purchase Class C Shares of the Armada Money Market Fund as part
of your initial investment. Class C Shares of the Armada Money Market Fund
are only available via an exchange from Class C Shares of another Fund of
the Trust.
Page 97 of 107
<PAGE> 100
Armada Funds Prospectus - Class C Shares
***
GENERAL INFORMATION
You may purchase shares on any day that the New York Stock Exchange is open
for business (a "Business Day").
The Trust may reject any purchase order if it is determined that accepting
the order would not be in the best interests of the Fund or its
shareholders.
The price per share (the offering price) will be the net asset value per
share (NAV) next determined after a Fund receives your purchase order . The
NAV per share of the Armada Money Market Fund is calculated first at 3:00
p.m. (Eastern time), then as of the close of trading of the New York Stock
Exchange.
Each bond and equity fund calculates its NAV once each Business Day at the
regularly-scheduled close of normal trading on the New York Stock Exchange
(normally, 4:00 p.m. (Eastern time)). For you to receive the current
Business Day's NAV, generally a Fund must receive your purchase order
before 4:00 p.m. (Eastern time).
For you to be eligible to receive dividends declared on the day you submit
your purchase order, generally a Fund must receive your order before 4:00
p.m. (Eastern time) and federal funds (readily available funds) before 2:00
p.m. (Eastern time) the following Business Day.
Purchase orders for shares of the Armada Money Market Fund which are
received by the Transfer Agent by 3:00 p.m. (Eastern time) are processed
that day.
HOW WE CALCULATE NAV
NAV for one Fund share is the value of that share's portion of all of the
assets in the Fund less liabilities and class expenses.
In calculating NAV, a Fund generally values its investment portfolio at
market price (except the Armada Money Market Fund). If market prices are
unavailable or a Fund thinks that they are unreliable, fair value prices
may be determined in good faith using methods approved by the Board of
Trustees.
In calculating NAV for the Armada Money Market Fund, we generally value the
Fund's investment portfolio using the amortized cost valuation method,
which is described in detail in our Statement of Additional Information. If
this method is determined to be unreliable during certain market conditions
or for other reasons, a Fund may value its portfolio at market price or
fair value prices may be determined in good faith using methods approved by
the Board of Trustees.
Some Funds hold securities that are listed on foreign exchanges. These
securities may trade on weekends or other days when the Funds do not
calculate NAV. As a result, the market value of these Fund's investments
may change on days when you cannot purchase or sell Fund shares.
Page 98 of 107
<PAGE> 101
Armada Funds Prospectus - Class C Shares
MINIMUM PURCHASES
***
To purchase shares for the first time, you must invest in any Fund at least
$500. There is no minimum for subsequent investments.
***
PLANNED INVESTMENT PROGRAM
If you have a checking or savings account with a bank, you may purchase
Class C Shares automatically through regular deductions from your account
in amounts of at least $50 per month.
With a $50 minimum initial investment, you may begin regularly scheduled
investments on a monthly or quarterly basis.
SALES CHARGES
CONTINGENT DEFERRED SALES CHARGES -- CLASS C SHARES
You do not pay a sales charge when you purchase Class C Shares. The
offering price of Class C Shares is simply the next calculated NAV. But
when you sell your shares within eighteen months of purchase, you will pay
a contingent deferred sales charge of 1.00% on either (1) the NAV of the
shares at the time of purchase, or (2) NAV of the shares next calculated
after the Fund receives your sale request, whichever is less. The sales
charge does not apply to shares you purchase through reinvestment of
dividends or distributions. So, you never pay a deferred sales charge on
any increase in your investment above the initial offering price. This
sales charge does not apply to exchanges of Class C Shares of one Fund for
Class C Shares of another Fund.
The contingent deferred sales charge will be waived if you sell your Class
C Shares for the following reasons:
- redemptions following the death or disability of a shareholder;
- redemptions representing a minimum required distribution from an IRA or
a custodial account to a shareholder who has reached 70 1/2 years of
age;
- minimum required distributions from an IRA or a custodial account to a
shareholder who has died or become disabled;
- redemptions by participants in a qualified plan for retirement loans,
financial hardship, certain participant expenses and redemptions due to
termination of employment with plan sponsor;
- redemptions by a settlor of a living trust;
- redemptions effected pursuant to a Fund's right to liquidate a
shareholder's account if the value of shares held in the account is less
than the minimum account size;
- return of excess contributions;
- redemptions following the death or disability of both shareholders in
the case of joint accounts; and
- exchanges from the Trust's C Shares.
GENERAL INFORMATION ABOUT SALES CHARGES
Your securities dealer is paid a commission when you buy your shares and is
paid a servicing fee as long as you hold your shares.
Page 99 of 107
<PAGE> 102
Armada Funds Prospectus - Class C Shares
HOW TO SELL YOUR FUND SHARES
Holders of Class C Shares may sell shares by following procedures
established when they opened their account or accounts. If you have
questions, call 1-800-622-FUND (3863).
If you own your shares through an account with a broker or other
institution, contact that broker or institution to sell your shares.
If you own your shares directly, you may sell (sometimes called "redeem")
your shares on any Business Day by contacting a Fund directly by mail, by
internet at WWW.ARMADAFUNDS.com, or by telephone at 1-800-622-FUND (3863).
The minimum amount for telephone and internet redemptions is $100.
If you would like to sell $10,000 or more of your shares, please notify the
Fund in writing and include a signature guarantee by a bank or other
financial institution (a notarized signature is not sufficient).
The sale price of each share for redemption requests received in good order
by the Fund will be the next NAV determined less any applicable deferred
sales charge.
SYSTEMATIC WITHDRAWAL PLAN
If you have at least $1,000 in your account, you may use the systematic
withdrawal plan. Under the plan you may arrange monthly, quarterly,
semi-annual or annual automatic withdrawals of at least $100 from any Fund.
The proceeds of each withdrawal will be mailed to you by check or, if you
have a checking or savings account with a bank, electronically transferred
to your account. Systematic withdrawals made within eighteen months of
purchase will be subject to the deferred sales charge.
RECEIVING YOUR MONEY
Normally, we will send your sale proceeds within seven Business Days after
we receive your request. Your proceeds can be wired to your bank account or
sent to you by check. IF YOU RECENTLY PURCHASED YOUR SHARES BY CHECK,
REDEMPTION PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR CHECK HAS CLEARED
(WHICH MAY TAKE UP TO 15 DAYS FROM YOUR DATE OF PURCHASE).
REDEMPTIONS IN KIND
We generally pay sale (redemption) proceeds in cash. However, under unusual
conditions that make the payment of cash unwise (and for the protection of
the Fund's remaining shareholders) we might pay all or part of your
redemption proceeds in liquid securities with a market value equal to the
redemption price (redemption in kind). It is highly unlikely that your
shares would ever be redeemed in kind, but if they were you would probably
have to pay transaction costs to sell the securities distributed to you, as
well as taxes on any capital gains from the sale as with any redemption.
Page 100 of 107
<PAGE> 103
Armada Funds Prospectus - Class C Shares
INVOLUNTARY SALES OF YOUR SHARES
***
If your account balance drops below $500 because of redemptions, you may be
required to sell your shares. But, we will always give you at least 60
days' written notice to give you time to add to your account and avoid the
sale of your shares.
***
SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES
The Fund may suspend your right to sell your shares if the New York Stock
Exchange restricts trading, the SEC declares an emergency or for other
reasons. More information about this is in our Statement of Additional
Information.
HOW TO EXCHANGE YOUR SHARES
You may exchange your shares on any Business Day by contacting us directly
by mail, by internet or telephone.
You may also exchange shares through your financial institution by mail or
telephone. Exchange requests must be for an amount of at least $500.
You may exchange your shares up to one exchange every two months during a
given 12-month period beginning on the date of the first exchange
transaction. If you exchange your shares more than once every two months
during such 12-month period, you may be charged a $_____ fee for each
additional exchange. You will be notified before any fee is charged.
IF YOU RECENTLY PURCHASED SHARES BY CHECK, YOU MAY NOT BE ABLE TO EXCHANGE
YOUR SHARES UNTIL YOUR CHECK HAS CLEARED (WHICH MAY TAKE UP TO 15 DAYS FROM
YOUR DATE OF PURCHASE).
When you exchange shares, you are really selling your shares and buying
other Fund shares. So, your sale price and purchase price will be based on
the NAV next calculated after the Fund receives your exchange request.
CLASS C SHARES
You may exchange Class C Shares of any Fund for Class C Shares of any other
Fund. No contingent deferred sales charge is imposed on redemptions of
shares you acquire in an exchange.
TELEPHONE TRANSACTIONS
Purchasing, selling and exchanging Fund shares over the telephone is
extremely convenient, but not without risk. Although the Trust has certain
safeguards and procedures to confirm the identity of callers and the
authenticity of instructions, the Trust is not responsible for any losses
or costs incurred by following telephone instructions we reasonably believe
to be genuine. If you or your financial institution transact with the Fund
over the telephone, you will generally bear the risk of any loss.
Page 101 of 107
<PAGE> 104
Armada Funds Prospectus - Class C Shares
DISTRIBUTION OF FUND SHARES
Each Fund has adopted a distribution plan [under Rule 12b-1, pursuant to
the 1940 Act, as amended] that allows each Fund to pay distribution and
service fees for the sale and distribution of its shares, and for services
provided to shareholders. Because these fees are paid out of a Fund's
assets continuously, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
Distribution fees, as a percentage of average daily net assets are as
follows:
Armada International Equity Fund ______%
Armada Small Cap Value Fund ______%
Armada Small Cap Growth Fund ______%
Armada Equity Growth Fund ______%
Armada Tax Managed Equity Fund ______%
Armada Core Equity Fund ______%
Armada Equity Index Fund ______%
Armada Equity Income Fund ______%
Armada Balanced Allocation Fund ______%
Armada Total Return Advantage Fund ______%
Armada Bond Fund ______%
Armada Intermediate Bond Fund ______%
Armada GNMA Fund ______%
Armada Enhanced Income Fund ______%
Armada Ohio Tax Exempt Bond Fund ______%
Armada Pennsylvania Municipal Bond Fund ______%
Armada National Tax Exempt Bond Fund ______%
Armada Money Market Fund ______%
Armada Mid Cap Growth Fund Not yet in operation
Armada Large Cap Ultra Fund Not yet in operation
Armada U.S. Government Income Fund Not yet in operation
Armada Michigan Municipal Bond Fund Not yet in operation
The Distributor may, from time to time in its sole discretion, institute
one or more promotional incentive programs for dealers, which will be paid
for by the Distributor from any sales charge it receives or from any other
source available to it. Under any such program, the Distributor may provide
incentives, in the form of cash or other compensation, including
merchandise, airline vouchers, trips and vacation packages, to dealers
selling shares of a Fund.
DIVIDENDS AND DISTRIBUTIONS
Each Fund distributes its income as follows:
Armada International Equity Fund Annually
Armada Small Cap Value Fund Annually
Armada Small Cap Growth Fund Annually
Armada Equity Growth Fund Quarterly
Armada Tax Managed Equity Fund Quarterly
Armada Core Equity Fund Quarterly
Armada Equity Index Fund Quarterly
Armada Equity Income Fund Quarterly
Armada Balanced Allocation Fund Quarterly
Page 102 of 107
<PAGE> 105
Armada Funds Prospectus - Class C Shares
Armada Total Return Advantage Fund Monthly
Armada Bond Fund Monthly
Armada Intermediate Bond Fund Monthly
Armada GNMA Fund Monthly
Armada Enhanced Income Fund Monthly
Armada Ohio Tax Exempt Bond Fund Monthly
Armada Pennsylvania Municipal Bond Fund Monthly
Armada National Tax Exempt Bond Fund Monthly
Armada Money Market Fund Monthly
Armada Mid Cap Growth Fund Not yet in operation
Armada Large Cap Ultra Fund Not yet in operation
Armada U.S. Government Income Fund Not yet in operation
Armada Michigan Municipal Bond Fund Not yet in operation
Each Fund makes distributions of capital gains, if any, at least annually.
If you own Fund shares on a Fund's record date, you will be entitled to
receive the distribution.
You will receive dividends and distributions in the form of additional Fund
shares unless you elect to receive payment in cash. To elect cash payment,
you must notify the Fund in writing prior to the date of the distribution.
Your election will be effective for dividends and distributions paid after
the Fund receives your written notice. To cancel your election, simply send
the Fund written notice.
TAXES
FEDERAL TAXES
Each Fund contemplates declaring as dividends each year all or
substantially all of its taxable income, including its net capital gain
(the excess of long-term capital gain over short-term capital loss).
Distributions attributable to the net capital gain of a Fund will be
taxable to you as long-term capital gain, regardless of how long you have
held your shares. Other Fund distributions (other than exempt-interest
dividends, discussed below) will generally be taxable as ordinary income.
You will be subject to income tax on Fund distributions regardless of
whether they are paid in cash or reinvested in additional shares. You will
be notified annually of the tax status of distributions to you.
In the case of any Fund other than a money-market Fund, you should note
that if you purchase shares just before a distribution, the purchase price
will reflect the amount of the upcoming distribution, but you will be
taxable on the entire amount of the distribution received, even though, as
an economic matter, the distribution simply constitutes a return of
capital. This is known as "buying into a dividend."
You will recognize taxable gain or loss on a sale, exchange or redemption
of your shares, including an exchange for shares of another Fund, based on
the difference between your tax basis in the shares and the amount you
receive for them. (To aid in computing your tax basis, you generally should
retain your account statements for the periods during which you held
shares.) Any loss realized on shares held for six months or less will be
treated as a long-term capital loss to the extent of any capital gain
dividends that were received on the shares.
The one major exception to these tax principles is that distributions on,
and sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable.
Page 103 of 107
<PAGE> 106
Armada Funds Prospectus - Class C Shares
It is expected that the Armada International Equity Fund will be subject to
foreign withholding taxes with respect to dividends or interest received
from sources in foreign countries. The Armada International Equity Fund may
make an election to treat a proportionate amount of such taxes as
constituting a distribution to each shareholder, which would allow each
shareholder either (1) to credit such proportionate amount of taxes against
U.S. federal income tax liability or (2) to take such amount as an itemized
deduction.
The Armada Ohio Tax Exempt Bond Fund, Armada Pennsylvania Municipal Bond
Fund, Armada National Tax Exempt Bond Fund, and Armada Michigan Municipal
Bond Fund (the "Tax-Exempt Funds") anticipate that substantially all of
their income dividends will be "exempt interest dividends," which are
exempt from federal income taxes. However, some dividends will be taxable,
such as dividends that are derived from occasional taxable investments, and
in the case of other than money market Funds, distributions of short and
long-term capital gains. Interest on indebtedness incurred by a shareholder
to purchase or carry shares of any Tax-Exempt Fund generally will not be
deductible for federal income tax purposes.
You should note that a portion of the exempt-interest dividends paid by the
Tax-Exempt Funds may constitute an item of tax preference for purposes of
determining federal alternative minimum tax liability. Exempt-interest
dividends will also be considered along with other adjusted gross income in
determining whether any Social Security or railroad retirement payments
received by you are subject to federal income taxes.
If you receive an exempt-interest dividend with respect to any share and
the share is held by you for six months or less, any loss on the sale or
exchange of the share will be disallowed to the extent of such dividend
amount.
The foregoing is only a summary of certain tax considerations under current
law, which may be subject to change in the future. Shareholders who are
nonresident aliens, foreign trusts or estates, or foreign corporations or
partnerships, may be subject to different United States federal income tax
treatment. You should consult your tax adviser for further information
regarding federal, state, local and/or foreign tax consequences relevant to
your specific situation.
STATE AND LOCAL TAXES
Shareowners may also be subject to state and local taxes on distributions
and redemptions. State income taxes may not apply, however, to the portions
of each Fund's distributions, if any, that are attributable to interest on
Federal Securities or interest on securities of the particular state or
localities within the state. The Armada Pennsylvania Municipal Bond Fund
intends to distribute income that is exempt from Pennsylvania personal
income taxes. The Armada Ohio Tax-Exempt Bond Fund intends to distribute
income that is exempt from Ohio personal income taxes. The Armada Michigan
Municipal Bond Fund intends to distribute income that is exempt from
Michigan income taxes. Shareowners should consult their tax advisers
regarding the tax status of distributions in their state and locality.
Each Fund may invest a portion of its assets in securities that generate
taxable income for federal or state income taxes. Income exempt from
federal tax may be subject to state and local taxes. Any capital gains
distributed by these Funds may be taxable.
The Funds use a tax management technique known as "highest in, first out."
Using this technique, the portfolio holdings that have experienced the
smallest gain or largest loss are sold first in an effort to minimize
capital gains and enhance after-tax returns.
Page 104 of 107
<PAGE> 107
Armada Funds Prospectus - Class C Shares
MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION.
Page 105 of 107
<PAGE> 108
Armada Funds Prospectus - Class C Shares
ARMADA FUNDS
INVESTMENT ADVISER
National City Investment Management Company
1900 East Ninth Street
Cleveland, Ohio 44114
DISTRIBUTOR
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
LEGAL COUNSEL
Drinker Biddle & Reath LLP
One Logan Square
18th and Cherry Streets
Philadelphia, PA 19103-6996
More information about the Funds is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI dated November __, 1999, includes detailed information about the
Armada Funds. The SAI is on file with the SEC and is incorporated by
reference into this prospectus. This means that the SAI, for legal
purposes, is a part of this prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
These reports list each Fund's holdings and contain information from the
Fund's managers about strategies, and recent market conditions and trends.
The reports also contain detailed financial information about the Funds.
TO OBTAIN MORE INFORMATION:
BY TELEPHONE: Call 1-800-622-FUND (3863)
BY MAIL: Write to us
P.O. Box 8421
Boston, MA 02266-8421
BY E-MAIL: [VAR:FUND.EMAILADDRESS]
BY INTERNET: WWW.ARMADAFUNDS.COM
Page 106 of 107
<PAGE> 109
Armada Funds Prospectus - Class C Shares
FROM THE SEC: You can also obtain the SAI or the Annual and Semi-Annual
reports, as well as other information about the Armada Funds, from the
SEC's website ("http://www.sec.gov"). You may review and copy documents at
the SEC Public Reference Room in Washington, DC (for information call
1-800-SEC-0330). You may request documents by mail from the SEC, upon
payment of a duplicating fee, by writing to: Securities and Exchange
Commission, Public Reference Section, Washington, DC 20549-6009. The Armada
Fund's Investment Company Act registration number is 811-4416.
Page 107 of 107
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ARMADA FUNDS
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER __, 1999
ARMADA INTERNATIONAL EQUITY FUND
ARMADA SMALL CAP VALUE FUND
ARMADA SMALL CAP GROWTH FUND
ARMADA EQUITY GROWTH FUND
ARMADA TAX MANAGED EQUITY FUND
ARMADA CORE EQUITY FUND
ARMADA EQUITY INDEX FUND
ARMADA EQUITY INCOME FUND
ARMADA BALANCED ALLOCATION FUND
ARMADA TOTAL RETURN ADVANTAGE FUND
ARMADA BOND FUND
ARMADA INTERMEDIATE BOND FUND
ARMADA GNMA FUND
ARMADA ENHANCED INCOME FUND
ARMADA OHIO TAX EXEMPT BOND FUND
ARMADA PENNSYLVANIA MUNICIPAL BOND FUND
ARMADA NATIONAL TAX EXEMPT BOND FUND
ARMADA OHIO MUNICIPAL MONEY MARKET FUND
ARMADA PENNSYLVANIA TAX EXEMPT MONEY MARKET FUND
ARMADA TAX EXEMPT MONEY MARKET FUND
ARMADA MONEY MARKET FUND
ARMADA GOVERNMENT MONEY MARKET FUND
ARMADA TREASURY MONEY MARKET FUND
ARMADA MID CAP GROWTH FUND
ARMADA LARGE CAP ULTRA FUND
ARMADA U.S. GOVERNMENT INCOME FUND
ARMADA MICHIGAN MUNICIPAL BOND FUND
ARMADA TREASURY PLUS MONEY MARKET FUND
This Statement of Additional Information is not a prospectus but should be read
in conjunction with the current Prospectuses for the above Funds of Armada
Funds (the "Trust"), dated September __, 1999 for Class A, Class B and Class I
Shares of the Funds, and dated November __, 1999 for the Class C Shares of the
Funds. A copy of the Prospectuses may be obtained by calling or writing the
Trust at 1-800-622-FUND (3863), One Freedom Valley Drive, Oaks, Pennsylvania
19456.
<PAGE> 111
TABLE OF CONTENTS
PAGE
STATEMENT OF ADDITIONAL INFORMATION.....................................1
INVESTMENT OBJECTIVE AND POLICIES.......................................2
INVESTMENT LIMITATIONS.................................................67
NET ASSET VALUE........................................................70
DIVIDENDS..............................................................70
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.........................71
DESCRIPTION OF SHARES..................................................82
ADDITIONAL INFORMATION CONCERNING TAXES................................84
TRUSTEES AND OFFICERS..................................................89
ADVISORY, ADMINISTRATION, DISTRIBUTION, CUSTODIAN SERVICES AND
TRANSFER AGENCY AGREEMENTS.......................................93
SHAREHOLDER SERVICES PLANS............................................105
PORTFOLIO TRANSACTIONS................................................105
AUDITORS 108
COUNSEL 108
YIELD AND PERFORMANCE INFORMATION.....................................108
STANDARDIZED YIELD QUOTATIONS.........................................116
MISCELLANEOUS.........................................................121
FINANCIAL STATEMENTS..................................................146
APPENDIX A............................................................A-1
APPENDIX B............................................................B-1
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STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
This Statement of Additional Information should be read in
conjunction with the Prospectuses of Armada Funds (the "Trust") that
describes: International Equity, Small Cap Value, Small Cap Growth, Equity
Growth, Tax Managed Equity, Core Equity, Equity Income, Total Return Advantage,
Mid Cap Growth, and Large Cap Ultra Funds, (collectively, the "Equity Funds");
the Balanced Allocation Fund; the Bond (formerly, the Intermediate Government
Fund), Intermediate Bond (formerly, the "Fixed Income Fund"), GNMA, Enhanced
Income and Government Income Funds, (collectively, the "Fixed Income Funds");
Ohio Municipal Money Market Fund, Pennsylvania Tax Exempt Money Market,
"Pennsylvania Tax Exempt Fund"), Tax Exempt Money Market, Money Market,
Government Money Market, and Treasury Money Market and Treasury Plus Money
Market Funds, (collectively, the "Money Market Funds"); Ohio Tax Exempt Bond,
Pennsylvania Municipal Bond, Michigan Municipal Bond and National Tax Exempt
Bond Funds; (collectively "The Funds"). The information contained in this
Statement of Additional Information expands upon matters discussed in the
Prospectuses. No investment in shares of a Fund should be made without first
reading the Prospectus for such Fund.
The Trust was organized as a Massachusetts business trust on
January 28, 1986. The Trust is a series fund authorized to issue the separate
classes or series of shares of beneficial interest.
The Pennsylvania Tax Exempt Fund commenced operations on
August 8, 1994 as a separate investment portfolio (the "Predecessor Fund") of
Inventor Funds, Inc, which was organized as a Maryland corporation. On September
9, 1996, the Predecessor Fund was reorganized as a new portfolio of the Trust.
Prior to the reorganization, the Predecessor Fund offered and sold shares of
stock that were similar to the Trust's Class A Shares of beneficial interest.
The Bond, GNMA and Pennsylvania Municipal Bond Funds commenced
operations on August 10, 1994 as separate investment portfolios (the
"Predecessor Intermediate Government Fund, "Predecessor GNMA Fund", and
Predecessor Pennsylvania Tax Exempt Bond Fund," collectively the "Predecessor
Funds") of Inventor Funds, Inc. which was organized as a Maryland corporation.
On September 9, 1996, the Predecessor Funds were reorganized as new portfolios
of Armada. Prior to the reorganization, the Predecessor Funds offered and sold
shares of stock that were similar to Armada's Class A Shares of beneficial
interest.
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<PAGE> 113
INVESTMENT OBJECTIVE AND POLICIES
---------------------------------
ADDITIONAL INFORMATION ON FUND MANAGEMENT
Further information on National City Investment Management
Company's ("IMC" or the "Adviser") 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"), Duff & Phelps Credit
Rating Co. ("Duff"), and Moody's Investors Service, Inc. ("Moody's") for
securities which may be held by the Funds.
ADDITIONAL INFORMATION ABOUT THE FUNDS
The following information supplements and should be read in
conjunction with the principal strategies and risk disclosure relating to the
Funds in the Prospectuses.
ARMADA INTERNATIONAL EQUITY FUND
The Fund seeks to achieve its investment objective by
investing, under normal market conditions, at least 80% of its total assets in
equity securities of foreign issuers. The Fund's assets normally will be
invested in the securities of issuers located in at least three foreign
countries. Foreign investments may also include debt obligations issued or
guaranteed by foreign governments or their agencies, authorities,
instrumentalities or political subdivisions, including a foreign state, province
or municipality. The Adviser does not presently intend to invest in common stock
of domestic companies.
The Fund will invest primarily in equity securities, including
common and preferred stocks, rights, warrants, securities convertible into
common stocks and American Depository Receipts ("ADRs") of companies included in
the Morgan Stanley Capital International Europe, Australia, Far East ("EAFE")
Index, a broadly diversified international index consisting of more than 1,000
equity securities of companies located in Australia, Austria, Belgium, Denmark,
Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Malaysia, the
Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland, and the
United Kingdom. The Fund, however, is not an "index" fund, and is neither
sponsored by nor affiliated with Morgan Stanley Capital International. The Fund
does not anticipate making investments in markets where, in the judgment of the
Adviser, property rights are not defined and supported by adequate legal
infrastructure.
More than 25% of the Fund's assets may be invested in the
securities of issuers located in the same country. Investment in a particular
country of 25% or more of the Fund's total assets will make the Fund's
performance more dependent upon the political and economic circumstances of that
country than a mutual fund more widely diversified among issuers in
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different countries. Criteria for determining the appropriate distribution of
investments among countries may include relative valuation, growth prospects,
and fiscal, monetary, and regulatory government policies. See "Additional
Information about Portfolio Instruments - Foreign Securities and Currencies"
below.
ARMADA SMALL CAP VALUE FUND
Under normal conditions, at least 80% of the value of the
Fund's total assets will be invested in equity securities of companies with
market capitalizations comparable to those of companies in the Russell 2000
Value Index. The Fund will be managed with a value approach, exhibiting
aggregate valuation characteristics such as price/earnings, price/book, and
price cash/flow ratios which are at a discount to the market averages.
Additional factors such as private market value, balance sheet strength, and
long term earnings potential are also considered in stock selection. See
"Special Risk Factors -- Small Capitalization Stocks" below.
ARMADA SMALL CAP GROWTH FUND
The Fund will normally invest at least 80% of its total assets in equity
securities of companies with stock market capitalizations comparable to that of
companies in the Russell 2000 Growth Index. The Adviser will seek companies with
above-average growth prospects. Factors considered in selecting such issuers
include participation in a fast growing industry, a strategic niche position in
a specialized market, and fundamental value. The Adviser will also consider the
relationship between price and book value, and other factors such as trading
volume and bid-ask spreads in an effort to allow the Fund to achieve
diversification. See "Special Risk Factors -- Small Capitalization Stocks"
below.
Special Risk Factors for Small Capitalization Stocks
Securities held by the Small Cap Value and Small Cap Growth
Funds generally will be issued by public companies with small capitalizations
relative to those which predominate the major market indices, such as the S&P's
500 or the Dow Jones Industrial Average. Securities of these small companies may
at times yield greater returns on investment than stocks of larger, more
established companies as a result of inefficiencies in the marketplace. Small
capitalization companies are generally not as well-known to investors and have
less of an investor following than larger companies.
However, the positions of small capitalization companies in
the market may be more tenuous because they typically are subject to a greater
degree of change in earnings and business prospects than larger, more
established companies. In addition, securities of small capitalization companies
are traded in lower volume than those of larger companies and may be more
volatile. As a result, the Funds may be subject to greater price volatility than
a fund consisting of large capitalization stocks. By maintaining a broadly
diversified portfolio, the sub-adviser will attempt to reduce this volatility.
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ARMADA EQUITY GROWTH FUND
Under normal conditions, at least 80% of the Fund's total
assets will be invested in a diversified portfolio of common stocks and
securities convertible into common stocks with large stock market
capitalizations. The Fund's Adviser selects common stocks based on a number of
factors, including historical and projected earnings growth, earnings quality
and liquidity, each in relation to the market price of the stock. Stocks
purchased for the Fund generally will be listed on a national securities
exchange or will be unlisted securities with an established over-the-counter
market.
ARMADA TAX MANAGED EQUITY FUND
The Fund invests primarily in common stocks. The Fund will use
several methods to reduce the impact of federal and state income taxes on
investment income and realized capital gains distributed by the Fund.
The Fund will seek to distribute relatively low levels of
taxable investment income by investing in stocks with low dividend yields.
The Fund will endeavor to hold taxes on realized capital gains
to a minimum by investing primarily in the securities of companies with above
average earnings predictability and stability which the Fund expects to hold for
several years. The Fund will generally seek to avoid realizing short-term
capital gains, and expects to have a relatively low overall portfolio turnover
rate. When the Fund sells appreciated securities, it will attempt to select the
share lots with the highest cost basis in order to hold realized capital gains
to a minimum. The Fund may, when consistent with its overall investment
approach, sell depreciated securities to offset realized capital gains.
Although the Fund expects to use some or all of the foregoing
methods in seeking to reduce the impact of federal and state income taxes on the
Fund's dividends and distributions, portfolio management decisions will also be
based on non-tax considerations when appropriate. Certain equity and other
securities held by the Fund will produce ordinary taxable income on a regular
basis. The Fund may also sell a particular security, even though it may realize
a short-term capital gain, if the value of that security is believed to have
reached its peak or is expected to decline before the Fund would have held it
for the long-term holding period. The Fund may also be required to sell
securities in order to generate cash to pay expenses or satisfy shareholder
redemptions.
Accordingly, while the Fund seeks to minimize the effect of
taxes on its dividends and distributions, the Fund is not a tax-exempt fund, and
may be expected to distribute taxable income and realize capital gains from time
to time.
Under normal conditions, at least 80% of the Fund's total
assets will be invested in common stocks and other equity securities. The Fund's
Adviser selects common stocks based on a number of factors, including historical
and projected long-term earnings growth, earnings
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quality and liquidity, each in relation to the market price of the stock. Stocks
purchased for the Fund generally will be listed on a national securities
exchange or will be unlisted securities with an established over-the-counter
market. The Fund may invest up to 5% of its net assets in each of the following
types of equity securities: preferred stocks; securities convertible into common
stocks; rights; and warrants.
The Fund's long-term investment horizon is reflected in its
low portfolio turnover investment approach. The portfolio turnover rate reflects
the frequency with which securities are purchased and sold within the Fund's
portfolio. The Fund's annual portfolio turnover is not expected to exceed 25%
under normal market conditions. (A rate of turnover of 100% could occur, for
example, if all the securities held by the Fund are replaced within a period of
one year.) When a Fund sells securities realizing gains, tax laws require that
such gains be distributed to investors every year. As a result, such investors
are taxed on their pro-rata shares of the gains. By attempting to minimize
portfolio turnover, the Fund will generally have a low turnover rate. It is
impossible to predict the impact of such a strategy on the realization of gains
or losses for the Fund. For example, the Fund may forego the opportunity to
realize gains or reduce losses as a result of this policy.
The Fund may be appropriate for investors who seek capital
appreciation and whose tax status under federal and state regulations increase
the importance of such strategies.
ARMADA CORE EQUITY FUND
The Fund seeks to achieve its objective by investing in a
diversified portfolio of common stocks of issuers with large capitalizations.
The Fund normally invests in three types of equity securities: (i) growth
securities, defined as common stocks having a five-year annual
earnings-per-share growth rate of 10% or more, with no decline in the annual
earnings-per-share rate during the last five years; (ii) securities with low
price-to-earnings ratios (i.e., at least 20% below the average of the companies
included in the S&P 500); and (iii) securities that pay high dividend yields
(i.e., at least 20% above such average). Under normal market conditions the Fund
will invest 20% to 50% of its total assets in each of these three types of
equity securities. The Fund is fully invested at all times.
The S&P 500 is an index composed of approximately 500 common
stocks, most of which are listed on the New York Stock Exchange (the "NYSE").
The Sub-adviser believes that the S&P 500 is an appropriate benchmark for the
Fund because it is diversified, familiar to many investors and widely accepted
as a reference for common stock investments.
Standard & Poor's Ratings Group is not a sponsor of, or in any
way affiliated with, the Fund.
ARMADA EQUITY INDEX FUND
The S&P 500 is composed of approximately 500 common stocks,
most of which are listed on the NYSE. S&P selects the stocks for the S&P 500 on
a statistical basis. As of
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May 31, 1999, the stocks in the S&P 500 had an average market capitalization of
____ and the total market capitalization of all U.S. common stocks was ____
trillion. "Market capitalization" of a company is the market price per share of
stock multiplied by the number of shares outstanding. The Adviser believes that
the S&P 500 is an appropriate benchmark for the Fund because it is diversified,
familiar to many investors and widely accepted as a reference for common stock
investments.
Under normal circumstances, the Fund will invest substantially
all of its total assets in the stocks that comprise the S&P 500 in approximately
the same percentages as the stocks represent in the index. The Fund may also
acquire derivative instruments designed to replicate the performance of the S&P
500, such as S&P 500 stock index futures contracts or Standard & Poor's
Depository Receipts. The Fund may invest in all the approximately 500 stocks
comprising the S&P 500, or it may use a statistical sampling technique by
selecting approximately 90% of the stocks listed in the index. The Fund will
only purchase a security that is included in the S&P 500 at the time of such
purchase. The Fund, may, however, temporarily continue to hold a security that
has been deleted from the S&P 500 pending the rebalancing of the Fund's
portfolio. The Fund is not required to buy or sell securities solely because the
percentage of its assets invested in index stocks changes when the market value
of its holdings increases or decreases. In addition, the Fund may omit or remove
an index stock from its portfolio if the Adviser believes the stock to be
insufficiently liquid or believes the merit of the investment has been
substantially impaired by extraordinary events or financial conditions. With
respect to the remaining portion of its net assets, the Fund may hold temporary
cash balances which may be invested in U.S. government obligations and money
market investments. In extraordinary circumstances, the Fund may exclude a stock
listed on the index from its holdings or include a similar stock in its place if
it believes that doing so will help achieve its investment objective. The Fund
also may enter into repurchase agreements, reverse repurchase agreements, and
lend its portfolio securities.
While there can be no guarantee that the Fund's investment
results will precisely match the results of the S&P 500, the Adviser believes
that, before deduction of operating expenses, there will be a very high
correlation between the returns generated by the Fund and the S&P 500. The Fund
will attempt to achieve a correlation between the performance of its asset
portfolio and that of the S&P 500 of at least 95% before deduction of operating
expenses. A correlation of 100% would indicate perfect correlation, which would
be achieved when the Fund's net asset value, including the value of its dividend
and capital gains distributions, increases or decreases in exact proportion to
changes in the index. The Fund's ability to correlate its performance with the
S&P 500, however, may be affected by, among other things, changes in securities
markets, the manner in which S&P calculates its index, and the timing of
purchases and redemptions. The Adviser monitors the correlation of the
performance of the Fund in relation to the index under the supervision of the
Board of Trustees. The Fund intends to actively rebalance its portfolio to
achieve high correlation of performance with the S&P 500. To reduce transaction
costs and minimize shareholders' current capital gains liability, the Fund's
investment portfolio will not be automatically rebalanced to reflect changes in
the S&P 500. In the unlikely event that a high correlation is not achieved, the
Board of Trustees will take appropriate steps based on the reasons for the lower
than expected correlation.
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The Indexing Approach
The Fund is not managed in a traditional sense, that is, by
making discretionary judgments based on analysis of economic, financial and
market conditions. Under ordinary circumstances, stocks will only be eliminated
from or added to the Fund to reflect additions to or deletions from the S&P 500
(including mergers or changes in the composition of the index), to raise cash to
meet withdrawals, or to invest cash contributions. Accordingly, sales may result
in losses that may not have been realized if the Fund were actively managed and
purchases may be made that would not have been made if the Fund were actively
managed. Adverse events, such as reported losses, dividend cuts or omissions,
legal proceedings and defaults will not normally result in the sale of a common
stock. The Fund will remain substantially fully invested in common stocks and
equity derivative instruments whether stock prices are rising or falling.
The Adviser believes that the indexing approach should involve
less portfolio turnover, notwithstanding periodic additions to and deletions
from the S&P 500, and thus lower brokerage costs, transfer taxes and operating
expenses, than in more traditionally managed funds, although there is no
assurance that this will be the case. The costs and other expenses incurred in
securities transactions, apart from any difference between the investment
results of the Fund and those of the S&P 500, may cause the return of the Fund
to be lower than the return of the index.
The inclusion of a security in the S&P 500 in no way implies
an opinion by S&P as to its attractiveness as an investment. S&P is not a
sponsor of, or in any way affiliated with, the Fund.
The common stock of National City Corporation, the parent
company of the Adviser, is included in the S&P 500. Like the other stocks in the
S&P 500, the Fund will invest in the common stock of National City Corporation
in approximately the same proportion as the percentage National City Corporation
common stock represents in the S&P 500. As of May 31, 1999, National City
Corporation common stock represented 0.___% of the index.
ARMADA EQUITY INCOME FUND
Under normal conditions, at least 80% of the value of the
Fund's total assets will be invested in income-producing common stocks and
securities convertible into common stocks assigned a rating of Ba/BB or higher
by Moody's, S&P, Fitch or Duff. The Fund's Adviser will generally attempt to
select securities that provide a higher yield than that of the general market
and will generally dispose of securities whose yields approach a market yield or
that otherwise fail to satisfy investment criteria.
ARMADA BALANCED ALLOCATION FUND
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,
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<PAGE> 119
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 total
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 or Duff (defined under "Ratings Criteria" below). 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 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.
ARMADA TOTAL RETURN ADVANTAGE FUND
The Fund will normally invest at least 80% of the value of its
total assets in debt securities of all types, although up to 20% of the value of
its total assets may be invested in preferred stocks and other investments.
Under normal market conditions, the Fund maintains an average dollar-weighted
portfolio maturity of four to twelve years.
Although the Total Return Advantage Fund normally invests
substantially all of its assets in investment grade debt securities, it may
invest up to 15% of its net assets in non-rated securities and securities rated
below investment grade (commonly referred to as "junk bonds"). For a discussion
of risk factors relating to such securities, see "Risks Related to Lower Rated
Securities Which May Be Purchased by the Total Return Advantage Fund." See
"Additional Information about Portfolio Instruments - Risks Related to Lower
Rated Securities Which May Be Purchased by the Total Return Advantage Fund."
ARMADA BOND FUND
The Fund seeks to achieve this objective by investing at least
80% of its total assets in investment grade fixed-income securities. The Fund
uses the Lehman Aggregate Bond
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Index ("Lehman Aggregate") as its performance benchmark. The average maturity of
the Fund will be from four to twelve years.
ARMADA INTERMEDIATE BOND FUND
The Fund normally invests at least 80% of the value of its
total assets in debt securities of all types, although up to 20% of the value of
its total assets may be invested in preferred stocks and other investments.
Under normal market conditions, the Fund maintains an average dollar-weighted
portfolio maturity of two to ten years. The Fund uses the Lehman Intermediate
Government/Corporate Bond Index as its performance benchmark.
ARMADA GNMA FUND
The Fund seeks to achieve this objective by investing
primarily (at least 80% of its total assets under normal conditions) in mortgage
pass-through securities guaranteed by the Government National Mortgage
Association (GNMA). Any remaining assets may consist of other investment grade
fixed income securities. GNMA was established as an instrumentality of the U.S.
government to supervise and finance certain types of activities. Under normal
market conditions, the estimated average life of the GNMA Fund's holdings of
mortgage pass-through and mortgage-backed securities will range between 2 and 10
years. The Fund employs the Lehman GNMA Index as its performance benchmark.
ARMADA ENHANCED INCOME FUND
The Fund will normally invest at least 80% of the value of its
total assets in investment grade debt securities of all types. However, up to
20% of the value of its total assets may be invested in preferred stocks and
other investments. In making investment decisions, the Fund's adviser will focus
on a number of factors, including yield to maturity, maturity, quality and the
outlook for specific issuers and market sectors. Under normal market conditions,
the Fund intends to maintain an average dollar-weighted portfolio maturity for
its debt securities of from 1 to 5 years. The two components of total rate of
return are current income and change in the value of portfolio securities. The
Merrill Lynch 1-3 Year Treasury Index is composed of Treasury Securities that
mature in one to three years. The average dollar-weighted maturity of the Index
is generally from 2-1/2 to 3 years. The Index is unmanaged, and its total rate
of return does not reflect the expenses that a mutual fund normally incurs. The
Fund's objective refers to a return after deduction of Fund expenses.
ARMADA OHIO TAX EXEMPT BOND FUND
The Fund seeks to achieve its objective by investing
substantially all of its assets in a portfolio of obligations issued by or on
behalf of states, territories and possessions of the United States, the District
of Columbia and their political subdivisions, agencies, instrumentalities and
authorities, the interest on which, in the opinion of counsel issued on the date
of the issuance thereof, is exempt from regular federal income tax (Municipal
Securities).
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Under normal market conditions, at least 80% of the value of
the Fund's total assets will be invested in Municipal Securities. This policy is
fundamental and may not be changed without the affirmative vote of the holders
of a majority of the Fund's outstanding shares (as defined under "Shareholder
Vote" below). In addition, under normal market conditions, at least 80% of the
value of the Fund's total assets will be invested in Municipal Securities issued
by or on behalf of the State of Ohio, political subdivisions thereof, or
agencies or instrumentalities of the State or its political subdivisions (Ohio
Municipal Securities). Dividends paid by the Fund which are derived from
interest properly attributable to Ohio Municipal Securities will be exempt from
regular federal income tax and Ohio personal income tax. Dividends derived from
interest on Municipal Securities of other governmental issuers will be exempt
from regular federal income tax but may be subject to Ohio personal income tax.
See "Additional Tax Information Concerning the Ohio Tax Exempt Bond Fund."
ARMADA PENNSYLVANIA MUNICIPAL BOND FUND
The Fund seeks to achieve its objective by investing
substantially all of its assets in Municipal Securities issued by or on behalf
of the Commonwealth of Pennsylvania and its political subdivisions and financing
authorities, obligations of the United States, including territories and
possessions of the United States, the income from which is, in the opinion of
counsel, exempt from regular federal income tax and Pennsylvania state income
tax imposed upon non-corporate taxpayers, and securities of money market
investment companies that invest primarily in such securities (Pennsylvania
Municipal Securities).
Under normal market conditions, the Fund will be fully
invested in Pennsylvania Municipal Securities. This policy is fundamental and
may not be changed without the affirmative vote of the holders of a majority of
the Fund's outstanding shares (as defined under "Shareholder Vote"). Dividends
paid by the Fund which are derived from interest properly attributable to
Pennsylvania Municipal Securities will be exempt from regular federal income tax
and Pennsylvania personal income tax. Dividends derived from interest on
Municipal Securities of other governmental issuers will be exempt from regular
federal income tax but may be subject to Pennsylvania personal income tax. See
"Additional Tax Information concerning the Pennsylvania Municipal Bond Fund").
ARMADA NATIONAL TAX EXEMPT FUND
Under normal market conditions, at least 80% of the value of
the Fund's total assets will be invested in Municipal Securities. This policy is
fundamental and may not be changed without the affirmative vote of the holders
of a majority of the Fund's outstanding shares (as defined under "Shareholder
Vote").
Armada Ohio Tax Exempt Bond, Pennsylvania Municipal Bond and National
Tax Exempt Bond Funds
Although each Fund's average weighted maturity will vary in
light of current market and economic conditions, the comparative yields on
instruments with different maturities, and other factors, the Ohio Tax Exempt
Bond and Pennsylvania Municipal Bond and National Tax Exempt Bond Funds
anticipate that they will maintain a dollar-weighted average portfolio maturity
of two to ten years.
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For temporary defensive or liquidity purposes when, in the
opinion of the Funds' adviser, Ohio Municipal Securities or Pennsylvania
Municipal Securities of sufficient quality, as the case may be, are not readily
available, the Ohio Tax Exempt Bond and Pennsylvania Municipal Bond Funds may
invest up to 100% of their assets in other Municipal Securities and in taxable
securities.
All Funds may hold up to 100% of their assets in uninvested
cash reserves, pending investment, during temporary defensive periods; however,
uninvested cash reserves will not earn income.
Each Fund may invest in other investments as described below
under "Other Investment Policies" including stand-by commitments, variable and
floating rate obligations, certificates of participation, other investment
companies, illiquid securities, Taxable Money Market Instruments (as defined
below), zero coupon obligations and repurchase agreements and engage in
when-issued transactions.
Special Risk Considerations
Armada Ohio Tax Exempt Bond, Pennsylvania Municipal Bond, National Tax
Exempt Bond Funds
The Ohio Tax Exempt and Pennsylvania Tax Exempt Bond Funds are
classified as non-diversified under the 1940 Act. Investment return on a
non-diversified portfolio typically is dependent upon the performance of a
smaller number of securities relative to the number held in a diversified
portfolio. Consequently, the change in value of any one security may affect the
overall value of a non-diversified portfolio more than it would a diversified
portfolio, and thereby subject the market-based net asset value per share of the
non-diversified portfolio to greater fluctuations. In addition, a
non-diversified portfolio may be more susceptible to economic, political and
regulatory developments than a diversified investment portfolio with similar
objectives may be.
Although (i) all of the Funds may invest 25% or more of their
respective net assets in Municipal Securities the interest on which is paid
solely from revenues of similar projects, (ii) the Ohio Tax Exempt Bond and
National Tax Exempt Bond Funds may invest up to 20% of their respective total
assets in private activity bonds (described below) and taxable investments,
(iii) the Pennsylvania Municipal Bond Fund may invest up to 100% of its total
assets in Pennsylvania private activity bonds and (iv) the National Tax Exempt
Fund Bond may invest 25% or more of its net assets in Municipal Securities whose
issues are in the same state, the Funds do not presently intend to do so unless,
in the opinion of the adviser, the investment is warranted. To the extent that a
Fund's assets are invested in such investments, the Fund will be subject to the
peculiar risks presented by the laws and economic conditions relating to such
projects and private activity bonds to a greater extent than it would be if its
assets were not so invested.
See "Municipal Securities"," "Special Considerations Regarding
Investment in Ohio Municipal Securities," and "Special Considerations Regarding
Investment in Pennsylvania Municipal Securities" below.
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ARMADA OHIO MUNICIPAL MONEY MARKET FUND
The Fund seeks to achieve its objective by investing
substantially all of its assets in Municipal Securities (defined below) issued
by or on behalf of the State of Ohio, political subdivisions thereof or agencies
or instrumentalities of the State or its political subdivisions (Ohio Municipal
Securities).
Under normal market conditions, at least 80% of the value of
the Fund's total assets will be invested in Ohio Municipal Securities. This
policy is fundamental and may not be changed without the affirmative vote of the
holders of a majority of the Fund's outstanding shares (as defined under
"Shareholder Vote"). Dividends paid by the Fund which are derived from interest
properly attributable to Ohio Municipal Securities will be exempt from regular
federal income tax and Ohio personal income tax. Dividends derived from interest
on Municipal Securities of other governmental issuers will be exempt from
regular federal income tax but may be subject to Ohio personal income tax. The
Fund may invest up to 100% of its assets in Municipal Securities known as
private activity bonds (described below) the interest on which is an item of tax
preference for purposes of the federal alternative minimum tax ("AMT Paper").
The Fund may also invest up to 100% of its assets in non-Ohio Municipal
Securities and in taxable securities, during temporary defensive periods when,
in the opinion of the Adviser, Ohio Municipal Securities of sufficient quality
are unavailable.
The Ohio Municipal Money Market Fund is concentrated in
securities issued by the State of Ohio or entities within the State of Ohio, and
therefore, investment in the Fund may be riskier than an investment in other
types of money market funds.
See "Special Risk Considerations of the- Ohio Municipal Money
Market Fund" below.
ARMADA PENNSYLVANIA TAX EXEMPT MONEY MARKET FUND
The Fund seeks to achieve its objective by investing
substantially all of its assets in Municipal Securities defined below issued by
or on behalf of the Commonwealth of Pennsylvania and its political subdivisions
and financing authorities, and obligations of the United States, including
territories and possessions of the United States, the income from which, in the
opinion of bond counsel, is exempt from regular federal income tax and
Pennsylvania income tax imposed upon non-corporate taxpayers (Pennsylvania
Municipal Securities).
As a matter of fundamental policy, the Fund invests its assets
so that at least 80% of its annual interest income is not only exempt from
regular federal income tax and Pennsylvania personal income taxes, but is not
considered a preference item for purposes of the federal alternative minimum
tax. However, the Fund may invest up to 100% of its assets in non-Pennsylvania
Municipal Securities and in taxable securities, during temporary defensive
periods when, in the opinion of the Adviser, Pennsylvania Municipal Securities
of sufficient quality are unavailable.
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The Pennsylvania Tax Exempt Money Market Fund is concentrated
in securities issued by the Commonwealth of Pennsylvania or entities within the
Commonwealth of Pennsylvania, and therefore, investment in the Fund may be
riskier than an investment in other types of money market funds.
See "Special Risk Considerations of the Pennsylvania Tax
Exempt Money Market Fund" below.
ARMADA TAX EXEMPT MONEY MARKET FUND
The Fund seeks to achieve its objective by investing
substantially all of its assets in a diversified fund of obligations issued by
or on behalf of states, territories and possessions of the United States, the
District of Columbia and their political subdivisions, agencies,
instrumentalities and authorities, the income from which, in the opinion of bond
counsel, is exempt from regular federal income tax ("Municipal Securities").
Under normal market conditions, at least 80% of the value of
the Tax Exempt Money Market Fund's total assets will be invested in Municipal
Securities. This policy is fundamental and may not be changed without the
affirmative vote of the holders of a majority of the Fund's outstanding shares.
See "Special Risk Considerations of the Tax Exempt Money
Market Fund."
Special Risk Considerations -- Ohio Municipal Money Market,
Pennsylvania Tax Exempt Money Market and the Tax Exempt Money Market Funds
Although the Tax Exempt Money Market Fund may invest 25% or
more of its net assets in Municipal Securities whose issuers are in the same
state and the Ohio Municipal Money Market, Pennsylvania Tax Exempt Money Market
and Tax Exempt Money Market Funds may invest 25% or more of their respective net
assets in Municipal Securities the interest on which is paid solely from
revenues of similar projects, the Funds do not presently intend to do so unless
in the opinion of the Adviser the investment is warranted. The Ohio Municipal
Money Market Fund may invest up to 100% of its assets in private activity bonds.
In addition, although the Pennsylvania Tax Exempt Money Market and Tax Exempt
Money Market Funds may invest up to 20% of their respective total assets in
private activity bonds (described below) and taxable investments, these Funds do
not currently intend to do so unless in the opinion of the Adviser the
investment is warranted. To the extent that a Fund's assets are invested in
Municipal Securities that are payable from the revenues of similar projects or
are issued by issuers located in the same state or are invested in private
activity bonds, the Fund will be subject to the peculiar risks presented by the
laws and economic conditions relating to such states, projects and bonds to a
greater extent than it would be if its assets were not so invested.
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ARMADA MONEY MARKET FUND
The Fund seeks to achieve its objective by investing in "money
market" instruments such as certificates of deposit and other obligations issued
by domestic and foreign banks, and commercial paper (including variable and
floating rate instruments) rated high quality by an unaffiliated Rating Agency,
or determined to be of comparable quality by the Adviser. The Money Market Fund
may also invest in obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities, and repurchase agreements issued by financial
institutions such as banks and broker-dealers.
ARMADA GOVERNMENT MONEY MARKET FUND
The Fund seeks to achieve its objective by investing in
obligations issued or guaranteed as to payment of principal and interest by the
U.S. government, its agencies or instrumentalities, and repurchase agreements
issued by financial institutions such as banks and broker-dealers. The Fund is
currently rated by S&P.
ARMADA TREASURY MONEY MARKET FUND
The Fund seeks to achieve its objective by investing
exclusively in direct obligations of the U.S. Treasury, such as Treasury bills
and notes, and investment companies that invest exclusively in such obligations.
The Fund is currently rated by S&P.
ARMADA MID CAP GROWTH FUND
Under normal market conditions, the Fund will invest at least
80% of the value of its total assets in common stocks and securities convertible
into common stocks of companies believed by the Adviser to be characterized by
sound management and the ability to finance expected long-term growth. Under
normal market conditions, the Fund will invest at least 80% of the value of its
total assets in common stocks and securities convertible into common stocks of
companies with market capitalizations comparable to companies in the Russell Mid
Cap Growth Index. The Fund may also invest up to 20% of the value of its total
assets in preferred stocks, corporate bonds, notes, units of real estate
investment trusts, warrants, and short-term obligations (with maturities of 12
months or less) consisting of commercial paper (including variable amount master
demand notes), bankers' acceptances, certificates of deposit, repurchase
agreements, obligations issued or guaranteed by the U.S. government or, its
agencies or instrumentalities, and demand and time deposits of domestic and
foreign banks and savings and loan associations. The Fund may also hold
securities of other investment companies and depository or custodial receipts
representing beneficial interests in any of the foregoing securities.
Subject to the foregoing policies, the Fund may also invest up
to 25% of its net assets in foreign securities either directly or through the
purchase of American Depository Receipts ("ADRs"), European Depository Receipts
("EDRs"), Global Depository Receipts ("GDRs") and other similar global
instruments, and may also invest in securities issued by
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foreign branches of U.S. banks and foreign banks, Canadian commercial paper and
in U.S. dollar-denominated commercial paper of a foreign issuer.
The Fund anticipates investing in growth-oriented,
medium-sized companies. Medium-sized companies are considered to be those with a
market capitalization comparable to companies in the Russell Mid Cap Growth
Index. Investments will be in companies that have typically exhibited
consistent, above-average growth in revenues and earnings, strong management,
and sound and improving financial fundamentals. Often, these companies are
market or industry leaders, have excellent products and/or services, and exhibit
the potential for growth. Primary holdings of the Fund are in companies that
participate in long-term growth industries, although these will be supplemented
by holdings in non-growth industries that exhibit the desired characteristics.
Consistent with the foregoing, the Fund will focus its
investments in those companies and types of companies that the Adviser believes
will enable the Fund to achieve its investment objective.
ARMADA LARGE CAP ULTRA FUND
Under normal market conditions, the Large Cap Ultra Fund will
invest at least 80% of the value of its total assets in common stocks and
securities convertible into common stocks of companies believed by the
Investment Adviser to be characterized by sound management and the ability to
finance expected long-term growth and with market capitalizations comparable to
companies in the Standard & Poor's Barra Growth Index. The Large Cap Ultra Fund
may also invest up to 20% of the value of its total assets in preferred stocks,
corporate bonds, notes, units of real estate investment trusts, warrants, and
short-term obligations (with maturities of 12 months or less) consisting of
commercial paper (including variable amount master demand notes), bankers'
acceptances, certificates of deposit, repurchase agreements, obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities, and
demand and time deposits of domestic and foreign banks and savings and loan
associations. The Large Cap Ultra Fund may also hold securities of other
investment companies and depository or custodial receipts representing
beneficial interests in any of the foregoing securities.
Subject to the foregoing policies, the Large Cap Ultra Fund
may also invest up to 25% of its net assets in foreign securities either
directly or through the purchase of American depository receipts ("ADRs") or
European depository receipts ("EDRs") and may also invest in securities issued
by foreign branches of U.S. banks and foreign banks, CCP, and in U.S.
dollar-denominated commercial paper of a foreign issuer.
The Large Cap Ultra Fund anticipates investing in
growth-oriented companies with large market capitalization, defined as
capitalization comparable to companies in the Standard & Poor's Barra Growth
Index. The Large Cap Ultra Fund will invest in companies that have typically
exhibited consistent, above-average growth in revenues and earnings, strong
management, and sound and improving financial fundamentals. Often, these
companies are
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market or industry leaders, have excellent products and/or services, and exhibit
the potential for growth. Core holdings of the Large Cap Ultra Fund are in
companies that participate in long-term growth industries, although these will
be supplemented by holdings in non-growth industries that exhibit the desired
characteristics.
Consistent with the foregoing, the Large Cap Ultra Fund will
focus its investments in those companies and types of companies that the
Investment Adviser believes will enable such Fund to achieve its investment
objective.
ARMADA U.S. GOVERNMENT INCOME FUND
Under normal market conditions, the Fund will invest at least
65% of its total assets in obligations issued or guaranteed by the U.S.
government or its agencies or instrumentalities, although up to 35% of the value
of its total assets may be invested in debt securities and preferred stocks of
non-governmental issuers. Consistent with the foregoing, under current market
conditions, the Fund intends to invest up to 80% of the value of its total
assets in mortgage-related securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities. The Fund also may invest up to
35% of its total assets in mortgage-related securities issued by
non-Governmental entities and in other securities described below. The Fund
anticipates that it will acquire securities with average remaining maturities of
2 to 10 years.
The types of U.S. government obligations, including
mortgage-related securities, invested in by the Fund will include obligations
issued or guaranteed as to payment of principal and interest by the full faith
and credit of the U.S. Treasury, such as Treasury bills, notes and bonds,
Stripped Treasury Obligations and government securities.
The Fund may also hold short-term obligations (with maturities
of 12 months or less) consisting of domestic and foreign commercial paper
(including variable amount master demand notes), rated at the time of purchase
within the top two rating categories assigned by a Rating Agency or, if unrated,
which the Adviser deems present attractive opportunities and are of comparable
quality, bankers' acceptances, certificates of deposit and time deposits of
domestic and foreign branches of U.S. banks and foreign banks, and repurchase
and reverse repurchase agreements. The Fund may also invest in corporate debt
securities which are rated at the time of purchase within the top four rating
categories assigned by a Rating Agency or, if unrated, which the Adviser deems
present attractive opportunities and are of comparable quality.
ARMADA MICHIGAN MUNICIPAL BOND FUND
Under normal market conditions and as a fundamental policy, at
least 80% of the net assets of the Michigan Municipal Bond Fund will be invested
in a portfolio of securities exempt from Michigan State taxes. The Fund may
invest up to 20% of its assets in private activity bonds which may be treated as
a special tax preference item under the federal alternative minimum tax.
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"Michigan Municipal Securities" include debt obligations,
consisting of notes, bonds and commercial paper, issued by or on behalf of the
State of Michigan, its political subdivisions, municipalities and public
authorities, the interest on which is, in the opinion of bond counsel to the
issuer, exempt from federal income tax and Michigan state income taxes (but may
be treated as a preference item for individuals for purposes of the federal
alternative minimum tax) and debt obligations issued by the government of Puerto
Rico, the U.S. territories and possessions of Guam, the U.S. Virgin Islands or
such other governmental entities whose debt obligations, either by law or
treaty, generate interest income which is exempt from federal and Michigan state
income taxes.
Under normal market conditions, at least 65% of the net assets
of the Fund will be invested in Michigan Municipal Securities consisting of
bonds and notes with remaining maturities at the time of purchase of one year or
more. Quality is the primary consideration in selecting Michigan Municipal
Securities for investment by the Fund.
The Fund intends that, under normal market conditions, it will
be invested in long-term Michigan Municipal Securities and that the average
weighted maturity of such investments will be 2 to 10 years, although the Fund
may invest in Michigan Municipal Securities of any maturity and the Adviser may
extend or shorten the average weighted maturity of its portfolio depending upon
anticipated changes in interest rates or other relevant market factors. In
addition, the average weighted rating of the Fund's portfolio may vary depending
upon the availability of suitable Michigan Municipal Securities or other
relevant market factors.
The Fund invests in Michigan Municipal Securities which are
rated at the time of purchase within the four highest rating categories assigned
by a Rating Agency or, in the case of notes, tax-exempt commercial paper or
variable rate demand obligations, rated within the two highest rating categories
assigned by a Rating Agency. The Fund may also purchase Michigan Municipal
Securities which are unrated at the time of purchase but are determined to be of
comparable quality by the Adviser pursuant to guidelines approved by the Trust's
Board of Trustees. The applicable Michigan Municipal Securities ratings are
described in Appendix A.
Interest income from certain types of municipal securities may
be subject to federal alternative minimum tax. The Fund will not treat these
bonds as "Michigan Municipal Securities" for purposes of measuring compliance
with the 80% and 65% tests described above. To the extent the Fund invests in
these bonds, individual shareholders, depending on their own tax status, may be
subject to alternative minimum tax on that part of the Fund's distributions
derived from these bonds.
The Fund may invest in taxable obligations if, for example,
suitable tax-exempt obligations are unavailable or if acquisition of U.S.
government or other taxable securities is deemed appropriate for temporary
defensive purposes as determined by the Adviser to be warranted due to market
conditions. Such taxable obligations consist of government securities,
certificates of deposit, time deposits and bankers' acceptances of selected
banks, commercial paper meeting the Fund's quality standards for tax-exempt
commercial paper (as described above), and such taxable obligations as may be
subject to repurchase agreements. These
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obligations are described further in the Statement of Additional Information.
Under such circumstances and during the period of such investment, the Fund may
not achieve its stated investment objective.
Because the Fund invests primarily in securities issued by the
State of Michigan and its political subdivisions, municipalities and public
authorities, the Fund's performance is closely tied to the general economic
conditions within the State as a whole and to the economic conditions within
particular industries and geographic areas represented or located within the
State. However, the Fund attempts to diversify, to the extent the Adviser deems
appropriate, among issuers and geographic areas in the State of Michigan.
The Fund is classified as a "non-diversified" investment
company, which means that the amount of assets of the Fund that may be invested
in the securities of a single issuer is not limited by the 1940 Act.
Nevertheless, the Fund intends to conduct its operations so as to qualify as a
"regulated investment company" for purposes of the Internal Revenue Code of
1986, as amended (the "Code"). The Code requires that, at the end of each
quarter of a fund's taxable year, (i) at least 50% of the market value of its
total assets be invested in cash, U.S. government securities, securities of
other regulated investment companies and other securities, with such other
securities of any one issuer limited for the purposes of this calculation to an
amount not greater than 5% of the value of the fund's total assets and 10% of
the outstanding voting securities of such issuer, and (ii) not more than 25% of
the value of its total assets be invested in the securities of any one issuer
(other than U.S. government securities or the securities of other regulated
investment companies). Since a relatively high percentage of the Fund's assets
may be invested in the obligations of a limited number of issuers, some of which
may be within the same economic sector, the Fund's portfolio securities may be
more susceptible to any single economic, political or regulatory occurrence than
the portfolio securities of a diversified investment company.
See "Special Considerations Regarding Investment in Michigan
Municipal Securities" below.
ARMADA TREASURY PLUS MONEY MARKET FUND
The Fund will only purchase "eligible securities" that present
minimal credit risks as determined by the Adviser pursuant to guidelines
established by the Trust's Board of Trustees. Eligible securities generally
include (i) U.S. government obligations, (ii) securities that are rated (at the
time of purchase) by nationally recognized statistical rating organizations
("Rating Agencies") in the two highest rating categories for such securities,
and (iii) certain securities that are not so rated but are of comparable quality
to rated securities as determined by the Adviser. A description of ratings is
also contained in the Statement of Additional Information.
The Fund's assets have remaining maturities of 397 calendar
days or less (except for certain variable and floating rate instruments and
securities underlying certain repurchase agreements) as defined by the SEC, and
the Fund's dollar-weighted average portfolio maturity may not exceed 90 days.
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RATINGS CRITERIA
The Balanced Allocation and Michigan Municipal Bonds Fund may
invest in investment grade debt securities which are rated at the time of
purchase within the four highest ratings groups assigned by Moody's (Aaa, Aa, A
and Baa), S&P (AAA, AA, A and BBB), Fitch (AAA, AA, A and BBB) or Duff (AAA, AA,
A and BBB), or, if unrated, which are determined by the 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 or Duff) have speculative characteristics;
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity to make principal and interest payments than is the case
with higher grade securities.
In the event that, subsequent to its purchase by a 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 a Fund's net
assets where the Adviser has determined that such sale is in the best interest
of the particular Fund.
SHAREHOLDER VOTE
As used in this Statement of Additional Information, 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 shows 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.
ADDITIONAL INFORMATION ABOUT PORTFOLIO INSTRUMENTS
ELIGIBLE SECURITIES
The Money Market Funds may purchase "eligible securities" that
present minimal credit risks as determined by the Adviser pursuant to guidelines
established by the Trust's Board of Trustees. Eligible securities generally
include: (1) securities that are rated by two or more Rating Agencies (or the
only Rating Agency which has issued a rating) in one of the two highest rating
categories for short term debt securities; (2) securities that have no short
term rating, if the issuer has other outstanding short term obligations that are
comparable in priority and security as determined by the Adviser ("Comparable
Obligations") and that have been rated in accordance with (1) above; (3)
securities that have no short term rating, but are determined to be of
comparable quality to a security satisfying (1) or (2) above, and the issuer
does not have Comparable Obligations rated by a Rating Agency; and (4)
securities with credit supports that meet specified rating criteria similar to
the foregoing and other criteria in accordance with
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applicable Securities and Exchange Commission ("SEC") regulations. Securities
issued by a money market fund and securities issued by the U.S. Government may
constitute eligible securities if permitted under applicable SEC regulations and
Trust procedures. The Board of Trustees will approve or ratify any purchases by
the Money Market Funds of securities that are rated by only one Rating Agency or
that qualify under (3) above as long as required by applicable regulations or
Trust procedures.
VARIABLE AND FLOATING RATE INSTRUMENTS
Each Fund (other than the Equity Index, Treasury Money Market
and Treasury Plus Money Market Funds) 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, a Fund may
demand payment of principal and accrued interest at a time specified in the
instrument or may resell them to a third party. Such obligations may be backed
by bank letters of credit or guarantees issued by banks, other financial
institutions or the U.S. Government, its agencies or instrumentalities. The
quality of any letter of credit or guarantee will be rated high quality or, if
unrated, 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, a Fund might be unable to dispose of the instrument because
of the absence of a secondary market and could, for this or other reasons,
suffer a loss to the extent of the default.
The Funds may purchase variable rate and floating rate
obligations as described in the Prospectuses. The Adviser will consider the
earning power, cash flows and other liquidity ratios of the issuers and
guarantors of such notes and will continuously monitor their financial status to
meet payment on demand. In determining average weighted portfolio maturity, a
variable or floating rate instrument issued or guaranteed by the U.S. government
or an agency or instrumentality thereof will be deemed to have a maturity equal
to the period remaining until the obligation's next interest rate adjustment.
Other variable and floating rate obligations will be deemed to have a maturity
equal to the longer or shorter of the periods remaining to the next interest
rate adjustment or the demand notice period in accordance with applicable
regulations or Trust procedures.
Variable and floating rate obligations held by a Fund may have
maturities of more than 397 days, provided: (a) (i) the Fund is entitled to
payment of principal and accrued interest upon not more than 30 days' notice or
at specified intervals not exceeding one year (upon not more than 30 days'
notice) and (ii) the rate of interest on such instrument is adjusted
automatically at periodic intervals which normally will not exceed 31 days, but
may extend up to one year, or (b) if the obligation is an asset-backed security,
and if permitted under Trust
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procedures and applicable regulations, the security has a feature permitting the
holder unconditionally to receive principal and interest within 13 months of
making demand.
GUARANTEED INVESTMENT CONTRACTS
The International Equity, Small Cap Value, Small Cap Growth,
Equity Growth, Tax Managed Equity, Core Equity, Equity Income, Balanced
Allocation, Total Return Advantage, Intermediate Bond and Enhanced Income Funds
and the Money Market Funds may make limited investments in "GICs" issued by U.S.
insurance companies. When investing in "GICs" a Fund makes cash contributions to
a deposit fund or an insurance company's general account. The insurance company
then credits to that Fund monthly a guaranteed minimum interest which is based
on an index. The GICs provide that this guaranteed interest will not be less
than a certain minimum rate. The insurance company may assess periodic charges
against a GIC for expense and service costs allocable to it, and the charges
will be deducted from the value of the deposit fund. A Fund will purchase a GIC
only when its Adviser or Sub-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. For the Money Market Fund, the Fund's
investments in GICs will not exceed 10% of the Fund's net assets. In addition,
because each 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%, 10% in the case of the Money Market
Fund of the Fund's net assets.
The term of a GIC will be one year or less. In determining
average weighted portfolio maturity, a GIC will be deemed to have a maturity
equal to the period of time remaining until the next readjustment of the
guaranteed interest rate.
BANK OBLIGATIONS AND COMMERCIAL PAPER
The Ohio Municipal Money Market, Pennsylvania Tax Exempt Money
Market, Money Market, Mid Cap Growth and Michigan Municipal Bond Funds may
invest in bank obligations. Bank obligations include bankers' acceptances
generally having a maturity of six months or less and negotiable certificates of
deposit. Bank obligations also include U.S. dollar denominated bankers'
acceptances and certificates of deposit. Investment in bank obligations is
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase. For purposes of the Money Market Fund's
investment policy with respect to bank obligations, the assets of a bank or
savings institution will be deemed to include the assets of its domestic and
foreign branches.
Investments by the Ohio Municipal, Pennsylvania Tax Exempt
Fund, Mid Cap Growth and Michigan Tax Exempt Bond Funds in commercial paper and
other short term promissory notes issued by corporations, municipalities and
other entities (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 if not rated,
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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 Mid Cap Growth Fund may invest in Canadian
commercial paper, which is U.S. dollar denominated commercial paper issued by a
Canadian corporation or a Canadian counterpart of a U.S. corporation.
REPURCHASE AGREEMENTS
Securities held by the International Equity, Small Cap Growth,
Tax Managed Equity, Core Equity, Equity Index, Balanced Allocation, Total Return
Advantage, Bond, Intermediate Bond, GNMA, Enhanced Income, Ohio Municipal Money
Market, Pennsylvania Tax-Exempt Money Market, Money Market, Government Money
Market, Mid Cap Growth, U.S. Government Income and Michigan Municipal Bond Funds
may be subject to repurchase agreements. Under the terms of a repurchase
agreement, a Fund purchases securities from financial institutions such as banks
and broker-dealers which the Fund's Adviser or Sub Adviser deems creditworthy
under guidelines approved by the Board of Trustees, subject to the seller's
agreement to repurchase such securities at a mutually agreed-upon date and
price. The repurchase price generally equals the price paid by the Fund plus
interest negotiated on the basis of current short term rates, which may be more
or less than the rate on the underlying portfolio securities.
The seller under a repurchase agreement will be required to
maintain the value of collateral held pursuant to the agreement at not less than
the repurchase price (including accrued interest). If the seller were to default
on its repurchase obligation or become insolvent, the Fund holding such
obligation would suffer a loss to the extent that the proceeds from a sale of
the underlying portfolio securities were less than the repurchase price under
the agreement, or to the extent that the disposition of such securities by the
Fund were delayed pending court action. Although there is no controlling legal
precedent confirming that a Fund would be entitled, as against a claim by such
seller or its receiver or trustee in bankruptcy, to retain the underlying
securities, the Board of Trustees of the Trust believes that, under the regular
procedures normally in effect for custody of a Fund's securities subject to
repurchase agreements and under federal laws, a court of competent jurisdiction
would rule in favor of the Trust if presented with the question. Securities
subject to repurchase agreements will be held by the Trust's custodian or
another qualified custodian or in the Federal Reserve/Treasury book-entry
system. Repurchase agreements are considered to be loans by a Fund under the
1940 Act.
With respect to the Ohio Municipal Money Market, Pennsylvania
Tax Exempt Money Market, Tax Exempt Money Market, Money Market and Government
Money Market Funds, although the securities subject to repurchase agreements may
bear maturities exceeding 397 days, the Funds presently intend to enter only
into repurchase agreements which terminate within seven days after notice by the
Funds. If a Fund were to enter into repurchase agreements which provide for a
notice period greater than seven days in the future, the Fund would do so only
if such investment, together with other illiquid securities, did not exceed 10%
of the Fund's net assets.
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REVERSE REPURCHASE AGREEMENTS
The International Equity, Small Cap Value, Small Cap Growth,
Equity Growth, Tax Managed Equity, Core Equity, Equity Index, Equity Income,
Balanced Allocation, Total Return Advantage, the Fixed Income Funds, Ohio
Municipal Money Market, Pennsylvania Tax Exempt Money Market, Money Market,
Government Money Market, Mid Cap Growth Funds may enter into reverse repurchase
agreements in accordance with its investment restrictions. Pursuant to such
agreements, a 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. A Fund intends to enter into reverse repurchase
agreements only to avoid otherwise selling securities during unfavorable market
conditions to meet redemptions. At the time a 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 at least equal
to the repurchase price (including accrued interest), and will subsequently
monitor the account to ensure that such equivalent value is maintained. Whenever
the Ohio Municipal Money Market, Pennsylvania Tax-Exempt Money Market, Money
Market and Government Money Market Funds enter into a reverse repurchase
agreement as described in the Prospectuses, it will place in a segregated
custodial account liquid assets at least equal to the repurchase price marked to
market daily (including accrued interest) and will subsequently monitor the
account to ensure such equivalent value is maintained. Reverse repurchase
agreements involve the risk that the market value of the securities sold by a
Fund may decline below the price at which it is obligated to repurchase the
securities. Reverse repurchase agreements are considered to be borrowings by the
Fund under the 1940 Act.
LENDING OF PORTFOLIO SECURITIES
The International Equity, Small Cap Value, Small Cap Growth,
Equity Growth, Tax Managed Equity, Core Equity, Equity Index, Equity Income,
Balanced Allocation, Total Return Advantage, Bond, Intermediate Bond, GNMA,
Enhanced Income, Money Market, Government Money Market, Mid Cap Growth and U.S.
Government Income Funds may lend securities to broker-dealers, banks or other
institutional borrowers pursuant to agreements requiring that the loans be
continuously secured by cash, securities of the U.S. government or its agencies,
or any combination of cash and such securities, as collateral equal to 100% of
the market value at all times of the securities lent. Such loans will not be
made if, as a result, the aggregate amount of all outstanding securities loans
for a Fund exceed one-third of the value of its total assets taken at fair
market value. Collateral must be valued daily by the Fund's Adviser or
Sub-adviser and the borrower will be required to provide additional collateral
should the market value of the loaned securities increase. During the time
portfolio securities are on loan, the borrower pays the Fund involved any
dividends or interest paid on such securities. Loans are subject to termination
by the Fund or the borrower at any time. While a Fund does not have the right to
vote securities on loan, it intends to terminate the loan and regain the right
to vote if this is considered important with respect to the investment. A Fund
will only enter into loan arrangements with broker-dealers, banks or other
institutions which its Adviser or Sub-adviser has determined are creditworthy
under guidelines established by the Trust's Board of Trustees.
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A Fund will continue to receive interest on the securities
lent while simultaneously earning interest on the investment of the cash
collateral in U.S. government securities. However, a Fund will normally pay
lending fees to such broker-dealers and related expenses from the interest
earned on invested collateral. There may be risks of delay in receiving
additional collateral or risks of delay in recovery of the securities or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, loans are made only to borrowers deemed by the Adviser to
be of good standing and when, in the judgment of the adviser, the consideration
which can be earned currently from such securities loans justifies the attendant
risk. Any loan may be terminated by either party upon reasonable notice to the
other party.
ILLIQUID SECURITIES
The International Equity, Small Cap Value, Small Cap Growth,
Equity Growth, Tax Managed Equity, Core Equity, Equity Index, Equity Income,
Total Return Advantage, Bond, Intermediate Bond, GNMA, Enhanced Income, Ohio Tax
Exempt Bond, Pennsylvania Municipal Bond, National Tax Exempt Bond, Mid Cap
Growth, U.S. Government Income and Michigan Municipal Bond Funds will not invest
more than 15% of their respective net assets in securities that are illiquid.
The Money Market Funds will not knowingly invest more than 10% of the value of
their respective net assets in securities that are illiquid. Illiquid securities
would generally include repurchase agreements and GICs with notice/termination
dates in excess of seven days and certain securities which are subject to
trading restrictions because they are not registered under the Securities Act of
1933, as amended (the "1933 Act").
Each 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 or Sub-adviser, acting under guidelines approved and monitored by
the Board, that an adequate trading market exists for that security. This
investment practice could have the effect of increasing the level of illiquidity
in a Fund during any period that qualified institutional buyers become
uninterested in purchasing these restricted securities.
TAXABLE MONEY MARKET INSTRUMENTS
The Ohio Tax Exempt Bond, Pennsylvania Municipal, National Tax
Exempt Bond and Michigan Municipal Bond Funds may invest, from time to time, a
portion of its assets for temporary defensive or liquidity purposes in
short-term money market instruments, the income from which is subject to federal
income tax ("Taxable Money Market Instruments"). Taxable Money Market
Instruments may include: obligations of the U.S. government and its agencies and
instrumentalities; debt securities (including commercial paper) of issuers
having, at the time of purchase, a quality rating within the highest rating
category of S&P, Fitch, Duff, or Moody's; certificates of deposit; bankers'
acceptances; and repurchase agreements with respect to such obligations.
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FOREIGN SECURITIES AND CURRENCIES
The International Equity, Small Cap Value, Small Cap Growth,
Equity Growth, Tax Managed Equity, Core Equity, Equity Income, Balanced
Allocation and Mid Cap Growth Funds may invest up to 20% (100% in the case of
the International Equity Fund) of its total assets at the time of purchase in
securities issued by foreign entities and ADRs, EDRs and GDRs (defined below).
The Total Return Advantage, Intermediate Bond, Enhanced Income
and U.S. Government Income Funds may also invest in securities issued by foreign
issuers either directly or indirectly through investments in American, European
or Global Depository Receipts (see "American, European and Global Depository
Receipts" below). Such securities may or may not be listed on foreign or
domestic stock exchanges.
Investments in foreign securities involve certain inherent
risks, such as political or economic instability of the issuer or the country of
issue, the difficulty of predicting international trade patterns, changes in
exchange rates of foreign currencies and the possibility of adverse changes in
investment or exchange control regulations. There may be less publicly available
information about a foreign company than about a domestic company. Foreign
companies generally are not subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
companies. Further, foreign stock markets are generally not as developed or
efficient as those in the U.S., and in most foreign markets, volume and
liquidity are less than in the U.S. Fixed commissions on foreign stock exchanges
are generally higher than the negotiated commissions on U.S. exchanges, and
there is generally less government supervision and regulation of foreign stock
exchanges, brokers and companies than in the U.S.
With respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, limitations on the
removal of funds or other assets, or diplomatic developments that could affect
investment within those countries. Because of these and other factors,
securities of foreign companies acquired by the Fund may be subject to greater
fluctuation in price than securities of domestic companies.
Since the Funds will invest substantially in securities
denominated in or quoted in currencies other than the U.S. dollar, changes in
currency exchange rates (as well as changes in market values) will affect the
value in U.S. dollars of securities 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 conversion of the eleven member states of the European
Union to a common currency, the "euro," is scheduled to occur on January 1,
1999. As a result of the conversion, securities issued by the member states will
be subject to certain risks, including competitive implications of increased
price transparency of European Union markets (including labor markets) resulting
from adoption of a common currency and issuers' plans for pricing their own
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products and services in euro; an issuer's ability to make any required
information technology updates on a timely basis, and costs associated with the
conversion (including costs of dual currency operations through January 1,
2002); currency exchange rate risk and derivatives exposure (including the
disappearance of price sources, such as certain interest rate indices) and
continuity of material contracts and potential tax consequences. Other risks
include whether the payment and operational systems of banks and other financial
institutions will be ready by the scheduled launch date; the creation of
suitable clearing and settlement payment systems for the new currency; the legal
treatment of certain outstanding financial contracts after January 1, 1999 that
refer to existing currencies rather than the euro; the establishment and
maintenance of exchange rates for currencies being converted into the euro; the
fluctuation of the euro relative to non-euro currencies during the transition
period from January 1, 1999 to December 31, 2000 and beyond; whether the
interest rate, tax and labor regimes of participating European countries will
converge over time; and whether the conversion of the currencies of other EU
countries such as the United Kingdom, Denmark and Greece into the euro and the
possible admission of other non-EU countries such as Poland, Latvia and
Lithuania as members of the EU may have an impact on the euro.
These or other factors, including political and economic
risks, could cause market disruptions before or after the introduction of the
euro, and could adversely affect the value of securities and foreign currencies
held by the Funds. Commissions on transactions in foreign securities may be
higher than those for similar transactions on domestic stock markets. In
addition, clearance and settlement procedures may be different in foreign
countries and, in certain markets, such procedures have been unable to keep pace
with the volume of securities transactions, thus making it difficult to conduct
such transactions.
The expense ratio of a Fund can be expected to be higher than
that of funds investing in domestic securities. The costs of investing abroad
are generally higher for several reasons, including the cost of investment
research, 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.
The Funds may invest in ADRs. Some of the Funds may also
invest in SPDRs, EDRs, GDRs and other similar global instruments. The Mid Cap
Growth Fund may also invest in MidCap SPDRs. 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. MidCap SPDRs represent ownership in
the MidCap SPDR Trust, a unit investment trust which holds a portfolio of common
stocks that closely tracks the price performance and dividend yield of the
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S&P MidCap 400 Index. 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 a Fund's
limitation with respect to illiquid securities.
The principal difference between sponsored and unsponsored
ADR, EDR and GDR programs is that unsponsored ones 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.
FOREIGN GOVERNMENT OBLIGATIONS
The International Equity, Balanced Allocation, Mid Cap Growth
and U.S. Government Income Funds may purchase debt obligations issued or
guaranteed by governments (including states, provinces or municipalities) of
countries other than the United States, or by their agencies, authorities or
instrumentalities. The percentage of assets invested in securities of a
particular country or denominated in a particular currency will vary in
accordance with the Adviser's or Sub-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 International Equity, Equity Income, Balanced Allocation, Total
Return Advantage, Enhanced Income, Mid Cap Growth and U.S. Government Income
Funds are 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 Funds 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, these Funds 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.
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When the Adviser or Sub-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 a 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. A
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 liquid assets, such as cash,
U.S. Government securities or other liquid high grade debt obligations equal to
the amount of the International Equity, Equity Income, Balanced Allocation,
Total Return Advantage and Enhanced Income Funds' assets that could be 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 Funds. 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 Funds to sell the same currency at a price as high as or higher than the
Fund's price to buy the currency.
EXCHANGE RATE-RELATED SECURITIES
The International Equity, Equity Income, Balanced Allocation,
Total Return Advantage and Enhanced Income Funds 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
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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.
CONVERTIBLE SECURITIES
The Equity Growth, Balanced Allocation and Mid Cap Growth
Funds may invest in convertible securities entitling the holder to receive
interest paid or accrued on debt or the dividend paid on preferred stock until
the securities mature or are redeemed, converted or exchanged. Prior to
conversion, convertible securities have characteristics similar to ordinary debt
securities in that they normally provide a stable stream of income with
generally higher yields than those of common stock of the same or similar
issuers. Convertible securities rank senior to common stock in a corporation's
capital structure and therefore generally entail less risk than the
corporation's common stock. The value of the convertibility feature depends in
large measure upon the degree to which the convertible security sells above its
value as a fixed income security.
In selecting convertible securities, the Adviser or
Sub-Adviser will consider, among other factors, the creditworthiness of the
issuers of the securities; the interest or dividend income generated by the
securities; the potential for capital appreciation of the securities and the
underlying common stocks; the prices of the securities relative to other
comparable securities and to the underlying common stocks; whether the
securities are entitled to the benefits of sinking funds or other protective
conditions; diversification of the Fund's portfolio as to issuers; and the
ratings of the securities. Since credit rating agencies may fail to timely
change the credit ratings of securities to reflect subsequent events, the
Adviser or Sub-Adviser will consider whether such issuers will have sufficient
cash flow and profits to meet required principal and interest payments. A Fund
may retain a portfolio security whose rating has been changed if the Adviser
deems that retention of such security is warranted.
CORPORATE DEBT OBLIGATIONS
The Balanced Allocation, Total Return Advantage, Bond,
Intermediate Bond, GNMA, Enhanced Income, Mid Cap Growth, U.S. Government
Income, Michigan Municipal Bond and the Money Market Funds 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.
OTHER DEBT SECURITIES
The Balanced Allocation, Total Return Advantage, Intermediate
Bond and Enhanced Income Funds may also invest in debt securities which may
include: equipment lease and trust certificates; 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
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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.
The Balanced Allocation, Total Return Advantage, Intermediate
Bond and Enhanced Income Funds' 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.
The Balanced Allocation, Total Return Advantage, Intermediate
Bond, and Enhanced Income Funds invest only in investment grade debt securities
which are rated at the time of purchase within the four highest ratings groups
assigned by Moody's (Aaa, Aa, A and Baa), S&P (AAA, AA, A and BBB), Fitch (AAA,
AA, A and BBB), or Duff (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
or Duff or IBCA) may have speculative characteristics; changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to 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.
RISKS RELATED TO LOWER RATED SECURITIES WHICH MAY BE PURCHASED BY THE TOTAL
RETURN ADVANTAGE FUND
While any investment carries some risk, certain risks
associated with lower rated securities (commonly referred to as "junk bonds")
are different than those for investment grade securities. The risk of loss
through default is greater because lower rated securities are usually unsecured
and are often subordinate to an issuer's other obligations. Additionally, the
issuers of these securities frequently have high debt levels and are thus more
sensitive to difficult economic conditions, individual corporate developments
and rising interest rates. Consequently, the market price of these securities
may be quite volatile and may result in wider fluctuations in the Total Return
Advantage Fund's net asset value per share.
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In addition, an economic downturn or increase in interest
rates could have a negative impact on both the markets for lower rated
securities (resulting in a greater number of bond defaults) and the value of
lower rated securities held by the Total Return Advantage Fund. Current laws,
such as those requiring federally insured savings and loan associations to
remove investments in lower rated securities from their funds, as well as other
pending proposals, may also have a material adverse effect on the market for
lower rated securities.
The economy and interest rates may affect lower rated
securities differently than other securities. For example, the prices of lower
rated securities are more sensitive to adverse economic changes or individual
corporate developments than are the prices of higher rated investments. In
addition, during an economic downturn or period in which interest rates are
rising significantly, highly leveraged issuers may experience financial
difficulties, which, in turn, would adversely affect their ability to service
their principal and interest payment obligations, meet projected business goals
and obtain additional financing.
If an issuer of a security held by the Total Return Advantage
Fund defaults, the Fund may incur additional expenses to seek recovery. In
addition, periods of economic uncertainty would likely result in increased
volatility for the market prices of lower rated securities as well as the Fund's
net asset value. In general, both the prices and yields of lower rated
securities will fluctuate.
In certain circumstances it may be difficult to determine a
security's fair value due to a lack of reliable objective information. Such
instances occur where there is no established secondary market for the security
or the security is lightly traded. As a result, the Total Return Advantage
Fund's valuation of a security and the price it is actually able to obtain when
it sells the security could differ.
Adverse publicity and investor perceptions, whether or not
based on fundamental analysis, may decrease the value and liquidity of lower
rated securities held by the Total Return Advantage Fund, especially in a thinly
traded market. Illiquid or restricted securities held by the Fund may involve
special registration responsibilities, liabilities and costs, and could involve
other liquidity and valuation difficulties.
The ratings of Moody's, S&P, Fitch and Duff evaluate the
safety of a lower rated security's principal and interest payments, but do not
address market value risk. Because the ratings of the rating agencies may not
always reflect current conditions and events, in addition to using recognized
rating agencies and other sources, the Sub-adviser performs its own analysis of
the issuers of lower rated securities purchased by the Fund. Because of this,
the Fund's performance may depend more on its own credit analysis than is the
case for mutual funds investing in higher rated securities.
The Sub-adviser continuously monitors the issuers of lower
rated securities held by the Total Return Advantage Fund for their ability to
make required principal and interest payments, as well as in an effort to
control the liquidity of the Fund so that it can meet redemption requests.
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WARRANTS
The International Equity, Small Cap Value, Small Cap Growth,
Equity Growth, Tax Managed Equity, Core Equity, Equity Income, Balanced
Allocation and Mid Cap Growth Funds may invest in 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 AND RELATED OPTIONS
The International Equity, Small Cap Value, Small Cap Growth,
Equity Growth, Tax Managed Equity, Core Equity, Equity Index, Equity Income and
Mid Cap Growth Funds may invest in stock index futures contracts and options of
futures contracts in attempting to hedge against changes in the value of
securities that it holds or intends to purchase. The Balanced Allocation Fund
may invest in stock index, interest rate, bond index and foreign currency
futures contracts and options on these futures contracts. The Total Return
Advantage, Bond and Enhanced Income Funds may invest in interest rate and Bond
index futures contracts and options on futures contracts and the Bond and GNMA
Funds may invest in futures contracts on U.S. Treasury Obligations in order to
offset an expected decrease in the value of their respective portfolios that
might otherwise result from a market decline. The International Equity, Small
Cap Value, Small Cap Growth, Equity Growth, Tax Managed Equity, Equity Index and
Equity Income Funds may invest in stock index futures contracts in attempting to
hedge against changes in the value of securities that it holds or intends to
purchase or to maintain liquidity. The International Equity Fund may also invest
in foreign current futures contract and options in anticipation of changes in
currency exchange rates. The U.S. Government Income Fund may invest in futures
contracts on U.S. Treasury obligations. A Fund might sell a futures contract in
order to offset an expected decrease in the value of its portfolio that might
otherwise result from a market decline. Each of these Funds may invest in the
instruments described either to hedge the value of their respective 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. Conversely, a Fund may
purchase a futures contract in anticipation of purchases of securities. In
addition, each of these Funds may utilize futures contracts in anticipation of
changes in the composition of its holdings for hedging purposes or to maintain
liquidity.
Futures contracts obligate a 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. When interest rates are rising,
futures contracts can offset a decline in value of the
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securities held by a Fund. When rates are falling or prices of securities are
rising, these contracts can secure higher yields for securities a Fund intends
to purchase.
Each of the International Equity, Small Cap Value, Small Cap
Growth, Equity Growth, Tax Managed Equity, Equity Index, Equity Income, Balanced
Allocation, Total Return Advantage, Bond, GNMA, Enhanced Income, Mid Cap Growth
and U.S. Government Income Funds intend to comply with the regulations of the
Commodity Futures Trading Commission (CFTC) exempting it from registration as a
"commodity pool operator." A Fund's commodities transactions must constitute
bona fide hedging or other permissible transactions pursuant to such
regulations. In addition, a Fund may not engage in such transactions if the sum
of the amount of initial margin deposits and premiums paid for unexpired
commodity options, other than for bona fide hedging transactions, would exceed
5% of the liquidation value of its assets, after taking into account unrealized
profits and unrealized losses on such contracts it has entered into; provided,
however, that in the case of an option that 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 a Fund's position in a futures contract or option
thereon, it will create a segregated account of liquid assets, such as cash,
U.S. government securities or other liquid high grade debt obligations, or will
otherwise cover its position in accordance with applicable requirements of the
SEC.
The International Equity, Small Cap Value, Small Cap Growth,
Equity Growth, Tax Managed Equity, Equity Index, Equity Income, Balanced
Allocation, Total Return Advantage, Enhanced Income, Mid Cap Growth and U.S.
Government Income Funds may purchase and sell call and put options on futures
contracts traded on an exchange or board of trade. When a 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 a 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, a 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 a 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 Funds may write covered call options, buy put options, buy
call options and sell or "write" secured put options on a national securities
exchange and issued by the Options Clearing Corporation for hedging purposes.
Such transactions may be effected on a principal basis with primary reporting
dealers in U.S. government securities in an amount not exceeding 5% of a Fund's
net assets. 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
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time prior to or only at the expiration of the option, regardless of the market
price of the security. The premium paid to the writer is the consideration for
undertaking the obligations under the option contract. A put option for a
particular security gives the purchaser the right to sell the underlying
security at the stated exercise price at any time prior to the expiration date
of the option, regardless of the market price of the security. In contrast to an
option on a particular security, an option on a securities index provides the
holder with the right to make or receive a cash settlement upon exercise of the
option.
Each 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, a 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 a 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. A 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 a 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, each Fund may write covered call and secured put
options. A covered call option means that a 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 a 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 a Fund will not exceed 25% of the value of its net assets. In order
to close out an option position prior to maturity, a Fund may enter into a
"closing purchase transaction" by purchasing a call or put option (depending
upon the position being closed out) on the same security with the same exercise
price and expiration date as the option which it previously wrote.
Options trading is a highly specialized activity and carries
greater than ordinary investment risk. Purchasing options may result in the
complete loss of the amounts paid as premiums to the writer of the option. In
writing a covered call option, a 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 a Fund closes out the option. In writing a secured
put option, a Fund assumes the risk that the market value of the security will
decline below the exercise price of the option. The use of
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covered call and secured put options will not be a primary investment technique
of a Fund. For a detailed description of these investments and related risks,
see Appendix B attached to this Statement of Additional Information.
Risk Factors Associated with Futures and Related Options
To the extent the Total Return Advantage, Bond, GNMA and
Enhanced Income Funds are engaging in a futures transaction as a hedging device,
due to the risk of an imperfect correlation between securities in their funds
that are the subject of a hedging transaction and the futures contract used as a
hedging device, it is possible that the hedge will not be fully effective in
that, for example, losses on the portfolio securities may be in excess of gains
on the futures contract or losses on the futures contract may be in excess of
gains on the portfolio securities that were the subject of the hedge. In futures
contracts based on indices, the risk of imperfect correlation increases as the
composition of the Funds varies from the composition of the index. In an effort
to compensate for the imperfect correlation of movements in the price of the
securities being hedged and movements in the price of futures contracts, the
Funds may buy or sell futures contracts in a greater or lesser dollar amount
than the dollar amount of the securities being hedged if the historical
volatility of the futures contract has been less or greater than that of the
securities. Such "over hedging" or "under hedging" may adversely affect a Fund's
net investment results if market movements are not as anticipated when the hedge
is established.
Successful use of futures by the Funds also are subject to the
Adviser's or Sub-adviser's ability to predict correctly movements in the
direction of securities prices, interest rates and other economic factors. For
example, if the Funds have hedged against the possibility of a decline in the
market adversely affecting the value of securities held in their funds and
prices increase instead, the Funds will lose part or all of the benefit of the
increased value of securities which they have hedged because they will have
offsetting losses in their futures positions. In addition, in such situations,
if a Fund has insufficient cash, it may have to sell securities to meet daily
variation margin requirements. Such sales of securities may, but will not
necessarily, be at increased prices which reflect the rising market. The Funds
may have to sell securities at a time when it may be disadvantageous to do so.
Although the Total Return Advantage, Bond, GNMA and Enhanced
Income Funds intend to enter into futures contracts and the Total Return
Advantage and Enhanced Income Funds into options transactions only if there is
an active market for such investments, no assurance can be given that a liquid
market will exist for any particular contract or transaction at any particular
time. See "Illiquid Securities." Many futures exchanges and boards of trade
limit the amount of fluctuation permitted in futures contract prices during a
single trading day. Once the daily limit has been reached in a particular
contract, no trades may be made that day at a price beyond that limit or trading
may be suspended for specified periods during the trading day. Futures contracts
prices could move to the limit for several consecutive trading days with little
or no trading, thereby preventing prompt liquidation of futures positions and
potentially subjecting the Funds to substantial losses. If it is not possible,
or a Fund determines not, to close a futures position in anticipation of adverse
price movements, it will be required to make daily cash payments of variation
margin. In such circumstances, an increase in the value of the portion
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of the Fund being hedged, if any, may offset partially or completely losses on
the futures contract.
The primary risks associated with the use of futures contracts
and options are:
1. the imperfect correlation between the change in market
value of the securities held by a Fund and the price of the futures contract or
option;
2. possible lack of a liquid secondary market for a futures
contract and the resulting inability to close a futures contract when desired;
3. losses greater than the amount of the principal invested as
initial margin due to unanticipated market movements which are potentially
unlimited; and
4. the Adviser's or Sub-adviser's, in the case of the Total
Return Advantage Fund, ability to predict correctly the direction of securities
prices, interest rates and other economic factors.
MORTGAGE-BACKED SECURITIES
The Balanced Allocation, Total Return Advantage, Bond,
Intermediate Bond, GNMA, Enhanced Income and U.S. Government Income Funds 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
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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 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.
DOLLAR ROLLS
The Balanced Allocation, U.S. Government Income and Michigan
Municipal Bond Funds 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 value of the security may change adversely over the term of the Dollar
Roll and that the security the Fund is required to
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repurchase may be worth less than the security that the Fund originally held. At
the time a Fund enters into a Dollar Roll, 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.
SHORT SALES
The Tax Managed Equity, Balanced Allocation, GNMA, Mid Cap
Growth, U.S. Government Income and Michigan Municipal Bond Funds 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.
ASSET-BACKED SECURITIES
As described in the Prospectuses, the Balanced Allocation,
Total Return Advantage and the Fixed Income Funds 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 monthly, thus in effect "passing through" monthly
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.
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.
Each Fund may invest in securities the timely payment of
principal and interest on which are guaranteed by the GNMA a wholly-owned U.S.
Government corporation within the Department of Housing and Urban Development.
The market value and interest yield of these
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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 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"). FHLMC is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. FHLMC guarantees either ultimate collection or timely
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable.
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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.
INTEREST RATE AND TOTAL RETURN SWAPS
The Balanced Allocation, Total Return Advantage, GNMA,
Enhanced Income and U.S. Government Income Funds may enter into interest rate
swaps for hedging purposes and not for speculation. The Balance Allocation Fund
may also use total return swaps for the same purposes. Fund 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 net amount of the excess, if any, of a Fund's obligations
over its entitlements with respect to each interest rate 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. A Fund will not enter into any
interest rate swap unless the unsecured commercial paper, senior debt, or claims
paying ability of the other party is rated, with respect to the Enhanced Income
and Total Return Advantage Funds, either "A" or "A-1" or better by S&P, Duff or
Fitch, or "A" or "P-1" or better by Moody's or, with respect to the GNMA Fund,
the claims paying ability of the other party is deemed creditworthy and any such
obligation the GNMA Fund may have under such an arrangement will be covered by
setting aside liquid high grade securities in a segregated account.
The Balanced Allocation, Total Return Advantage, GNMA, and
Enhanced Income 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 Funds and their respective
Adviser or Sub-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
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obligations over their 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 involved 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.
ZERO COUPON OBLIGATIONS
The Ohio Tax-Exempt Funds, U.S. Government Income and Michigan
Municipal Bond Funds may invest in zero coupon obligations. Zero coupon
obligations are discount debt obligations that do not make periodic interest
payments although income is generally imputed to the holder on a current basis.
Such obligations may have higher price volatility than those which require the
payment of interest periodically. The Adviser will consider the liquidity needs
of the Fund when any investment in zero coupon obligations is made.
INCOME PARTICIPATION LOANS
The Balanced Allocation, Total Return Advantage, Intermediate
Bond, and Enhanced Income Funds 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
a Fund may have a demand 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.
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CERTIFICATES OF PARTICIPATION
The Michigan Municipal Bond Fund may purchase Michigan
Municipal Securities in the form of "certificates of participation" which
represent undivided proportional interests in lease payments by a governmental
or nonprofit entity. The Tax-Exempt Funds may also purchase certificates of
participation. The municipal leases underlying the certificates of participation
in which the Fund invests will be subject to the same quality rating standards
applicable to Municipal Securities. Certificates of participation may be
purchased from a bank, broker-dealer or other financial institution. The lease
payments and other rights under the lease provide for and secure the payments on
the certificates.
Lease obligations may be limited by law, municipal charter or
the duration or nature of the appropriation for the lease and may be subject to
periodic appropriation. In particular, lease obligations, may be subject to
periodic appropriation. If the entity does not appropriate funds for future
lease payments, the entity cannot be compelled to make such payments.
Furthermore, a lease may provide that the certificate trustee cannot accelerate
lease obligations upon default; in such event, the trustee would only be able to
enforce lease payments as they became due. In the event of a default or failure
of appropriation, it is unlikely that the trustee would be able to obtain an
acceptable substitute source of payment. In addition, certificates of
participation are less liquid than other bonds because there is a limited
secondary trading market for such obligations.
WHEN-ISSUED SECURITIES
The International Equity, Small Cap Value, Small Cap Growth,
Equity Growth, Tax Managed Equity, Core Equity, Equity Income, Balanced
Allocation, Total Return Advantage, Bond, Intermediate Bond, GNMA, Enhanced
Income, Ohio Municipal Money Market, Pennsylvania Tax Exempt Money Market, Tax
Exempt Money Market, Mid Cap Growth and U.S. Government Income Funds may
purchase securities (Municipal Securities in the case of the Ohio Tax Exempt
Bond, Pennsylvania Municipal Bond, National Tax Exempt Bond and Michigan
Municipal Funds) on a "when-issued" basis (i.e., for delivery beyond the normal
settlement date at a stated price and yield). The Funds do not intend to
purchase when-issued securities for speculative purposes but only for the
purpose of acquiring portfolio securities. In when-issued and delayed delivery
transactions, a Fund relies on the seller to complete the transaction; its
failure to do so may cause the Fund to miss a price or yield considered to be
attractive. One form of when-issued or delayed delivery security that the GNMA
and Bond Funds may purchase is a "to be announced" (TBA) mortgage-backed
security. A TBA transaction arises when a mortgage-backed security, such as a
GNMA pass-through security, is purchased or sold with the specific pools that
will constitute that GNMA pass-through security to be announced on a future
settlement date.
When a Fund agrees to purchase when-issued securities, the
custodian sets aside cash or liquid portfolio securities equal to the amount of
the commitment in a separate account. Normally, the custodian will set aside
portfolio securities to satisfy a purchase commitment, and in such a case a Fund
may be required subsequently to place additional assets in the separate
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account in order to ensure that the value of the account remains equal to the
amount of the Fund's commitment, marked to market daily. It is likely that a
Fund's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets aside
cash. Because a Fund will set aside cash or liquid assets to satisfy its
purchase commitments in the manner described, the Fund's liquidity and ability
to manage its 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 a 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. A Fund receives no income from when-issued or
delayed settlement securities prior to delivery of such securities.
SHORT-TERM OBLIGATIONS
The International Equity, Small Cap Value, Small Cap Growth,
Equity Growth, Tax Managed Equity, Core Equity, Equity Index, Equity Income,
Balanced Allocation, Total Return Advantage, Bond, Intermediate Bond, GNMA,
Enhanced Income, and U.S. Government Income Funds may hold temporary cash
balances which may be invested in various short-term obligations (with
maturities of 18 months or less, 12 months in the case of the U.S. Government
Income Fund) 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 (GICs). The
Equity Index Fund cannot invest in foreign commercial paper and GICs. A Fund may
invest no more than 5% of its net assets in variable and floating rate
obligations. During temporary defensive periods, each Fund may hold up to 100%
of its total assets in these types of obligations.
In the case of repurchase agreements, default or bankruptcy of
the seller may expose a Fund to possible loss because of adverse market action
or delays connected with the disposition of the underlying obligations. Further,
it is uncertain whether a Fund would be entitled, as against a claim by such
seller or its receiver or trustee in bankruptcy, to retain the underlying
securities. Reverse repurchase agreements involve the risk that the market value
of the securities held by a Fund may decline below the price of the securities
it is obligated to repurchase.
Investments include 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, determined by the adviser to be of comparable quality pursuant to
guidelines approved by the Trust's Board of Trustees. In addition, the
International Equity, Small Cap Growth, Tax Managed Equity, Core Equity,
Balanced Allocation, Total Return Advantage, Intermediate Bond and Enhanced
Income Funds 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
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commercial paper of a foreign issuer. Each 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
International Equity, Small Cap Growth, Tax Managed Equity, Core Equity,
Balanced Allocation, Total Return Advantage, Intermediate Bond and Enhanced
Income Funds 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 Balanced Allocation, Total Return Advantage, Intermediate
Bond and Enhanced Income Funds may also make limited investments in (GIC) issued
by U.S. insurance companies. When investing in GICs, a Fund makes cash
contributions to a deposit fund or an insurance company's general account. The
insurance company then credits to that 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. A Fund will
purchase a GIC only when its Adviser or Sub-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 the case of the Balanced
Allocation Fund, because the Fund may not receive the principal amount of a GIC
from the insurance company on sixty 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.
The Mid Cap Growth Fund may hold temporary cash balances which
may be invested in various short-term obligations (with maturities of 12 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 GICs.
The Balanced Allocation and U.S. Government Income Funds 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 "Additional
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Information Concerning Taxes" below) and increased expenses paid by the Fund due
to transaction costs. Under normal market conditions, the Balanced Allocation
and U.S. Government Income's portfolio turnover are not expected to exceed 200%.
MONEY MARKET INSTRUMENTS
The Money Market Fund may invest in "money market"
instruments, including bank obligations and commercial paper. The Ohio Municipal
Money Market and Pennsylvania Tax Exempt Money Market Funds may also invest,
from time to time, a portion of their assets for temporary defensive or other
purposes in such taxable money market instruments.
Bank obligations include bankers' acceptances, negotiable
certificates of deposit, and non-negotiable time deposits issued for a definite
period of time and earning a specified return by a U.S. bank which is a member
of the Federal Reserve System. Bank obligations also include U.S. dollar
denominated bankers' acceptances, certificates of deposit and time deposits
issued by foreign branches of U.S. banks or foreign banks. Investment in bank
obligations is limited to the obligations of financial institutions having more
than $1 billion in total assets at the time of purchase. The Money Market Fund
may also make interest bearing savings deposits in commercial and savings banks
not in excess of 5% of its total assets. Investment in non-negotiable time
deposits is limited to no more than 5% of the Fund's total assets at the time of
purchase.
Investments in commercial paper and other short-term
promissory notes issued by corporations (including variable and floating rate
instruments) must be rated at the time of purchase "A-2" or better by S&P,
"Prime-2" or better by Moody's, "F-2" or better by Fitch "Duff 2" or by Duff or,
if not rated, determined by the Adviser to be of comparable quality pursuant to
guidelines approved by the Trust's Board of Trustees. Investments may also
include corporate notes. In addition, the Money Market Fund may invest in
Canadian Commercial Paper ("CCP"), which is U.S. dollar denominated commercial
paper issued by a Canadian corporation or a Canadian counterpart of a U.S.
corporation, and in Europaper, which is U.S. dollar denominated commercial paper
of a foreign issuer. The Money Market Fund may acquire zero coupon obligations,
which have greater price volatility than coupon obligations and which will not
result in the payment of interest until maturity.
Investments in the obligations of foreign branches of U.S.
banks, foreign banks and other foreign issuers may subject the Money Market Fund
to additional investment risks, including future political and economic
developments, the possible imposition of withholding taxes on interest income,
possible seizure or nationalization of foreign deposits, the possible
establishment of exchange controls, or the adoption of other foreign
governmental restrictions which might adversely affect the payment of principal
and interest on such obligations. In addition, foreign branches of U.S. banks
and foreign banks may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting, and recordkeeping standards than
those applicable to domestic branches of U.S. banks. The Money Market Fund will
invest in the obligations of foreign banks or foreign branches of U.S. banks
only when the Adviser believes that the credit risk with respect to the
instrument is minimal.
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The Money Market Fund may also make limited investments in
GICs issued by U.S. insurance companies. The Fund will purchase a GIC only when
the Adviser has determined, under guidelines established by the Board of
Trustees, that the GIC presents minimal credit risks to the Fund and is of
comparable quality to instruments that are rated high quality by certain
nationally recognized statistical rating organizations.
GOVERNMENT SECURITIES
The Treasury Money Market and Treasury Plus Money Market Funds
may only invest in direct obligations of the U.S. Treasury and investment
companies that invest only in such obligations. Examples of the types of U.S.
government obligations that may be held by the Balanced Allocation, Total Return
Advantage, Bond, Intermediate Bond, GNMA, Enhanced Income, Ohio Municipal Money
Market, Pennsylvania Tax Exempt Money Market, Tax Exempt Money Market, Money
Market, Government Money Market, Mid Cap Growth, U.S. Government Income, and
Michigan Municipal Bond Funds include, in addition to Treasury Bills, the
obligations of Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land
Banks, the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration,
Government National Mortgage Association, General Services Administration,
Student Loan Marketing Association, Central Bank for Cooperatives, Federal Home
Loan Mortgage Corporation, Federal Intermediate Credit Banks and Maritime
Administration. Some of these obligations are supported by the full faith and
credit of the U.S. Treasury, such as obligations issued by the Government
National Mortgage Association. Others, such as those of the Export-Import Bank
of the United States, are supported by the right of the issuer to borrow from
the U.S. Treasury; others, such as those of the Federal National Mortgage
Association, are supported by the discretionary authority of the U.S. Government
to purchase the agency's obligations; and still others, such as those of the
Student Loan Marketing Association, are supported only by the credit of the
agency or instrumentality issuing the obligation. No assurance can be given that
the U.S. Government would provide financial support to U.S. Government-sponsored
agencies or instrumentalities if it is not obligated to do so by law. Some of
these investments may be variable or floating rate instruments. See "Variable
and Floating Rate Obligations." The Ohio Municipal Money Market, Pennsylvania
Tax Exempt Money Market, Tax Exempt Money Market, Money Market and Government
Money Market Funds will invest in the obligations of such agencies or
instrumentalities only when the Adviser believes that their credit risk with
respect thereto is minimal.
U.S. TREASURY OBLIGATIONS AND RECEIPTS
The Balanced Allocation, Total Return Advantage, Bond,
Intermediate Bond, GNMA, Enhanced Income, Money Market, Mid Cap Growth, U.S.
Government Income and Michigan Municipal Bond Funds may invest in obligations
issued or guaranteed by the U.S. government or its agencies. 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).
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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 (TRs), Treasury Investment Growth Receipts (TIGRs), Liquid
Yield Option Notes (LYONs), and Certificates of Accrual on Treasury Securities
(CATS). TIGRs, LYONs and CATS are interests in private proprietary accounts
while TR's are interests in accounts sponsored by the U.S. Treasury.
Securities denominated as TRs, TIGRs, LYONs 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.
PRIVATE ACTIVITY BONDS
The Michigan Municipal Bond Fund may invest in private
activity bonds. It should be noted that the Tax Reform Act of 1986 substantially
revised provisions of prior federal law affecting the issuance and use of
proceeds of certain tax-exempt obligations. A new definition of private activity
bonds applies to many types of bonds, including those which were industrial
development bonds under prior law. Any reference herein to private activity
bonds includes industrial development bonds. Interest on private activity bonds
is tax-exempt (and such bonds will be considered municipal securities for
purposes of this Statement of Additional Information) only if the bonds fall
within certain defined categories of qualified private activity bonds and meet
the requirements specified in those respective categories. If the Fund invests
in private activity bonds which fall outside these categories, shareholders may
become subject to the federal alternative minimum tax on that part of the Fund's
distributions derived from interest on such bonds. The Tax Reform Act generally
did not change the federal tax treatment of bonds issued to finance government
operations. For further information relating to the types of private activity
bonds which will be included in income subject to the federal alternative
minimum tax.
STAND-BY COMMITMENTS
The Michigan Municipal Bond Funds may acquire stand-by
commitments with respect to Municipal Securities (defined below) held in its
portfolio. The Tax-Exempt Funds, Ohio Municipal Money Market, Pennsylvania Tax
Exempt Money Market, and Tax Exempt Money Market Funds may acquire stand-by
commitments. Under a stand-by commitment, a dealer agrees to purchase at a
Fund's option specified Michigan Municipal Securities at a specified price.
Stand-by commitments acquired by the Fund must be of high quality as determined
by any Rating Agency, or, if not rated, must be of comparable quality as
determined
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by the Adviser. The Fund acquires stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes.
DERIVATIVE INSTRUMENTS
The International Equity, Small Cap Value, Small Cap Growth,
Equity Growth, Tax Managed Equity, Core Equity, Equity Index, Equity Income,
Balanced Allocation, Total Return Advantage, Bond, Intermediate Bond, GNMA,
Enhanced Income, Money Market, Mid Cap Growth, and U.S. Government Income Funds
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 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 International Equity, Small Cap Value, Small
Cap Growth, Equity Growth, Tax Managed Equity, Core Equity, Equity Index, Equity
Income, Mid Cap Growth and U.S. Government Income Funds 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
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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.
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:
o leveraged or deleveraged floaters (whose interest rate reset
provisions are based on a formula that magnifies the effect of changes in
interest rates);
o range floaters (which do not pay interest if market interest
rates move outside of a specified range);
o 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);
o inverse floaters (which reset in the opposite direction of
their index); and
o 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."
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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:
o securities based on short-term, fixed-rate contracts; and
o floating-rate or variable-rate securities whose interest
rates reset based on changes in standard money market rate indices such as U.S.
government Treasury bills, London Interbank Offered Rate, published commercial
paper rates, or federal funds rates.
The risk to the 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.
The Intermediate Bond Fund may invest in moderate structural
risk derivatives containing features which can modestly or moderately alter the
timing and/or amount of principal return and/or amount of income return. This
would include, for example, investments that are subject to normal prepayment
variances experienced in mortgage pass-through securities. Periodic occurrence
of this degree of structural risk would not be expected to materially impact
overall Fund returns relative to its investment objective.
The Intermediate Bond Fund will not invest in high structural
risk derivatives whose duration (and hence return) can vary widely depending on
moves in interest rates or other contractual variables. Generally, these are
instruments which are deemed to have a high sensitivity to changes in interest
rates, which could materially alter the effective duration or coupon and return
of the instruments.
The Intermediate Bond Fund may invest in mortgage-backed
derivative securities, including CMOs, provided that they are not identified by
the advisers as "high risk securities" by certain quantitative tests that are
generally accepted standards in the investment industry.
Other derivative instruments that are suitable for investment
include: asset-backed securities such as those backed by automobile loans or
credit card receivables. All such securities, however, must conform to the
structural risk standards stated above (i.e. not present high structural risk).
The Adviser does not presently intend to invest in the
following types of derivatives on behalf of the Fund:
o exchange rate-related securities
o forward currency exchange contracts
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o interest rate swaps
o futures contracts and related options
o 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
The Total Return Advantage and Enhanced Income Funds may invest in
derivative instruments having either moderate structural risk or high structural
risk characteristics (as described above in the section pertaining to the
Intermediate Bond Fund). There are no policy restrictions on specific types of
derivative instruments in which the Funds are permitted to invest. However,
structural risk is controlled by adherence to specific overall Fund parameters.
The Funds are managed in accordance with a policy goal that constrains the
potential variability of overall Fund duration and total return in relation to
specified investment performance benchmarks. Fund exposure to derivative
instruments having high structural risk characteristics is targeted at a maximum
of 5.0% of each Fund's net assets with no individual position greater than 1.0%
of each Fund. Variability in total Fund duration caused by these securities is
targeted not to exceed 0.1 years in any one calendar year.
The Adviser of the Bond Fund 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.
The Adviser has adopted the following internal policy concerning
management of the structural risk inherent in derivative instruments on behalf
of the GNMA Fund:
The Adviser does not presently intend to invest in the
following types of derivatives on behalf of the GNMA Fund:
o exchange rate-related securities
o forward currency exchange contracts
o 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
TAX-EXEMPT DERIVATIVES AND OTHER MUNICIPAL SECURITIES
The Ohio Municipal Money Market, Pennsylvania Tax Exempt Money
Market and Tax Exempt Money Market Funds may invest in tax-exempt derivative
securities relating to Municipal Securities, including tender option bonds,
participations, beneficial interests in trusts and partnership interests. (See
generally "Derivative Instruments" above.)
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Opinions relating to the validity of Municipal Securities and
to the exemption of interest thereon from federal income tax are rendered by
bond counsel to the respective issuers at the time of issuance, and opinions
relating to the validity of and the tax-exempt status of payments received by
the Ohio Municipal Money Market, Pennsylvania Tax Exempt Money Market and Tax
Exempt Money Market Fund from tax-exempt derivative securities are rendered by
counsel to the respective sponsors of such securities. The Funds and the Adviser
will rely on such opinions and will not review independently the underlying
proceedings relating to the issuance of Municipal Securities, the creation of
any tax-exempt derivative securities, or the bases for such opinions.
SECURITIES OF OTHER INVESTMENT COMPANIES
Subject to 1940 Act limitations and pursuant to applicable SEC
requirements, the Funds may invest in securities issued by other investment
companies which invest in high quality, short-term debt securities and which
determine their net asset value per share based on the amortized cost or
penny-rounding method. As a shareholder of another investment company, the Fund
would bear, along with other shareholders, its pro rata portion of that
company's expenses, including advisory fees. These expenses would be in addition
to the advisory and other expenses that the Fund bears directly in connection
with its own operations. Investment companies in which the Fund may invest may
also impose a sales or distribution charge in connection with the purchase or
redemption of their shares and other types of commissions or charges. Such
charges will be payable by a Fund and, therefore, will be borne indirectly by
its shareholders.
Each Fund may invest in securities issued by other investment
companies as described in the Prospectus. Each 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.
With regard to the Tax-Exempt Funds and the Money Market
Funds, not more than 10% of the outstanding voting stock of any one investment
company will be owned in the aggregate by the Fund and other investment
companies advised by the Adviser.
In addition, the International Equity Fund may purchase shares
of investment companies investing primarily in foreign securities, including
"country funds" which have portfolios consisting exclusively of securities of
issuers located in one foreign country. Such "country funds" may be either
open-end or closed-end investment companies, and may include a portfolio or
portfolios of The CountryBaskets Index Fund, Inc. (CountryBaskets), a
registered, open-end management investment company that, through its portfolios,
seeks to provide investment results that substantially correspond to the price
and yield performance of a broad-
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based index of publicly traded equity securities in a particular country,
geographic region or industry sector.
The International Equity Fund may also purchase World Equity
Benchmark Shares issued by The Foreign Fund, Inc. (WEBS) and similar securities
of other issuers. WEBS are shares of an investment company that invests
substantially all of its assets in securities included in the Morgan Stanley
Capital International indices for specific countries. Because the expense
associated with an investment in WEBS can be substantially lower than the
expense of small investments directly in the securities comprising the indices
it seeks to track, the Adviser believes that investments in WEBS of countries
that are included in the EAFE Index can provide a cost-effective means of
diversifying the Fund's assets across a broader range of equity securities.
WEBS are listed on the American Stock Exchange (AMEX), and
were initially offered to the public in 1996. The market prices of WEBS are
expected to fluctuate in accordance with both changes in the net asset values of
their underlying indices and supply and demand of WEBS on the AMEX. To date,
WEBS have traded at relatively modest discounts and premiums to their net asset
values. However, WEBS have a limited operating history, and information is
lacking regarding the actual performance and trading liquidity of WEBS for
extended periods or over complete market cycles. In addition, there is no
assurance that the requirements of the AMEX necessary to maintain the listing of
WEBS will continue to be met or will remain unchanged.
In the event substantial market or other disruptions affecting
WEBS or CountryBaskets should occur in the future, the liquidity and value of
the International Equity Fund's shares could also be substantially and adversely
affected, and the Fund's ability to provide investment results approximating the
performance of securities in the EAFE could be impaired. If such disruptions
were to occur, the Fund could be required to reconsider the use of WEBS,
CountryBaskets or other "country funds" as part of its investment strategy.
As a shareholder of another investment company, a Fund would
bear, along with other shareholders, its pro rata portion of that company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that a Fund bears directly in connection with its
own operations. Investment companies in which a Fund may invest may also impose
a sales or distribution charge in connection with the purchase or redemption of
their shares and other types of commissions or charges. Such charges will be
payable by the Fund and, therefore, will be borne indirectly by its
shareholders.
MUNICIPAL SECURITIES
The Ohio Tax-Exempt Bond, Pennsylvania Municipal Bond and
National Tax Exempt Bond and Michigan Municipal Bond Funds may invest in
Municipal Securities. The two principal classifications of Municipal Securities
consist of "general obligation" and "revenue" issues. The Funds also may invest
in "moral obligation" issues, which are normally issued by special purpose
authorities. Municipal Bonds include debt obligations issued by
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governmental entities to obtain funds for various public purposes, including the
construction of a wide range of public facilities, the refunding of outstanding
obligations, and the extension of loans to public institutions and facilities.
Private activity bonds may be purchased if the interest paid is excludable from
federal income tax. Private activity bonds are issued by or on behalf of states
or political subdivisions thereof to finance privately owned or operated
facilities for business and manufacturing, housing, sports, and pollution
control and to finance activities of and facilities for charitable institutions.
Private activity bonds are also used to finance public facilities such as
airports, mass transit systems, ports, parking and low income housing. The
payment of the principal and interest on private activity bonds is dependent
solely on the ability of the facility's user to meet its financial obligations
and may be secured by a pledge of real and personal property so financed.
Municipal Securities that are payable only from the revenues
derived from a particular facility may be adversely affected by federal or state
laws, regulations or court decisions which make it more difficult for the
particular facility to generate revenues sufficient to pay such interest and
principal, including, among others, laws, decisions and regulations which limit
the amount of fees, rates or other charges which may be imposed for use of the
facility or which increase competition among facilities of that type or which
limit or otherwise have the effect of reducing the use of such facilities
generally, thereby reducing the revenues generated by the particular facility.
Municipal Securities, the payment of interest and principal on which is insured
in whole or in part by a governmentally created fund, may be adversely affected
by laws or regulations which restrict the aggregate proceeds available for
payment of principal and interest in the event of a default on such municipal
securities. Similarly, the payment of interest and principal on Municipal
Securities may be adversely affected by respective state laws which limit the
availability of remedies or the scope of remedies available in the event of a
default on such municipal securities. Because of the diverse nature of such laws
and regulations and the impossibility of either predicting in which specific
Municipal Securities the Funds will invest from time to time or predicting the
nature or extent of future judicial interpretations or changes in existing laws
or regulations or the future enactment or adoption of additional laws or
regulations, it is not presently possible to determine the impact of such laws,
regulations and judicial interpretations on the securities in which the Funds
may invest and, therefore, on the shares of the Fund.
There are, of course, variations in the quality of Municipal
Securities both within a particular classification and between classifications,
and the yields on Municipal Securities depend upon a variety of factors,
including the financial condition of the issuer, the general conditions of the
municipal bond market, the size of a particular offering, the maturity of the
obligation and the rating of the issue. The ratings of rating agencies represent
their opinions as to the quality of Municipal Securities. It should be
emphasized, however, that ratings are general and are not absolute standards of
quality, and Municipal Securities with the same maturity, interest rate and
rating may have different yields while Municipal Securities of the same maturity
and interest rate with different ratings may have the same yield. Subsequent to
its purchase by a Fund, an issue of Municipal Securities may cease to be rated
or its rating may be reduced below the minimum rating required for purchase by
the Funds. The Funds' adviser will consider such an event in determining whether
they should continue to hold the obligation.
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The payment of principal and interest on most Municipal
Securities purchased by the Funds will depend upon the ability of the issuers to
meet their obligations. An issuer's obligations under its Municipal Securities
are subject to the provisions of bankruptcy, insolvency and other laws affecting
the rights and remedies of creditors, such as the Federal Bankruptcy Code, and
laws, if any, which may be enacted by federal or state legislatures extending
the time for payment of principal or interest, or both, or imposing other
constraints upon enforcement of such obligations or upon the ability of
municipalities to levy taxes. The power or ability of an issuer to meet its
obligations for the payment of interest or the principal of its Municipal
Securities may be materially adversely affected by litigation or other
conditions.
Certain Municipal Securities held by the Funds may be insured
at the time of issuance as to the timely payment of principal and interest. The
insurance policies will usually be obtained by the issuer or original purchaser
of the Municipal Securities at the time of their original issuance. In the event
that the issuer defaults on interest or principal payments, the insurer of the
obligation is required to make payment to the bondholders upon proper
notification. There is, however, no guarantee that the insurer will meet its
obligations. In addition, such insurance will not protect against market
fluctuations caused by changes in interest rates and other factors.
Municipal notes in which the Funds may invest include, but are
not limited to, general obligation notes, tax anticipation notes (notes sold to
finance working capital or capital facilities needs of the issuer in
anticipation of receiving taxes on a future date), revenue anticipation notes
(notes sold to provide needed cash prior to receipt of expected non-tax revenues
from a specific source), bond anticipation notes, certificates of indebtedness,
demand notes and construction loan notes.
The Funds invest in Municipal Securities which at the time of
purchase are rated the following or higher: "BBB" by S&P or Fitch, "Baa" by
Moody's, or "A" by Duff in the case of bonds; "SP-2" by S&P, "F-2" by Fitch,
"Duff 2" by Duff, or "MIG-2" ("VMIG-2" for variable rate demand notes) by
Moody's in the case of notes; or "A-2" by S&P, "F-2" by Fitch, "Duff 2" by Duff,
Baa or "Prime-2" by Moody's in the case of tax-exempt commercial paper.
Securities that are unrated at the time of purchase will be
determined to be of comparable quality by the Funds' adviser pursuant to
guidelines approved by the Trust's Board of Trustees. If the rating of an
obligation held by a Fund is reduced below its rating requirements, the Fund
will sell the obligation when the adviser believes that it is in the best
interests of the Fund to do so. The applicable ratings are more fully described
in the Appendix.
Special Considerations Regarding Investment in Ohio Municipal Securities
As described in the Prospectus, the Ohio Tax Exempt Bond Fund
will invest most of its net assets in securities issued by or on behalf of (or
in certificates of participation in lease-purchase obligations of) the State of
Ohio, political subdivisions of the State, or agencies or instrumentalities of
the State or its political subdivisions (Ohio Obligations). The Ohio Tax Exempt
Bond Fund is therefore susceptible to general or particular economic, political
or
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regulatory factors that may affect issuers of Ohio Obligations. The following
information constitutes only a brief summary of some of the many complex factors
that may have an effect. The information does not apply to "conduit" obligations
on which the public issuer itself has no financial responsibility. This
information is derived from official statements of certain Ohio issuers
published in connection with their issuance of securities and from other
publicly available information, and is believed to be accurate. No independent
verification has been made of any of the following information.
Generally, the creditworthiness of Ohio Obligations of local
issuers is unrelated to that of obligations of the State itself, and the State
has no responsibility to make payments on those local obligations.
There may be specific factors that at particular times apply
in connection with investment in particular Ohio Obligations or in those
obligations of particular Ohio issuers. It is possible that the investment may
be in particular Ohio Obligations, or in those of particular issuers, as to
which those factors apply. However, the information below is intended only as a
general summary, and is not intended as a discussion of any specific factors
that may affect any particular obligation or issuer.
Ohio is the seventh most populous state. The 1990 Census count
of 10,847,000 indicated a 0.5% population increase from 1980. The Census
estimate for 1997 is 11,186,000.
While diversifying more into the service and other
non-manufacturing areas, the Ohio economy continues to rely in part on durable
goods manufacturing largely concentrated in motor vehicles and equipment, steel,
rubber products and household appliances. As a result, general economic
activity, as in many other industrially-developed states, tends to be more
cyclical than in some other states and in the nation as a whole. Agriculture is
an important segment of the economy, with over half the State's area devoted to
farming and approximately 16% of total employment in agribusiness.
In prior years, the State's overall unemployment rate was
commonly somewhat higher than the national figure. For example, the reported
1990 average monthly State rate was 5.7%, compared to the 5.5% national figure.
However, in recent years the State rates were below the national rates (4.3%
versus 4.5% in 1998). The unemployment rate and its effects vary among
geographic areas of the State.
There can be no assurance that future national, regional or
state-wide economic difficulties, and the resulting impact on State or local
government finances generally, will not adversely affect the market value of
Ohio Obligations held in the Ohio Tax Exempt Bond Fund or the ability of
particular obligors to make timely payments of debt service on (or lease
payments relating to) those Obligations.
The State operates on the basis of a fiscal biennium for its
appropriations and expenditures, and is precluded by law from ending its July 1
to June 30 fiscal year (FY) or fiscal biennium in a deficit position. Most State
operations are financed through the General Revenue
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Fund (GRF), for which the personal income and sales-use taxes are the major
sources. Growth and depletion of GRF ending fund balances show a consistent
pattern related to national economic conditions, with the ending FY balance
reduced during less favorable and increased during more favorable economic
periods. The State has well-established procedures for, and has timely taken,
necessary actions to ensure resource/expenditure balances during less favorable
economic periods. Those procedures included general and selected reductions in
appropriations spending.
The 1992-93 biennium presented significant challenges to State
finances, successfully addressed. To allow time to resolve certain budget
differences an interim appropriations act was enacted effective July 1, 1991; it
included GRF debt service and lease rental appropriations for the entire
biennium, while continuing most other appropriations for a month. Pursuant to
the general appropriations act for the entire biennium, passed on July 11, 1991,
$200 million was transferred from the Budget Stabilization Fund (BSF, a cash and
budgetary management fund) to the GRF in FY 1992.
Based on updated results and forecasts in the course of that
FY, both in light of a continuing uncertain nationwide economic situation, there
was projected, and then timely addressed, an FY 1992 imbalance in GRF resources
and expenditures. In response, the Governor ordered most State agencies to
reduce GRF spending in the last six months of FY 1992 by a total of
approximately $184 million; the $100.4 million BSF balance and additional
amounts from certain other funds were transferred late in the FY to the GRF, and
adjustments were made in the timing of certain tax payments.
A significant GRF shortfall (approximately $520 million) was
then projected for FY 1993. It was addressed by appropriate legislative and
administrative actions, including the Governor's ordering $300 million in
selected GRF spending reductions and subsequent executive and legislative action
(a combination of tax revisions and additional spending reductions). The June
30, 1993 ending GRF fund balance was approximately $111 million, of which, as a
first step to replenishment, $21 million was deposited in the BSF.
None of the spending reductions were applied to appropriations
needed for debt service on or lease rentals relating to any State obligations.
The 1994-95 biennium presented a more affirmative financial
picture. Based on June 30, 1994 balances, an additional $260 million was
deposited in the BSF. The biennium ended June 30, 1995 with a GRF ending fund
balance of $928 million, of which $535.2 million was transferred into the BSF.
The significant GRF fund balance, after leaving in the GRF an unreserved and
undesignated balance of $70 million, was transferred to the BSF and other funds
including school assistance funds and, in anticipation of possible federal
program changes, a human services stabilization fund.
From a higher than forecast 1996-97 mid-biennium GRF fund
balance, $100 million was transferred for elementary and secondary school
computer network purposes and $30 million to a new State transportation
infrastructure fund. Approximately $400.8 million
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served as a basis for temporary 1996 personal income tax reductions aggregating
that amount. The 1996-97 biennium-ending GRF fund balance was $834.9 million. Of
that, $250 million went to school building construction and renovation, $94
million to the school computer network, $44.2 million for school textbooks and
instructional materials and a distance learning program, and $34 million to the
BSF and the $263 million balance to a State income tax reduction fund.
The GRF appropriations act for the 1998-99 biennium was passed
on June 25, 1997 and promptly signed (after selective vetoes) by the Governor.
All necessary GRF appropriations for State debt service and lease rental
payments then projected for the biennium were included in that act (and are
included in the pending House and Senate-passed appropriation bills for FY
2000-01). Subsequent legislation increased the FY 1999 GRF appropriation level
for elementary and secondary education, with the increase funded in part by
mandated small percentage reductions in State appropriations for various State
agencies and institutions. Expressly exempt from those reductions are all
appropriations for debt service, including lease rental payments.
The BSF had a June 8, 1999 balance of more than $906 million.
The State's incurrence or assumption of debt without a vote of
the people is, with limited exceptions, prohibited by current State
constitutional provisions. The State may incur debt, limited in amount to
$750,000, to cover casual deficits or failures in revenues or to meet expenses
not otherwise provided for. The Constitution expressly precludes the State from
assuming the debts of any local government or corporation. (An exception is made
in both cases for any debt incurred to repel invasion, suppress insurrection or
defend the State in war.)
By 15 constitutional amendments approved from 1921 to date
(the latest adopted in 1995) Ohio voters authorized the incurrence of State debt
and the pledge of taxes or excises to its payment. At June 8, 1999, almost $1.14
billion (excluding certain highway bonds payable primarily from highway use
receipts) of this debt was outstanding or awaiting delivery. The only such State
debt at that date still authorized to be incurred were portions of the highway
bonds, and the following: (a) up to $100 million of obligations for coal
research and development may be outstanding at any one time ($23.9 million
outstanding); (b) $240 million of obligations previously authorized for local
infrastructure improvements, no more than $120 million of which may be issued in
any calendar year (over $1 billion outstanding) and (c) up to $200 million in
general obligation bonds for parks, recreation and natural resources purposes
which may be outstanding at any one time ($112.7 million outstanding or awaiting
delivery, with no more than $50 million to be issued in any one year).
The electors in 1995 approved a constitutional amendment
extending the local infrastructure bond program (authorizing an additional $1.2
billion of State full faith and credit obligations to be issued over 10 years
for the purpose), and authorizing additional highway bonds (expected to be
payable primarily from highway use receipts). The latter supersedes the prior
$500 million outstanding authorization, and authorizes not more than $1.2
billion to be outstanding at any time and not more than $220 million to be
issued in a fiscal year.
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The Constitution also authorizes the issuance of State
obligations for certain purposes, the owners of which do not have the right to
have excises or taxes levied to pay debt service. Those special obligations
include obligations issued by the Ohio Public Facilities Commission and the Ohio
Building Authority, and certain obligations issued by the State Treasurer, over
$5.2 billion of which were outstanding at June 8, 1999.
The General Assembly has placed on the November 1999 general
election ballot a proposed constitutional amendment relating to State debt. If
approved by the voters, it will authorize State general obligation debt to pay
costs of facilities for a system of common schools throughout the State and
facilities for state supported and assisted institutions of higher education.
That, and other debt represented by direct obligations of the State (such as
that authorized by the Ohio Public Facilities Commission and Ohio Building
Authority, and some authorized by the Treasurer), may not be issued if future FY
total debt service on those direct obligations to be paid from the GRF or net
lottery proceeds exceeds 5% of total estimated revenues of the State for the GRF
and from net State lottery proceeds during the FY of issuance.
Aggregate FY 1998 rental payments under various capital lease
and lease purchase agreements were approximately $9.1 million. In recent years,
State agencies have also participated in transportation and office building
projects that may have some local as well as State use and benefit, in
connection with which the State enters into lease purchase agreements with terms
ranging from 7 to 20 years. Certificates of participation, or special obligation
bonds of the State or a local agency, are issued that represent fractionalized
interests in or are payable from the State's anticipated payments. The State
estimates highest future FY payments under those agreements (as of June 8, 1999)
to be approximately $25.8 million (of which $22 million is payable from sources
other than the GRF, such as federal highway money distributions). State payments
under all those agreements are subject to biennial appropriations, with the
lease terms being two years subject to renewal if appropriations are made.
A 1990 constitutional amendment authorizes greater State and
political subdivision participation (including financing) in the provision of
housing. The General Assembly may for that purpose authorize the issuance of
State obligations secured by a pledge of all or such portion as it authorizes of
State revenues or receipts (but not by a pledge of the State's full faith and
credit).
A 1994 constitutional amendment pledges the full faith and
credit and taxing power of the State to meeting certain guarantees under the
State's tuition credit program which provides for purchase of tuition credits,
for the benefit of State residents, guaranteed to cover a specified amount when
applied to the cost of higher education tuition. (A 1965 constitutional
provision that authorized student loan guarantees payable from available State
moneys has never been implemented, apart from a "guarantee fund" approach funded
essentially from program revenues.)
State and local agencies issue obligations that are payable
from revenues from or relating to certain facilities (but not from taxes). By
judicial interpretation, these obligations are
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not "debt" within constitutional provisions. In general, payment obligations
under lease-purchase agreements of Ohio public agencies (in which certificates
of participation may be issued) are limited in duration to the agency's fiscal
period, and are renewable only upon appropriations being made available for the
subsequent fiscal period.
Local school districts in Ohio receive a major portion
(state-wide aggregate approximately 46% in recent years) of their operating
moneys from State subsidies, but are dependent on local property taxes, and in
123 districts (as of June 8, 1999) from voter-authorized income taxes, for
significant portions of their budgets. Litigation, similar to that in other
states, has been pending questioning the constitutionality of Ohio's system of
school funding. The Ohio Supreme Court has concluded that aspects of the system
(including basic operating assistance and the loan program referred to below)
are unconstitutional, and ordered the State to provide for and fund a system
complying with the Ohio Constitution, staying its order to permit time for
responsive corrective actions. After a further hearing, the trial court has
decided that steps taken to date by the State to enhance school funding have not
met the requirements of the Supreme Court decision; the State has filed a notice
of appeal with the Supreme Court, and that Court has issued a stay, pending
appeal, of the implementation of the trial court's order. A small number of the
State's 612 local school districts have in any year required special assistance
to avoid year-end deficits. A program has provided for school district cash need
borrowing directly from commercial lenders, with diversion of State subsidy
distributions to repayment if needed. Recent borrowings under this program
totaled $71.1 million for 29 districts in FY 1995 (including $29.5 million for
one), $87.2 million for 20 districts in FY 1996 (including $42.1 million for
one), $113.2 million for 12 districts in FY 1997 (including $90 million to one
for restructuring its prior loans), and $23.4 million for 10 districts in FY
1998.
Ohio's 943 incorporated cities and villages rely primarily on
property and municipal income taxes for their operations. With other
subdivisions, they also receive local government support and property tax relief
moneys distributed by the State.
For those few municipalities and school districts that on
occasion have faced significant financial problems, there are statutory
procedures for a joint State/local commission to monitor the fiscal affairs and
for development of a financial plan to eliminate deficits and cure any defaults.
(Similar procedures have recently been extended to counties and townships.)
Since inception for municipalities in 1979, these "fiscal emergency" procedures
have been applied to 26 cities and villages; for 20 of them the fiscal situation
was resolved and the procedures terminated (one city is in preliminary "fiscal
watch" status). As of June 8, 1999, a school district "fiscal emergency"
provision was applied to nine districts, and ten were on preliminary "fiscal
watch" status.
At present the State itself does not levy ad valorem taxes on
real or tangible personal property. Those taxes are levied by political
subdivisions and other local taxing districts. The Constitution has since 1934
limited to 1% of true value in money the amount of the aggregate levy (including
a levy for unvoted general obligations) of property taxes by all overlapping
subdivisions, without a vote of the electors or a municipal charter provision,
and statutes limit the amount of that aggregate levy to 10 mills per $1 of
assessed valuation
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(commonly referred to as the "ten-mill limitation"). Voted general obligations
of subdivisions are payable from property taxes that are unlimited as to amount
or rate.
Special Risk Considerations Regarding Investment in Pennsylvania Securities
Potential shareholders should consider the fact that the
Pennsylvania Tax Exempt Bond Fund's portfolio consists primarily of securities
issued by the Commonwealth of Pennsylvania (the "Commonwealth"), its
municipalities and authorities and should realize that the Fund's performance is
closely tied to general economic conditions within the Commonwealth as a whole
and to economic conditions within particular industries and geographic areas
located within the Commonwealth.
Although the General Fund of the Commonwealth (the principal
operating fund of the Commonwealth) experienced deficits in fiscal 1990 and
1991, tax increases and spending decreases have resulted in surpluses the last
six years; as of June 30, 1998, the General Fund had a surplus of $1,364.9
million.
Pennsylvania's economy historically has been dependent upon
heavy industry, but has diversified recently into various services, particularly
into medical and health services, education and financial services. Agricultural
industries continue to be an important part of the economy, including not only
the production of diversified food and livestock products, but substantial
economic activity in agribusiness and food-related industries. Service
industries currently employ the greatest share of non-agricultural workers,
followed by the categories of trade and manufacturing. Future economic
difficulties in any of these industries could have an adverse impact on the
finances of the Commonwealth or its municipalities, and could adversely affect
the market value of the Bonds in the Pennsylvania Trust or the ability of the
respective obligors to make payments of interest and principal due on such
Bonds.
Certain litigation is pending against the Commonwealth that
could adversely affect the ability of the Commonwealth to pay debt service on
its obligations including as of June 1, 1999, suits relating to the following
matters: (i) In February 1999, a taxpayer filed a petition for review in the
Commonwealth Court of Pennsylvania asking the court to declare that Chapter 5
(relating to Sports Facilities Financing) of the Capital Facilities Debt
Enabling Act is in violation of the Pennsylvania Constitution. Commonwealth
Court denied the taxpayer's motion for a preliminary injunction and the Supreme
Court denied an appeal of such denial. The respondents have filed preliminary
objections in the nature of a demurrer, requesting the Court dismiss the case
with prejudice. Oral arguments before the Commonwealth Court regarding the
preliminary objections were scheduled for May 19, 1999, (ii) The American Civil
Liberties Union ("ACLU") filed suit in federal court demanding additional
funding for child welfare services; the Commonwealth settled a similar suit in
the Commonwealth Court of Pennsylvania and is seeking the dismissal of the
federal suit, among other things, because of that settlement. After its earlier
denial of class certification was reversed by the Third Circuit Court of
Appeals, the district court granted class certification to the ACLU, and the
parties are proceeding with discovery. In July 1998, a settlement agreement was
reached with the City of Philadelphia. The Commonwealth has agreed to pay
$100,000 to settle plaintiffs' $1.4 million claim for attorney's
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fees and to take other actions in exchange for a full and final release and
dismissal of the case against the Commonwealth parties. The settlement was
approved by the district court on February 1, 1999, and the case was dismissed;
(iii) In 1987, the Supreme Court of Pennsylvania held the statutory scheme for
county funding of the judicial system to be in conflict with the constitution of
the Commonwealth, but it stayed judgment pending enactment by the legislature of
funding consistent with the opinion, and the legislature has yet to consider
legislation implementing the judgment. In 1992, a new action in mandamus was
filed seeking to compel the Commonwealth to comply with the original decision.
The Court issued a writ in mandamus and appointed a special master in 1996 to
submit a plan for implementation, which it intended to require by January 1,
1998. In January 1997, the Court established a committee, consisting of the
special master and representatives of the Executive and Legislative branches, to
develop an implementation plan; an implementation plan was filed in July 1997.
In April 1998 the General Assembly appropriated approximately $12 million for
the funding of county court administrator, under the implementation plan.
However, no legislation has been approved for the payment of Commonwealth
compensation county court administrators. In May 1998, an action was filed by
the Administrative Governing Board of the First Judicial District claiming the
city government has failed to provide adequate Funds for the Operation of the
courts of the First Judicial District. In November 1998, the First Judicial
District Governing Board filed with the Supreme Court a renewed motion for entry
of an order providing emergency relief, which requests the City of Philadelphia
to provide funds to the First Judicial District Courts, in order to maintain
necessary judicial operations throughout the end of the fiscal year. Although
the Supreme Court issued no order, the City is apparently continuing its funding
of the courts; (iv) Litigation was filed in both state and federal court by an
association of rural and small schools and several individual school districts
and parents challenging the constitutionality of the Commonwealth's system for
funding local school districts -- the federal case has been stayed pending the
resolution of the state case; a trial in the state case commenced in January
1997 and has recessed; no briefing schedule or date for oral argument has yet
been set; On July 9, 1998 the state court issued an opinion dismissing the
petitioners' claim in its entirety. On July 20, 1998 the petitioner filed a
timely motion for post-trial relief, taking exception to the state court's
findings of fact and conclusions of law. The Supreme Court, after assuming
jurisdiction in the case directed that all parties submit briefs on all issues
presented in the petitioners' motion for post-trial relief; and (v) In 1995, the
Commonwealth, the Governor of Pennsylvania, the City of Philadelphia and the
Mayor of Philadelphia were joined as additional respondents in an enforcement
action commenced in Commonwealth Court in 1973 by the Pennsylvania Human
Relations Commission against the School District of Philadelphia pursuant to the
Pennsylvania Human Relations Act. The Commonwealth and the City were joined to
determine their liability, if any, to pay additional costs necessary to remedy
segregation-related conditions found to exist in Philadelphia public schools. In
January 1997, the Pennsylvania Supreme Court ordered the parties to brief
certain issues. The Supreme Court heard oral argument on the issues in February
1998 but no decision has been issued, (vi) In February 1997, five residents of
the City of Philadelphia, joined by the City, the School District and others,
filed a civil action in the Commonwealth Court for declaratory judgment against
the Commonwealth and certain Commonwealth officers and officials that the
defendants had failed to provide an adequate quality of education in
Philadelphia, as required by the Pennsylvania Constitution. In March 1998, the
Commonwealth Court dismissed the case on the grounds that the issues prescribed
are not justifiable. An appeal
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to the Supreme Court of Pennsylvania is pending, (vii) In April 1995, the
Commonwealth reached a settlement agreement with Fidelity Bank and certain other
banks with respect to the constitutional validity of the Amended Bank Shares Act
and related legislation; although this settlement agreement did not require
expenditure of Commonwealth funds, the petitions of other banks are currently
pending with the Commonwealth Court; In January 1998 a panel of the Commonwealth
Court ruled in favor of the Commonwealth, finding no constitutional violation.
Royal Bank filed exceptions, which the Commonwealth Court EN BANC denied. Royal
Bank appealed to the Supreme Court and briefing has been completed. The Court
has not yet scheduled oral arguments. (viii) Suit has been filed in state court
against the State Employees' Retirement Board claiming that the use of gender
district actuarial factors to compute benefits received before August 1, 1983
violates the Pennsylvania Constitution (gender-neutral factors have been used
since August 1, 1983, the date on which the U.S. Supreme Court held in ARIZONA
GOVERNING COMMITTEE V. NORRIS that the use of such factors violated the Federal
Constitution); in 1996, the Commonwealth Court heard oral argument EN BLANC, and
in 1997 denied the plaintiff's motion for judgement on the pleading. The case is
currently in discovery. (ix) In March 1997, Rite Aid of Pennsylvania, Inc. filed
in the United States District Court for the Eastern District of Pennsylvania, a
civil action against the Secretary of Public Welfare alleging that regulations
promulgated in October 1995 governing payment rates for prescription drugs and
related services provided to recipients of benefits under the Pennsylvania
Medical Assistance Program violated provisions of Title XIX of the Social
Security Act and regulations of the U.S. Department of Health and Human
Services, as well as provisions of State law and Federal constitutional due
process. In August 1998, the court declared that certain pharmacy reimbursement
rates were in violation of the Medicaid Act and enjoined the Secretary from
using these rates to reimburse for any prescription drugs and related services
provided to Medicaid recipients on and after October 1, 1998. The Secretary
filed motions for appeal and in March 1999, the U.S. Court of Appeals for the
Third Circuit reversed the district court's order and remanded the case for
further proceedings. The plaintiffs on April 5, 1999 filed an application for
rehearing. (x) On March 9, 1998 several residents of the City of Philadelphia
along with the School District of Philadelphia and others brought suit in the
United States District Court for the Eastern District of Pennsylvania against
the Governor, the Secretary of Education and others alleging that the defendants
are violating a regulation of the U.S. Department of Education promulgated under
Title VI of the Civil Rights Act of 1964 in that the Commonwealth's system for
funding public schools has the effect of discrimination on the basis of race. On
November 18, 1998, the district court dismissed the action with prejudice. An
appeal by the plaintiffs was filed and the parties are awaiting the scheduling
of oral argument.
Although there can be no assurance that such conditions will
continue, the Commonwealth's general obligation bonds are currently rated AA by
S&P and A3 and A1 by Moody's and Philadelphia's and Pittsburgh's general
obligation bonds are currently rated BBB and BBB, respectively, by S&P and Baa2
and Baa1, respectively, by Moody's.
The City of Philadelphia (the "City") experienced a series of
General Fund deficits for fiscal years 1988 through 1992 and, while its general
financial situation has improved, the City is still seeking a long-term solution
for its economic difficulties. The audited balance of the City's General Fund as
of June 30, 1998 was a surplus of $169.2 million.
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In recent years an authority of the Commonwealth, the
Pennsylvania Intergovernmental Cooperation Authority ("PICA"), has issued
approximately $1.76 billion of special revenue bonds on behalf of the City to
cover budget shortfalls, to eliminate projected deficits and to fund capital
spending. As one of the conditions of issuing bonds on behalf of the City, PICA
exercises oversight of the City's finances. The City is currently operating
under a five year plan approved by PICA in 1996. PICA's power to issue further
bonds to finance capital projects expired on December 31, 1994. PICA's authority
to issue bonds to finance cash flow deficits expired on December 31, 1996, but
its authority to refund existing debt will not expire. PICA had approximately
$1.1 billion in special revenue bonds outstanding as of April 15, 1999.
SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN MICHIGAN
MUNICIPAL SECURITIES. The following information is drawn from various Michigan
governmental publications, particularly the Governor's Executive Budget for
fiscal year 1999-2000, and from official statements relating to securities
offerings of the State and its political subdivisions. While the Trust has not
independently verified such information, it has no reason to believe that it is
not correct in all material respects.
The State of Michigan's economy is principally dependent on
manufacturing (particularly automobiles, office equipment and other durable
goods), tourism and agriculture, and historically has been highly cyclical.
Total State wage and salary employment is estimated to have
grown by 1.9% in 1998. The rate of unemployment is estimated to have been 3.8%
in 1998, below the national average for the fifth consecutive year. Personal
income grew at an estimated 5.1% annual rate in 1998, up from the 4.6% growth
reported for 1997.
During the past five years, improvements in the Michigan
economy have resulted in increased revenue collections which, together with
restraints on the expenditure side of the budget, have resulted in State General
Fund budget surpluses, most of which were transferred to the State's
Counter-Cyclical Budget and Economic Stabilization Fund. The balance of that
Fund as of September 30, 1998 is estimated to have been in excess of $1.1
billion.
The Michigan Constitution limits the amount of total State
revenues that can be raised from taxes and certain other sources. State revenues
(excluding federal aid and revenues for payment of principal and interest on
general obligation bonds) in any fiscal year are limited to a fixed percentage
of State personal income in the prior calendar year or the average of the prior
three calendar years, whichever is greater, and this fixed percentage equals the
percentage of the 1978-79 fiscal year state government revenues to total
calendar year 1977 State personal income (which was 9.49%).
The Michigan Constitution also provides that the proportion of
State spending paid to all units of local government to total State spending may
not be reduced below the proportion in effect in the 1978-79 fiscal year. The
State originally determined that portion to be 41.6%. If such spending does not
meet the required level in a given year, an additional
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appropriation for local governmental units is required by the following fiscal
year; which means the year following the determinations of the shortfall,
according to an opinion issued by the State's Attorney General. Spending for
local units met this requirement for fiscal years 1986-87 through 1991-92. As
the result of litigation, the State agreed to reclassify certain expenditures,
beginning with fiscal year 1992-93, and has recalculated the required percentage
of spending paid to local government units to be 48.97%.
The State has issued and has outstanding general obligation
full faith and credit bonds for Water Resources, Environmental Protection
Program, Recreation Program and School Loan purposes. As of September 30, 1998,
the State had approximately $874 million of general obligation bonds
outstanding.
The State may issue notes or bonds without voter approval for
the purposes of making loans to school districts. The proceeds of such notes or
bonds are deposited in the School Bond Loan Fund maintained by the State
Treasurer and used to make loans to school districts for payment of debt on
qualified general obligation bonds issued by local school districts.
The State is a party to various legal proceedings seeking
damages or injunctive or other relief. In addition to routine litigation,
certain of these proceedings could, if unfavorably resolved from the point of
view of the State, substantially affect State programs or finances. As of early
1998, these lawsuits involved programs generally in the areas of corrections,
tax collection, commerce, and proceedings involving budgetary reductions to
school districts and governmental units, and court funding. Notable among these
legal proceedings are lawsuits brought by a number of school districts
challenging the constitutionality of certain state-mandated special education
services without corresponding state funding.
The State Constitution limits the extent to which
municipalities or political subdivisions may levy taxes upon real and personal
property through a process that regulates assessments.
On March 15, 1994, Michigan voters approved a property tax and
school finance reform measure commonly known as Proposal A. Under Proposal A, as
approved, effective May 1, 1994, the State sales and use tax increased from 4%
to 6%, the State income tax decreased from 4.6% to 4.4%, the cigarette tax
increased from $.25 to $.75 per pack and an additional tax of 16% of the
wholesale price began to be imposed on certain other tobacco products. A .75%
real estate transfer tax became effective January 1, 1995. Beginning in 1994, a
state property tax of 6 mills began to be imposed on all real and personal
property currently subject to the general property tax. All local school boards
are authorized, with voter approval, to levy up to the lesser of 18 mills or the
number of mills levied in 1993 for school operating purposes on nonhomestead
property and nonqualified agricultural property. Proposal A contains additional
provisions regarding the ability of local school districts to levy taxes, as
well as a limit on assessment increases for each parcel of property, beginning
in 1995. Such increases for each parcel of property are limited to the lesser of
5% or the rate of inflation. When property is subsequently sold, its assessed
value will revert to the current assessment level of 50% of true cash value.
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Under Proposal A, much of the additional revenue generated by the new taxes will
be dedicated to the State School Aid Fund.
Proposal A and its implementing legislation shifted
significant portions of the cost of local school operations from local school
districts to the State and raised additional State revenues to fund these
additional State expenses. These additional revenues will be included within the
State's constitutional revenue limitations and may impact the State's ability to
raise additional revenues in the future.
A state economy during a recessionary cycle would also, as a
separate matter, adversely affect the capacity of users of facilities
constructed or acquired through the proceeds of private activity bonds or other
"revenue" securities to make periodic payments for the use of those facilities.
OTHER TAX-EXEMPT INSTRUMENTS
Investments by the Ohio Tax Exempt Bond, Pennsylvania
Municipal Bond and National Tax Exempt Bond Funds, Ohio Municipal Money Market,
Pennsylvania Tax Exempt Money Market and Tax Exempt Money Market Funds in
tax-exempt commercial paper will be limited to investments in obligations which
are rated at least A-2 or SP-2 by S&P, F-2 by Fitch or Prime-2, MIG-2 or VMIG-2
by Moody's at the time of investment or which are of equivalent quality as
determined by the Adviser. Investments in floating rate instruments will
normally involve industrial development or revenue bonds which provide that the
investing Fund can demand payment of the obligation at all times or at
stipulated dates on short notice (not to exceed 30 days) at par plus accrued
interest. A Fund must use the shorter of the period required before it is
entitled to prepayment under such obligations or the period remaining until the
next interest rate adjustment date for purposes of determining the maturity.
Such obligations are frequently secured by letters of credit or other credit
support arrangements provided by banks. The quality of the underlying credit or
of the bank, as the case may be, must, in the opinion of the Adviser be
equivalent to the commercial paper ratings stated above. The Adviser will
monitor the earning power, cash flow and liquidity ratios of the issuers of such
instruments and the ability of an issuer of a demand instrument to pay principal
and interest on demand. Other types of tax-exempt instruments may also be
purchased as long as they are of a quality equivalent to the bond or commercial
paper ratings stated above.
PORTFOLIO TURNOVER
The portfolio turnover rate for each Fund is calculated by
dividing the lesser of purchases or sales of portfolio securities for the year
by the monthly average value of the portfolio securities. The calculation
excludes U.S. Government securities and all securities whose maturities at the
time of acquisition were one year or less. Portfolio turnover may vary greatly
from year to year as well as within a particular year, and may also be affected
by cash requirements for redemptions of shares and by requirements which enable
the Trust to receive
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certain favorable tax treatment. Portfolio turnover will not be a limiting
factor in making decisions.
The annual portfolio turnover rate for the International
Equity, Small Cap Value, Small Cap Growth, Equity Growth, Core Equity
and Equity Income Funds is not expected to exceed 100% under normal
market conditions. Portfolio turnover for the Tax Managed Equity and
Equity Index Funds is not expected to exceed 25% and 10%, respectively,
under normal market conditions. The annual portfolio turnover rate is
not expected to exceed 100%, 200% and 100% for the Mid Cap Growth, U.S.
Government Income and Michigan Municipal Bond Funds, respectively,
under normal market conditions. The annual rate for the Total Return
Advantage, Intermediate Term Bond, GNMA, and Enhanced Income Funds is
not expected to exceed 100% under normal market conditions. Annual
portfolio turnover for the Treasury Plus Money Market Fund is expected
to be zero percent for regulatory purposes.
INVESTMENT LIMITATIONS
Each Fund is subject to a number of investment limitations.
The following investment limitations are matters of fundamental policy and may
not be changed with respect to a particular Fund without the affirmative vote of
the holders of a majority of the Fund's outstanding shares.
No Fund may:
1. Purchase any securities which would cause 25% or more of
the value of its total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry, provided that:
(a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. government, any
state, territory or possession of the United States, the
District of Columbia or any of their authorities, agencies,
instrumentalities or political subdivisions, and repurchase
agreements secured by such instruments;
(b) wholly-owned finance companies will be
considered to be in the industries of their parents if their
activities are primarily related to financing the activities
of the parents;
(c) utilities will be divided according to
their services, for example, gas, gas transmission, electric
and gas, electric, and telephone will each be considered a
separate industry;
(d) personal credit and business credit
businesses will be considered separate industries.
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2. Make loans, except that the Fund may purchase and hold debt
instruments and enter into repurchase agreements in accordance with its
investment objective and policies and may lend portfolio securities in an amount
not exceeding one-third of its total assets.
3. Borrow money, issue senior securities or mortgage, pledge
or hypothecate its assets except to the extent permitted under the 1940 Act.
In addition, the National Tax Exempt Bond Fund may not
purchase securities of any one issuer, other than securities issued or
guaranteed by the U.S. government or its agencies or instrumentalities if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in such issuer or the Fund would hold more than 10% of
any class of securities of the issuer or more than 10% of the outstanding voting
securities of the issuer, except that up to 25% of the value of the Fund's total
assets may be invested without regard to such limitations.
The Equity, Balanced Allocation and Fixed Income Funds may not
purchase securities of any one issuer, other than securities issued or
guaranteed by the U.S. government or its agencies or instrumentalities or, in
the case of the International Equity Fund, 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.
For purposes of the above investment limitations, a security
is considered to be issued by the governmental entity (or entities) whose assets
and revenues back the security, or, with respect to a private activity bond that
is backed only by the assets and revenues of a nongovernmental user, a security
is considered to be issued by such nongovernmental user.
Except for the Funds' policy on illiquid securities and
borrowing, if a percentage limitation is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in the
value of a Fund's portfolio securities will not constitute a violation of such
limitation for purposes of the 1940 Act.
Opinions relating to the validity of Municipal Securities and
to the exemption of interest thereon from federal and state income taxes are
rendered by qualified legal counsel to the respective issuers at the time of
issuance. Neither the Funds nor their adviser will review the proceedings
relating to the issuance of Municipal Securities or the basis for such opinions.
In addition to the investment limitations disclosed above, the
Funds are subject to the following investment limitations which may be changed
with respect to a particular Fund only by a vote of the holders of a majority of
such Fund's outstanding shares (as defined under "Miscellaneous" in the
Prospectus).
No Fund may:
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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; (c) purchase publicly traded securities
of companies engaging in whole or in part in such activities. For
purposes of this investment limitation, "Commodities" includes
Commodity Contracts.
3. Act as an underwriter of securities within the meaning of
the Securities Act of 1933 except insofar as the Fund might be deemed
to be an underwriter upon the disposition of portfolio securities
acquired within the limitation on purchases of illiquid securities and
except to the extent that the purchase of obligations directly from the
issuer thereof in accordance with its investment objective, policies
and limitations may be deemed to be underwriting.
In addition, the Funds are subject to the following
non-fundamental limitations, which may be changed without the vote of
shareholders:
No Fund may:
1. Acquire any other investment company or investment company
security except in connection with a merger, consolidation, reorganization or
acquisition of assets or where otherwise permitted under the 1940 Act.
2. Write or sell put options, call options, straddles,
spreads, or any combination thereof, except as consistent with the Fund's
investment objective and policies for transactions in options on securities or
indices of securities, futures contracts and options on futures contracts and in
similar investments.
3. Purchase securities on margin, make short sales of
securities or maintain a short position, except that, as consistent with a
Fund's investment objective and policies, (a) this investment limitation shall
not apply to the Fund's transactions in futures contracts and related options,
options on securities or indices of securities and similar instruments, and (b)
it may obtain short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities.
4. Purchase securities of companies for the purpose of
exercising control.
5. Invest more than 15% (10% in the case of the Money Market
Funds) of its net assets in illiquid securities.
6. Purchase securities while its outstanding borrowings
(including reverse repurchase agreements) are in excess of 5% of its total
assets. Securities held in escrow or in
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separate accounts in connection with a Fund's investment practices described in
its Prospectus or Statement of Additional Information are not deemed to be
pledged for purposes of this limitation.
With respect to each of the Ohio Tax Exempt and Pennsylvania
Tax Exempt Bond Funds, at the end of each quarter of its taxable year, (i) at
least 50% of the market value of its total assets will be invested in cash, U.S.
Government securities, securities of other regulated investment companies and
other securities, with such other securities of any one issuer limited for the
purposes of this calculation to an amount not greater than 5% of the value of
its total assets and 10% of the outstanding voting securities of such issuer,
and (ii) not more than 25% of the value of its total assets will be invested in
the securities of any one issuer (other than U.S. Government securities or the
securities of other regulated investment companies).
NET ASSET VALUE
---------------
The Trust uses the amortized cost method to value shares in
the Money Market Funds. Pursuant to this method, a security is valued at its
cost initially and thereafter a constant amortization to maturity of any
discount or premium is assumed, regardless of the impact of fluctuating interest
rates on the market value of the security. Where it is not appropriate to value
a security by the amortized cost method, the security will be valued either by
market quotations, or by fair value as determined by the Board of Trustees.
While this method provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price each respective Fund would receive if it sold the security. The value of
the portfolio securities held by each respective Fund will vary inversely to
changes in prevailing interest rates. Thus, if interest rates have increased
from the time a security was purchased, such security, if sold, might be sold at
a price less than its cost. Similarly, if interest rates have declined from the
time a security was purchased, such security, if sold, might be sold at a price
greater than its purchase cost. In either instance, if the security is held to
maturity, no gain or loss will be realized.
The Money Market Funds invest only in high-quality instruments
and maintains a dollar-weighted average portfolio maturity appropriate to its
objective of maintaining a stable net asset value per share, provided that a
Fund will neither purchase any security deemed to have a remaining maturity of
more than 397 calendar days within the meaning of the 1940 Act nor maintain a
dollar-weighted average portfolio maturity which exceeds 90 days. The Trust's
Board of Trustees has established procedures pursuant to rules promulgated by
the SEC, that are intended to help stabilize the net asset value per share of
each Fund for purposes of sales and redemptions at $1.00. These procedures
include review by the Board of Trustees, at such intervals as it deems
appropriate, to determine the extent, if any, to which the net asset value per
share of each Fund calculated by using available market quotations deviates from
$1.00 per share. In the event such deviation exceeds one-half of one percent,
the Board of Trustees will promptly consider what action, if any, should be
initiated. If the Board of Trustees believes that the extent of any deviation
from a Fund's $1.00 amortized cost price per share may result in material
dilution or other unfair results to investors or existing shareholders, it has
agreed to take
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such steps as it considers appropriate to eliminate or reduce, to the extent
reasonably practicable, any such dilution or unfair results. These steps may
include selling portfolio instruments prior to maturity; shortening the average
portfolio maturity; withholding or reducing dividends; redeeming shares in kind;
reducing the number of a Fund's outstanding shares without monetary
consideration; or utilizing a net asset value per share determined by using
available market quotations.
DIVIDENDS
---------
As stated, the Trust uses its best efforts to maintain the net
asset value per share of Money Market Funds at $1.00. As a result of a
significant expense or realized or unrealized loss incurred by the Funds, it is
possible that a Fund's net asset value per share may fall below $1.00. Should
the Trust incur or anticipate any unusual or unexpected significant expense or
loss which would affect disproportionately the income of a Fund for a particular
period, the Board of Trustees would at that time consider whether to adhere to
the present dividend policy with respect to the Funds or to revise it in order
to ameliorate to the extent possible the disproportionate effect of such expense
or loss on the income of the Fund experiencing such effect. Such expense or loss
may result in a shareholder's receiving no dividends for the period in which he
or she holds shares of a Fund and/or in his or her receiving upon redemption a
price per share lower than the price he or she paid.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
----------------------------------------------
Shares in the Trust are sold on a continuous basis by SEI
Investments Distribution Co. (the "Distributor"), which has agreed to use
appropriate efforts to solicit all purchase orders. The issuance of shares is
recorded on the books of the Trust. To change the commercial bank or account
designated to receive redemption proceeds, a written request must be sent to an
investor's financial institution at its principal office. Such requests must be
signed by each shareholder, with each signature guaranteed by a U.S. commercial
bank or trust company or by a member firm of a national securities exchange.
Guarantees must be signed by an authorized signatory and "Signature Guaranteed"
must appear with the signature. An investor's financial institution may request
further documentation from corporations, executors, administrators, trustees or
guardians, and will accept other suitable verification arrangements from foreign
investors, such as consular verification.
The Trust may suspend the right of redemption or postpone the
date of payment for shares for more than seven days during any period when (a)
trading on the Exchange is restricted by applicable rules and regulations of the
SEC; (b) the Exchange is closed for other than customary weekend and holiday
closings; (c) the SEC has by order permitted such suspension; or (d) an
emergency exists as determined by the SEC.
As described in the applicable Prospectuses, Class I
(formerly, Institutional) shares of the Funds are sold to certain qualified
investors at their net asset value without a sales
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charge. Class A (formerly, Retail) shares of the Funds are sold to public
investors at the public offering price based on a Fund's net asset value plus
a front-end load or sales charge as described in the Prospectus for Class A and
Class B Shares. Class B shares of the Money Market and Tax Exempt Funds are
available only to the holders of Class B shares of another Fund who wish to
exchange their Class B shares of such other Fund for Class B shares of the Money
Market and/or Tax Exempt Funds. Class B shares of the Funds are sold to public
investors at net asset value but are subject to a contingent deferred sales
charge which is payable upon redemption of such shares as described in the
Prospectus for Class A and Class B Shares. Class C shares of the Funds are sold
to public investors at net asset value but are subject to a contingent deferred
sales charge which is payable upon redemption of such shares as described in the
Prospectus for Class C Shares. There is no sales load or contingent deferred
sales charge imposed for shares acquired through the reinvestment of dividends
or distributions on such shares.
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For the fiscal year ended May 31, 1999, sales loads paid by shareholders were as
follows:
PORTFOLIO SALES LOADS FOR YEAR ENDED 1999
Armada International Equity Fund $
Armada Small Cap Value Fund $
Armada Small Cap Growth Fund $
Armada Equity Growth Fund $
Armada Tax Managed Equity Fund $
Armada Core Equity Fund $
Armada Equity Index Fund* $
Armada Equity Income Fund $
Armada Balanced Allocation Fund $
Armada Total Return Advantage Fund $
Armada Bond Fund $
Armada Intermediate Bond Fund $
Armada GNMA Fund $
Armada Enhanced Income Fund $
Armada Ohio Tax Exempt Bond Fund $
Armada Pennsylvania Municipal Bond Fund $
Armada National Tax Exempt Bond Fund $
*The Equity Index Fund commenced operations on __________. The figure
shown represents sales loads paid since this date.
As of May 31, 1999 the Mid Cap Growth, Large Cap Ultra, U.S.
Government Income and Michigan Municipal Bond have not commenced operations.
Automatic investment programs such as the monthly savings
program ("Program") described in the Prospectus offered by the Funds 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 or her shares at a price which is lower than their
purchase price. An investor may want to consider his or her 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
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of or comparison to an index such as the S&P 500 Index or Lehman Intermediate
Government Index.
OFFERING PRICE PER A SHARE OF THE FUND
An illustration of the computation of the offering price per
Class A share of the Funds, based on the estimated value of the Fund's net
assets and number of outstanding shares on May 31, 1999, are as follows:
TABLE
-----
INTERNATIONAL EQUITY FUND
Net Assets of Class A Shares............................ $______
Outstanding Class A Shares.............................. ______
Net Asset Value Per Share............................... $______
($______ / _______)
Sales Charge, ______% of
offering price (______% of
net asset value per share).............................. $______
Offering to Public...................................... $______
SMALL CAP VALUE FUND
Net Assets of Class A Shares............................ $______
Outstanding Class A Shares.............................. ______
Net Asset Value Per Share
($______ / _______)..................................... $______
Sales Charge, ______% of
offering price (______% of
net asset value per share).............................. $______
Offering to Public...................................... $______
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SMALL CAP GROWTH FUND
Net Assets of Class A Shares............................ $______
Outstanding Class A Shares.............................. ______
Net Asset Value Per Share
($______ / _______)..................................... $______
Sales Charge, ______% of
offering price (______% of
net asset value per share).............................. $______
Offering to Public...................................... $______
EQUITY GROWTH FUND
Net Assets of Class A Shares............................ $______
Outstanding Class A Shares.............................. ______
Net Asset Value Per Share
($______ / _______)..................................... $______
Sales Charge, ______% of
offering price (______% of
net asset value per share).............................. $______
Offering to Public...................................... $______
TAX MANAGED EQUITY FUND
Net Assets of Class A Shares............................ $______
Outstanding Class A Shares.............................. ______
Net Asset Value Per Share
($______ / _______)..................................... $______
Sales Charge, ______% of
offering price (______% of
net asset value per share).............................. $______
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Offering to Public...................................... $______
* Amounts are estimated as the Fund had not commenced operations as of
May 31, 1998.
CORE EQUITY FUND
Net Assets of Class A Shares............................ $______
Outstanding Class A Shares.............................. ______
Net Asset Value Per Share
($______ / _______)..................................... $______
Sales Charge, ______% of
offering price (______% of
net asset value per share).............................. $______
Offering to Public...................................... $______
EQUITY INDEX FUND
Net Assets of Class A Shares............................ $______
Outstanding Class A Shares.............................. ______
Net Asset Value Per Share
($______ / _______)..................................... $______
Sales Charge, ______% of
offering price (______% of
net asset value per share).............................. $______
Offering to Public...................................... $______
EQUITY INCOME FUND
Net Assets of Class A Shares............................ $______
Outstanding Class A Shares.............................. ______
Net Asset Value Per Share
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($______ / _______)..................................... $______
Sales Charge, ______% of
offering price (______% of
net asset value per share).............................. $______
Offering to Public...................................... $______
* Reflects current sales charge
BALANCED ALLOCATION FUND*
Net Assets of Class A Shares............................ $______
Outstanding Class A Shares.............................. ______
Net Asset Value Per Share
($______ / _______)..................................... $______
Sales Charge, ______% of
offering price (______% of
net asset value per share).............................. $______
Offering to Public...................................... $______
* Amounts are estimated as the Fund has not commenced operations.
TOTAL RETURN ADVANTAGE FUND
Net Assets of Class A Shares............................ $______
Outstanding Class A Shares.............................. ______
Net Asset Value Per Share
($______ / _______)..................................... $______
Sales Charge, ______% of
offering price (______% of
net asset value per share)*............................. $______
Offering to Public...................................... $______
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<PAGE> 189
* Reflects current sales charge
BOND FUND
Net Assets of Class A Shares............................ $______
Outstanding Class A Shares.............................. ______
Net Asset Value Per Share
($______ / _______)..................................... $______
Sales Charge, ______% of
offering price (______% of
net asset value per share)*............................. $______
Offering to Public...................................... $______
* Reflects current sales charge
INTERMEDIATE BOND FUND
Net Assets of Class A Shares............................ $______
Outstanding Class A Shares.............................. ______
Net Asset Value Per Share
($______ / _______)..................................... $______
Sales Charge, ______% of
offering price (______% of
net asset value per share)*............................. $______
Offering to Public...................................... $______
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GNMA FUND
Net Assets of Class A Shares............................ $______
Outstanding Class A Shares.............................. $______
Net Asset Value Per Share
($______ / _______)..................................... $______
Sales Charge, ______% of
offering price (______% of
net asset value per share)*............................. $______
Offering to Public...................................... $______
* Reflects current sales charge
ENHANCED INCOME FUND
Net Assets of Class A Shares............................ $______
Outstanding Class A Shares.............................. ______
Net Asset Value Per Share
($______ / _______)..................................... $______
Sales Charge, ______% of
offering price (______% of
net asset value per share).............................. $______
Offering to Public...................................... $______
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<PAGE> 191
OHIO TAX EXEMPT BOND FUND
Net Assets of Class A Shares.......................... $______
Outstanding Class A Shares............................ ______
Net Asset Value Per Share
($______ / _______)..................................... $______
Sales Charge, ______% of
offering price (______% of
net asset value per share).............................. $______
Offering to Public...................................... $______
PENNSYLVANIA TAX EXEMPT BOND FUND
Net Assets of Class A Shares.......................... $______
Outstanding Class A Shares............................ ______
Net Asset Value Per Share
($______ / _______)..................................... $______
Sales Charge, ______% of
offering price (______% of
net asset value per share).............................. $______
Offering to Public...................................... $______
NATIONAL TAX EXEMPT BOND FUND
Net Assets of Class A Shares............................ $______
Outstanding Class A Shares.............................. ______
Net Asset Value Per Share
($______ / _______)..................................... $______
Sales Charge, ______% of
offering price (______% of
net asset value per share).............................. $______
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<PAGE> 192
Offering to Public...................................... $______
ARMADA MID CAP GROWTH FUND
Net Assets of Class A Shares............................ $______
Outstanding Class A Shares.............................. ______
Net Asset Value Per Share
($______ / _______)..................................... $______
Sales Charge, ______% of
offering price (______% of
net asset value per share).............................. $______
Offering to Public...................................... $______
U.S. GOVERNMENT INCOME FUND
Net Assets of Class A Shares............................ $______
Outstanding Class A Shares.............................. ______
Net Asset Value Per Share
($______ / _______)..................................... $______
Sales Charge, ______% of
offering price (______% of
net asset value per share).............................. $______
Offering to Public...................................... $______
MICHIGAN MUNICIPAL BOND FUND
Net Assets of Class A Shares............................ $______
Outstanding Class A Shares.............................. ______
Net Asset Value Per Share
($______ / _______)..................................... $______
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Sales Charge, ______% of
offering price (______% of
net asset value per share).............................. $______
Offering to Public...................................... $______
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<PAGE> 194
EXCHANGE PRIVILEGE
Investors may exchange all or part of their Class A Shares,
Class B Shares or Class C Shares as described in the applicable Prospectus. Any
rights an Investor may have (or have waived) to reduce the sales load applicable
to an exchange, as may be provided in such 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 or his or her financial institution to
act on telephonic or written instructions from any person representing himself
or herself to be the shareholder and believed by the Transfer Agent or the
financial institution to be genuine. The Investor or his or her financial
institution must notify the Transfer Agent of his or her prior ownership of
Class A Shares, Class B Shares or Class C Shares and the account number. The
Transfer Agent's records of such instructions are binding.
DESCRIPTION OF SHARES
---------------------
The Trust is a Massachusetts business trust. The Trust's
Declaration of Trust authorizes the Board of Trustees to issue an unlimited
number of shares of beneficial interest and to classify or reclassify any
unissued shares of the Trust into one or more additional classes or series by
setting or changing in any one or more respects their respective preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption. Pursuant to
such authority, the Board of Trustees has authorized the issuance of the classes
or series of shares set forth in the Prospectuses, including classes or
series, which represent interests in the International Equity Fund (Class U,
Class U Special Series 1, Class U - Special Series 2 and Class U - Special
Series 3), Small Cap Value Fund (Class N, Class N - Special Series 1, Class N
- - Special Series 2 and Class N - Special Series 3), Small Cap Growth Fund
(Class X, Class X - Special Series 1, Class X - Special Series 2 and Class X
- - Special Series 3), Equity Growth Fund (Class H, Class H - Special Series 1,
Class H - Special Series 2 and Class H- Special Series 3), Tax Managed Equity
Fund (Class Z, Class Z - Special Series 1, Class Z - Special Series 2 and
Class Z- Special Series 3); Core Equity Fund (Class W, Class W - Special Series
1, Class W - Special Series 2 and Class W Special Series 3), Equity Index
Fund (Class V, Class V - Special Series 1 and Class V - Special Series 3),
Equity Income Fund (Class M, Class M - Special Series 1, Class M - Special
Series 2 and Class M - Special Series 3), Balanced Allocation Fund (Class AA,
Class AA - Special Series 1, Class AA - Special Series 2 and Class AA -
Special Series 3); Total Return Advantage Fund (Class P, Class P - Special
Series 1, Class P Special Series 2 and Class P - Special Series 3), Bond
Fund (Class R, Class R - Special Series 1, Class R Special Series 2 and
Class R - Special Series 3), Intermediate Bond Fund (Class I, Class I - Special
Series 1, Class I - Special Series 2 and Class I - Special Series 3), GNMA
Fund (Class S Class S - Special Series 1, Class S - Special Series 2 and
Class S - Special Series 3), Enhanced Income Fund (Class O, Class O - Special
Series 1, Class O - Special Series 2 and Class O - Special Series 3), Ohio
Tax Exempt Bond Fund (Class K, Class K -Special Series 1, Class K - Special
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<PAGE> 195
Series 2 and Class K - Special Series 3), Pennsylvania Tax Exempt Bond Fund
(Class T, Class T - Special Series 1, Class T - Special Series 2 and Class T
- - Special Series 3), National Tax Exempt Bond Fund (Class L, Class L-Special
Series 1, Class L-Special Series 2 and Class L - Special Series 3); Ohio
Municipal Money Market Fund (Class BB and Class BB - Special Series 1);
Pennsylvania Tax Exempt Money Market Fund (Class Q and Class Q - Special Series
1), Tax Exempt Money Market Fund (Class D, Class D - Special Series 1 and Class
D - Special Series 2 and Class D - Special Series 3), Money Market Fund (Class
A, Class A -Special Series 1, Class A - Special Series 2 and Class A -
Special Series 3), Government Money Market Fund (Class B and Class B - Special
Series 1), Treasury Money Market Fund (Class C and Class C - Special Series 1),
Mid Cap Growth Fund (Class GG, Class GG - Special Series 1, Class GG - Special
Series 2 and Class GG - Special Series 3), Large Cap Ultra Fund (Class II,
Class II - Special Series 1, Class II - Special Series 2 and Class II -
Special Series 3), U.S. Government Income Fund (Class DD, Class DD Special
Series 1, Class DD - Special Series 2 and Class DD - Special Series 3),
Michigan Municipal Bond Fund (Class HH, Class HH - Special Series 1, Class HH
- - Special Series 2 and Class HH - Special Series 3) and the Treasury Plus
Money Market Fund (Class CC and Class CC - Special Series 1), as 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.
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
Class I Shares and Class A 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, only Class B Shares of a Fund will be
entitled to vote on matters relating to a distribution plan with respect to
Class B Shares, and only Class C Shares of a Fund will be entitled to vote on
matters relating to a distribution plan with respect to Class C Shares.
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<PAGE> 196
Although the following types of transactions are normally
subject to shareholder approval, the Board of Trustees may, under certain
limited circumstances, (a) sell and convey the assets of an investment fund to
another management investment company for consideration which may include
securities issued by the purchaser and, in connection therewith, to cause all
outstanding shares of such fund involved to be redeemed at a price which is
equal to their net asset value and which may be paid in cash or by distribution
of the securities or other consideration received from the sale and conveyance;
(b) sell and convert an investment fund's assets into money and, in connection
therewith, to cause all outstanding shares of such fund involved to be redeemed
at their net asset value; or (c) combine the assets belonging to an investment
fund with the assets belonging to another investment fund of the Trust, if the
Board of Trustees reasonably determines that such combination will not have a
material adverse effect on shareholders of any fund participating in such
combination, and, in connection therewith, to cause all outstanding shares of
any fund to be redeemed at their net asset value or converted into shares of
another class of the Trust shares at net asset value. In the event that shares
are redeemed in cash at their net asset value, a shareholder may receive in
payment for such shares an amount that is more or less than his or her original
investment due to changes in the market prices of the fund's securities. The
exercise of such authority by the Board of Trustees will be subject to the
provisions of the 1940 Act, and the Board of Trustees will not take any action
described in this paragraph unless the proposed action has been disclosed in
writing to the fund's shareholders at least 30 days prior thereto.
ADDITIONAL INFORMATION CONCERNING TAXES
---------------------------------------
The following summarizes certain additional tax considerations
generally affecting the Trust and its shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Trust or its shareholders or possible legislative changes, and
the discussion here and in the Prospectus is not intended as a substitute for
careful tax planning. Potential investors should consult their tax advisers with
specific reference to their own tax situation.
Each Fund of the Trust will be treated as a separate corporate
entity under the Code and intends to qualify as a regulated investment company.
In order to qualify for tax treatment as a regulated investment company under
the Code, 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,
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<PAGE> 197
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.
A 4% non-deductible excise tax is imposed on regulated
investment companies that fail to currently distribute an amount equal to
specified percentages of their ordinary taxable income and capital gain net
income (excess of capital gains over capital losses). Each Fund intends to make
sufficient distributions or deemed distributions of its ordinary taxable income
and capital gain net income each calendar year to avoid liability for this
excise tax.
If for any taxable year 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 Securities)
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.
A Fund may be required in certain cases to withhold and remit
to the U.S. Treasury 31% of taxable dividends or gross proceeds realized upon
sale paid to shareholders who have failed to provide a correct tax
identification number in the manner required, or who are subject to withholding
by the Internal Revenue Service for failure to properly include on their return
payments of taxable interest or dividends, or who have failed to certify to the
Fund that they are not subject to backup withholding when required to do so or
that they are "exempt recipients."
The tax principles applicable to transactions in financial
instruments and futures contacts and options that may be engaged in by a Fund,
and investments in passive foreign investment companies ("PFICs"), are complex
and, in some cases, uncertain. Such transactions and investments may cause a
Fund to recognize taxable income prior to the receipt of cash, thereby requiring
the Fund to liquidate other positions, or to borrow money, so as to make
sufficient distributions to shareholders to avoid corporate-level tax. Moreover,
some or all of the taxable income recognized may be ordinary income or
short-term capital gain, so that the distributions may be taxable to
shareholders as ordinary income.
In addition, in the case of any shares of a PFIC in which a
Fund invests, the Fund may be liable for corporate-level tax on any ultimate
gain or distributions on the shares if the Fund fails to make an election to
recognize income annually during the period of its ownership of the shares.
ADDITIONAL TAX INFORMATION CONCERNING THE OHIO MUNICIPAL, PENNSYLVANIA TAX
EXEMPT AND TAX EXEMPT MONEY MARKET FUNDS
As described above and in the Prospectus, the Ohio Municipal
Money Market, Pennsylvania Tax Exempt Money Market and Tax Exempt Market Funds
are designed to
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<PAGE> 198
provide investors with tax-exempt interest income. The Funds are not intended to
constitute a balanced investment program and are not designed for investors
seeking capital appreciation or maximum tax-exempt income irrespective of
fluctuations in principal. Shares of the Funds would not be suitable for
tax-exempt institutions and may not be suitable for retirement plans qualified
under Section 401 of the Code, H.R. 10 plans and IRAs since such plans and
accounts are generally tax-exempt and, therefore, would not gain any additional
benefit from the Funds' dividends being tax-exempt.
The policy of the Ohio Municipal Money Market, Pennsylvania
Tax Exempt Money Market and Tax Exempt Money Market Funds is to pay each year as
federal exempt-interest dividends substantially all the Funds' Municipal
Securities interest income net of certain deductions. In order for the Funds to
pay federal exempt-interest dividends with respect to any taxable year, at the
close of each taxable quarter at least 50% of the aggregate value of their
respective portfolios must consist of tax-exempt obligations. An exempt-interest
dividend is any dividend or part thereof (other than a capital gain dividend)
paid by a Fund and designated as an exempt-interest dividend in a written notice
mailed to shareholders not later than 60 days after the close of the Fund's
taxable year. However, the aggregate amount of dividends so designated by the
Funds cannot exceed the excess of the amount of interest exempt from tax under
Section 103 of the Code received by the Funds during the taxable year over any
amounts disallowed as deductions under Sections 265 and 171(a)(2) of the Code.
The percentage of total dividends paid by the Funds with respect to any taxable
year which qualifies as federal exempt-interest dividends will be the same for
all shareholders receiving dividends from the Funds with respect to such year.
Shareholders are advised to consult their tax advisers with
respect to whether exempt-interest dividends would retain the exclusion under
Section 103(a) if the shareholder would be treated as a "substantial user" or a
"related person" to such user with respect to facilities financed through any of
the tax-exempt obligations held by the Ohio Municipal Money Market, Pennsylvania
Tax Exempt Money Market and Tax Exempt Money Market Funds. A "substantial user"
is defined under U.S. Treasury Regulations to include a non-exempt person who
regularly uses a part of such facilities in his or her trade or business and
whose gross revenues derived with respect to the facilities financed by the
issuance of bonds are more than 5% of the total revenues derived by all users of
such facilities, or who occupies more than 5% of the usable area of such
facilities or for whom such facilities or a part thereof were specifically
constructed, reconstructed or acquired. A "related person" includes certain
related natural persons, affiliated corporations, partners and partnerships, and
S corporations and their shareholders.
ADDITIONAL TAX INFORMATION CONCERNING THE MICHIGAN MUNICIPAL BOND FUND
As indicated in the Prospectus, the Michigan Municipal Bond Fund is
designed to provide shareholders with current tax-exempt interest income. The
Fund is not intended to constitute a balanced investment program and is not
designed for investors seeking capital appreciation or maximum tax-exempt income
irrespective of fluctuations in principal. Shares of the Fund would not be
suitable for tax-exempt institutions and may not be suitable for retirement
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<PAGE> 199
plans qualified under Section 401 of the Code, H.R. 10 plans and individual
retirement accounts, since such plans and accounts are generally tax-exempt and,
therefore, would not gain any additional benefit from the Fund's dividends being
tax-exempt; furthermore, such dividends would be ultimately taxable to the
beneficiaries when distributed to them. In addition, the Fund may not be
appropriate investments for entities which are "substantial users," or "related
persons" thereof, of facilities financed by private activity bonds held by the
Fund. "Substantial user" is defined under U.S. Treasury Regulations to include a
non-exempt person who regularly uses a part of such facilities in his or her
trade or business and whose gross revenues derived with respect to the
facilities financed by the issuance of bonds represent more than 50% of the
total revenues derived by any users of such facilities, or who occupies more
than 5% of the usable area of such facilities or for whom such facilities or a
part thereof were specifically constructed, reconstructed or acquired. "Related
persons" include certain related natural persons, affiliated corporations, a
partnership and its partners and an S Corporation and its shareholders.
The percentage of total dividends paid by the Michigan Municipal Bond
Fund with respect to any taxable year which qualifies as federal exempt interest
dividends will be the same for all shareholders receiving dividends during such
year. In order for the Fund to pay exempt-interest dividends during any taxable
year, at the close of each fiscal quarter, at least 50% of the aggregate value
of the Fund must consist of exempt-interest obligations. In addition, the Fund
must distribute 90% of the aggregate exempt-interest income and 90% of the
investment company taxable income earned by it during the taxable year. After
the close of the Fund's taxable year, the Fund will notify each shareholder of
the portion of the dividends paid by the Fund to the shareholder with respect to
such taxable year which constitutes an exempt-interest dividend. However, the
aggregate amount of dividends as designated cannot exceed the excess of the
amount of interest exempt from tax under Section 103 of the Code received by the
Fund during the taxable year over any amounts disallowed as deductions under
Section 265 and 171(a)(2) of the Code.
Although the Michigan Municipal Bond Fund expects to qualify as a
regulated investment company and to be relieved of all or substantially all
federal income taxes, depending upon the extent of its activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located, or in which it is otherwise deemed to be
conducting business, the Michigan Municipal Bond Fund may be subject to the tax
laws of such states or localities. In addition, if for any taxable year the Fund
does not qualify for the special tax treatment afforded a regulated investment
company, all of its taxable income will be subject to federal tax at regular
corporate rates (without any deduction for distributions to its shareholders).
In such event, dividend distributions would be taxable to shareholders to the
extent of earnings and profits, and would be eligible for the dividends received
deduction for corporations.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting purchasers of shares of the Michigan
Municipal Bond Fund. No attempt has been made to present a detailed explanation
of the federal income tax treatment of the Fund or its shareholders or of
Michigan state income tax treatment of the Fund or its shareholders, and this
discussion is not intended as a substitute for careful tax planning. Accordingly
potential
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<PAGE> 200
purchasers of shares of the Fund are urged to consult their own tax advisers
with specific reference to their own tax situation. In addition, the foregoing
discussion is based on tax laws and regulations which are in effect on the date
of this Statement of Additional Information; such laws and regulations may be
changed by legislative or administrative action.
ADDITIONAL TAX INFORMATION CONCERNING THE OHIO TAX EXEMPT BOND FUND
The Ohio Tax Exempt Fund is not subject to the Ohio personal income or
school district or municipal income taxes in Ohio. The Ohio Tax Exempt Fund is
not subject to the Ohio corporation franchise tax or the Ohio dealers in
intangibles tax, provided that, if there is a sufficient nexus between the State
of Ohio and such entity that would enable the State to tax such entity, the Fund
timely files the annual report required by Section 5733.09 of the Ohio Revised
Code. The Ohio Tax Commissioner has waived the annual filing requirement for
every tax year since 1990, the first year to which such requirement applied.
Shareholders of the Fund otherwise subject to Ohio personal
income tax or municipal or school district income taxes in Ohio imposed on
individuals and estates will not be subject to such taxes on distributions with
respect to shares of the Fund ("Distributions") to the extent that such
Distributions are properly attributable to interest on or gain from the sale of
obligations issued by or an behalf of Ohio, political subdivisions thereof or
agencies on instrumentalities of Ohio or its political subdivisions (Ohio
Obligations).
Shareholders otherwise subject to the Ohio corporation
franchise tax will not be required to include Distributions in their tax base
for purposes of calculating the Ohio corporation franchise tax on the net income
basis to the extent that such distributions either (a) are properly attributable
to interest on or gain from the sale of Ohio Obligations, (b) represent
"exempt-interest dividends" for federal income tax purposes, or (c) are
described in both (a) and (b). Shares of the Fund will be included in a
Shareholder's tax base for purposes of computing the Ohio corporation franchise
tax on the net worth basis.
Distributions that consist of interest on obligations of the
United States or its territories or possessions or of any authority, commission,
or instrumentality of the United States that is exempt from state income taxes
under the laws of the United States (including obligations issued by the
governments of Puerto Rico, the Virgin Islands or Guam and their authorities or
municipalities) ("Territorial Obligations") are exempt from the Ohio personal
income tax, and municipal and school district income taxes in Ohio, and,
provided, in the case of Territorial Obligations, such interest is excluded from
gross income for federal income tax purposes, are excluded from the net income
base of the Ohio corporation franchise tax.
It is assumed for purposes of this discussion of State and
Local Taxes that the Fund will continue to qualify as a regulated investment
company under the Internal Revenue Code of 1986, as amended, and that at all
times at least 50% of the value of the total assets of the Fund consists of Ohio
Obligations or similar obligations of other states or their subdivisions.
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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:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
POSITION WITH DURING PAST 5 YEARS
NAME AND ADDRESS THE TRUST AND OTHER AFFILIATIONS
- ---------------- -------------- ----------------------
<S> <C> <C>
Robert D. Neary Chairman of the Board and Trustee Retired Co-Chairman of Ernst & Young,
32980 Creekside Drive April 1984 to September 1993; Director,
Pepper Pike, OH 44124 Cold Metal Products, Inc., since March
Age 65 1994; Director, Strategic Distribution,
Inc., since January 1999.
Herbert R. Martens, Jr.* President and Trustee Executive Vice President, National City
c/o NatCity Investments, Inc. Corporation (bank holding company),
1965 East Sixth Street since July 1997; Chairman, President and
Cleveland, OH 44114 Chief Executive Officer, NatCity
Age 47 Investments, Inc. (investment banking),
since July 1995; President and Chief
Executive Officer, Raffensberger, Hughes
& Co. (broker-dealer) from 1993 until
1995; President, Reserve Capital Group,
from 1990 until 1993.
Leigh Carter* Trustee Retired President and Chief Operating
13901 Shaker Blvd., #6B Officer, B.F. Goodrich Company, August
Cleveland, OH 44120 1986 to September 1990; Director, Adams
Age 73 Express Company (closed-end investment
company), April 1982 to December 1997;
Director, Acromed Corporation;
(producer of spinal implants), June
1992 to March 1998; Director,
Petroleum & Resources Corp., April
1987 to December 1997; Director,
Morrison Products (manufacturer of
blower fans and air moving equipment),
since April 1983; Director, Kirtland
Capital Corp. (privately funded
investment group), since January 1992;
Director, Truseal Technologies
(manufacturer of insulated glass
sealants), since April 1997.
John F.Durkott Trustee President and Chief Operating Officer,
8600 Allisonville Road Kittle's Home Furnishings Center, Inc.,
Indianapolis, IN 46250 since January 1982; partner, Kittles
Age 55 Bloomington Properties LLC, since
January 1981; partner, KK&D II LLC,
since February 1998; Affiliated Real
Estate Companies of Kittles Home
Furnishing Center since January 1989.
</TABLE>
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<PAGE> 202
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
POSITION WITH DURING PAST 5 YEARS
NAME AND ADDRESS THE TRUST AND OTHER AFFILIATIONS
- ---------------- -------------- ----------------------
<S> <C> <C>
Robert J. Farling Trustee Retired Chairman, President and Chief
1608 Balmoral Way Executive Officer, Centerior Energy
Westlake, OH 44145 (electric utility), March 1992 to
Age 62 October 1997; Director, National City
Bank until October 1997; Director,
Republic Engineered Steels, October 1997
to September 1999.
Richard W. Furst, Dean Trustee Garnis D. Kincaid Professor of Finance
2133 Rothbury Road and Dean, Carol Martin Gatton College of
Lexington, KY 40515 Business and Economics, University of
Age 60 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 and General
3679 Greenwood Drive Counsel, Eaton Corporation, since 1991
Pepper Pike, OH 44124 (global manufacturing); Trustee, Meridia
Age 61 Health System (four hospital health
system), 1994 to 1998; Trustee, WVIZ
Educational Television (public
television).
J. William Pullen Trustee President and Chief Executive Officer,
Whayne Supply Company Whayne Supply Co. (engine and heavy
1400 Cecil Avenue equipment distribution), since 1986;
P.O. Box 35900 President and Chief Executive Officer,
Louisville, KY 40232-5900 American Contractors Rentals & Sales
Age 60 (rental subsidiary of Whayne Supply
Co.), since 1988.
W. Bruce McConnel, III Secretary Partner of the law firm
One Logan Square Drinker Biddle & Reath LLP,
18th and Cherry Streets Philadelphia, Pennsylvania.
Philadelphia, PA 19103-6996
Age 56
John Leven Treasurer Director of Funds Accounting of SEI
One Freedom Valley Drive Investments since March 1999; prior
Oaks, PA 19456 thereto, Controller, First Data Investor
Services (formerly, Fund/Plan Services,
Inc.).
</TABLE>
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<PAGE> 203
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
POSITION WITH DURING PAST 5 YEARS
NAME AND ADDRESS THE TRUST AND OTHER AFFILIATIONS
- ---------------- -------------- ----------------------
<S> <C> <C>
Lynda J. Striegel Vice President and Assistant Vice President and Assistant Secretary
One Freedom Valley Drive Secretary of SEI Investments Mutual Funds Services
Oaks, PA 19456 and SEI Investments Distribution Co.
Age 51 since 1998; Senior Asset Management
Counsel, Barnett Banks, Inc. from 1997
to 1998; Partner, Groom and Nordberg,
Chartered from 1996 to 1997; Associate
General Counsel, Riggs Bank, N.A. from
1991 to 1995
</TABLE>
________________________
*Messrs. Carter and Martens are considered by the Trust to be
"interested persons" of the Trust as defined in the 1940 Act.
Each trustee of the Trust serves as a trustee of The Parkstone
Group of Funds ("Parkstone") and The Parkstone Advantage Fund ("Parkstone
Advantage"), registered investment companies.
Mr. Martens is an "interested person" because (1) he is an
Executive Vice President of National City Corporation, the parent corporation to
IMC, which receives fees as investment adviser to the Trust, (2) he owns shares
of common stock and options to purchase common stock of National City
Corporation, and (3) he is the Chief Executive Officer of NatCity Investments,
Inc., a broker-dealer affiliated with National City Investment Management
Company.
Mr. Carter is an "interested person" of the Trust, as defined
in the 1940 Act, due to his ownership of 7,200 shares of stock of National City
Corporation, an affiliate of National City Investment Management Company, the
Fund's investment adviser.
Mr. Leven and Ms. Striegel are employed by SEI Fund Resources,
which receives fees as Administrator to the Trust. Ms. Striegel is also employed
by SEI Investments Distribution Co., which receives fees as Distributor to the
Trust. Mr. McConnel is a partner of the law firm, Drinker Biddle & Reath LLP,
which receives fees as counsel to the Trust.
With respect to the Trust, Parkstone and Parkstone Advantage,
each trustee receives an annual fee of $15,000 plus $3,000 for each Board
meeting attended and reimbursement of expenses incurred in attending meetings.
The three fund companies generally hold concurrent Board meetings. The Chairman
of the Board is entitled to receive an additional $5,000 per annum for services
in such capacity. For the fiscal year ended May 31, 1999, the Trust's trustees
and officers as a group received aggregate fees of $________. The trustees and
officers of the Trust own less than 1% of the shares of the Trust.
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The following table summarizes the compensation for each of the
Trustees of the Trust for the fiscal year ended May 31, 1999:
<TABLE>
<CAPTION>
Pension or Estimated
Aggregate Retirement Benefits Approval Total Compensation
Name of Compensation from Accrued as Part of Benefits Upon from the Trust and
Person, Position the Trust the Trust's Expense Retirement Fund Complex*
- ---------------- ----------------- ------------------- ------------- ------------------
<S> <C> <C> <C> <C>
Robert D. Neary, $0 $0 $0 $0
Chairman and Trustee
Leigh Carter, Trustee $0 $0 $0 $0
John F. Durkott, Trustee $0 $0 $0 $0
Robert J. Farling, Trustee $0 $0 $0 $0
Richard W. Furst, Trustee $0 $0 $0 $0
Gerald L. Gherlein, Trustee $0 $0 $0 $0
Herbert R. Martens, Jr., $0 $0 $0 $0
President and Trustee
J. William Pullen, Trustee $0 $0 $0 $0
</TABLE>
________________________
* The "Fund Complex" consists of Armada Funds, The Parkstone Group of
Funds and The Parkstone Advantage Funds. Each of the Trustees serves as
Trustee to all three investment companies. The Trustees became trustees
of The Parkstone Group of Funds and the Parkstone Advantage Fund
effective August 14, 1998.
The Trustees may elect to defer payment of 25% to 100% of the
fees they receive in accordance with a Trustee Deferred Compensation Plan (the
"Plan"). Under the Plan, a Trustee may elect to have his or her deferred fees
invested by the Plan administrator in 91-day U.S. Treasury Bills, initially, or
upon implementation of the "shares option", and treated as if they had been
invested by the Trust in the shares of one or more portfolios of the Trust or
Parkstone Group of Funds. The amount paid to the Trustee under the Plan will be
determined based on the performance of such investments.
Distributions are generally of equal installments over a
period of 2 to 15 years. The Plan will remain unfunded for federal income tax
purposes under the Internal Revenue Code of 1986, as amended (the "Code").
Deferral of Trustee fees in accordance with the Plan will have a negligible
impact on portfolio assets and liabilities and will not obligate the Trust to
retain any trustee or pay any underlying securities without shareholder
approval.
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SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders of a business trust may,
under certain circumstances, be held personally liable as partners for the
obligations of the trust. However, the Trust's Declaration of Trust provides
that shareholders shall not be subject to any personal liability for the acts or
obligations of the Trust, and that every note, bond, contract, order, or other
undertaking made by the Trust shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Declaration of Trust
provides for indemnification out of the trust property of any shareholder held
personally liable solely by reason of his or her being or having been a
shareholder and not because of his or her acts or omissions or some other
reason. The Declaration of Trust also provides that the Trust shall, upon
request, assume the defense of any claim made against any shareholder for any
act or obligation of the Trust, and shall satisfy any judgment thereon. Thus,
the risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Trust itself would be unable
to meet its obligations.
The Declaration of Trust states further that no trustee,
officer, or agent of the Trust shall be personally liable for or on account of
any contract, debt, tort, claim, damage, judgment or decree arising out of or
connected with the administration or preservation of the trust estate or the
conduct of any business of the Trust; nor shall any trustee be personally liable
to any person for any action or failure to act except by reason of his or her
own bad faith, willful misfeasance, gross negligence, or reckless disregard of
his or her duties as trustee. The Declaration of Trust also provides that all
persons having any claim against the trustees or the Trust shall look solely to
the trust property for payment. With the exceptions stated, the Declaration of
Trust provides that a trustee is entitled to be indemnified against all
liabilities and expense, reasonably incurred by him in connection with the
defense or disposition of any proceeding in which he or she may be involved or
with which he or she may be threatened by reason of his or her being or having
been a trustee, and that the trustees, have the power, but not the duty, to
indemnify officers and employees of the Trust unless any such person would not
be entitled to indemnification had he or she been a trustee.
ADVISORY, ADMINISTRATION, DISTRIBUTION, CUSTODIAN
SERVICES AND TRANSFER AGENCY AGREEMENTS
-------------------------------------------------
ADVISORY AGREEMENTS
IMC serves as investment adviser to the: (a) International
Equity, Small Cap Value and Small Cap Growth Funds under an Advisory Agreement
dated August 13, 1998; (b) Equity Growth and Equity Income Funds under an
Advisory Agreement dated November 19, 1997; (c) Core Equity Fund under an
Advisory Agreement dated June 29, 1998; (d) Equity Index and Tax Managed Equity
Funds under an Advisory Agreement dated April 9, 1998; (e) Balanced Allocation
Fund under an Advisory Agreement Dated April 9, 1998; (f) Total Return Advantage
Fund and Enhanced Income Fund under an Advisory Agreement dated March 6, 1998;
(g) Bond Fund, Intermediate Bond Fund and GNMA Funds under an Advisory Agreement
dated
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November 21, 1997; (h) Pennsylvania Tax Exempt, Tax Exempt, Money Market,
Government and Treasury Funds under an Advisory Agreement dated November 19,
1997; (i) Ohio Municipal Fund pursuant to an Advisory Agreement dated April 9,
1998; (j) Ohio Tax Exempt and Pennsylvania Tax Exempt Bond Funds under an
Advisory Agreement dated November 19, 1997; (k) National Tax Exempt Bond Fund
under an Advisory Agreement dated April 9, 1998 and (l) Mid Cap Growth, U.S.
Government Income, Michigan Municipal Bond and the Treasury Plus Money Market
Funds under an Advisory Agreement dated August 5, 1998.
National Asset Management Corporation ("NAM") serves as
investment sub-adviser to the Core Equity Fund (the "sub-adviser"). Prior to
such dates, National City Bank or an affiliate served as adviser to the Funds
other than the Core Equity Fund. Prior to June 29, 1998, NAM served as adviser
to the Core Equity Fund. NAM serves as sub-investment adviser to the Total
Return Advantage Fund under a Sub-Advisory Agreement with IMC dated March 6,
1998 and until June 29, 1998 served as investment adviser to the Total Return
Advantage and Enhanced Income Funds. IMC, the three Advisers, National City Bank
and these affiliates (including NAM until March 6, 1998) are affiliates of
National City Corporation, a bank holding company with $81 billion in assets,
and headquarters in Cleveland, Ohio and over 1,000 branch offices in six states.
From time to time, the adviser may voluntarily waive fees or reimburse the Trust
for expenses.
Pursuant to the advisory agreements in effect for the
following periods, the Trust incurred advisory fees in the following amounts for
the fiscal years ended May 31, 1999, 1998 and 1997: (i) $______ (after waivers
of $___), $1,989,606 (after waivers of $0) and $982,053 with respect to the
Small Cap Value Fund; (ii) $______ (after waivers of $___), $2,395,579 (after
waivers of $0), and $1,612,194 with respect to the Equity Growth Fund; and (iii)
$______ (after waivers of $___), $1,237,195 (after waivers of $0), and $669,107
with respect to the Equity Income Fund. For the fiscal year ended 1999, and the
period from August 1, 1997 (commencement of operations) to May 31, 1998, the
International Equity, Small Cap Growth and Core Equity Funds incurred advisory
fees in the amount of $_______, $______, $______, (after fee waivers of $______,
$_____ and $______) and $570,684, 208,833, and 608,222, (after fee waivers of
$50,784, $18,000, and $64, 683 respectively. For the fiscal year ended 1999, and
the period from May 31, 1998 to May 31, 1999, the Tax Managed Equity Fund
incurred advisory fees in the amount of $______ (after fee waivers of $___) and
$173,851 (after fee waivers of $0). The Equity Index Fund commenced operations
on __________, and as of May 31, 1999 paid advisory fees of $________. The Mid
Cap Growth and Large Cap Ultra Funds have not yet commenced operations. The
Balanced Allocation Fund commenced operations on ______. Advisory fees were
$______, $______ and $______ for 1999, 1998, and 1997.
Pursuant to the advisory agreements relating to the Total
Return Advantage, Intermediate Bond and Enhanced Income Funds then in effect,
the Trust incurred advisory fees in the following respective amounts for the
fiscal years ended May 31, 1999, 1998 and 1997: (i) $__________ (after waivers
of $__________), $404,823 (after waivers of $1,133,101), and $0 (after waivers
of $1,530,963) for the Total Return Advantage Fund; (ii) $__________ (after
waivers of $__________), $593,301 (after waivers of $222,488), and $550,261
(after waivers of $118,288) for the Intermediate Bond Fund; and (iii)
$__________ (after waivers of
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$__________) $65,970, (after waivers of $264,973) and $0 (after waivers of
$296,129) for the Enhanced Income Fund. The Michigan Municipal Bond Fund has not
yet commenced operations.
Pursuant to the advisory agreements relating to the Bond and
GNMA Funds then in effect, the Trust incurred advisory fees in the following
amounts for the fiscal years ended May 31, 1999 and 1998 and 1997: (i)
$__________ (after waivers of $__________), $574,688 (after waivers of $0) and
$485,145 (after fee waivers of $54,417) for the Bond Fund and (ii) $__________
(after waivers of $__________), $395,769 (after waivers of $0) and $323,854
(after fee waivers of $50,450) for the GNMA Fund.
For the period from September 9, 1996 (date of reorganization
of the Predecessor Funds) until May 31, 1997, IMC earned advisory fees of
$366,399, and $256,168 and waived fees in the amounts of $0 and $0 for the Bond
and GNMA Funds, respectively. Integra Trust Company ("Integra"), the investment
adviser to the Predecessor Bond and GNMA Funds, earned the following advisory
fees with respect to such funds for the stated periods: (i) $173,163 and
$118,136 for the period from June 1, 1996 until September 9, 1996; (ii) $53,654
and $36,971 for the one-month period ended May 31, 1996 Integra waived advisory
fees during the same periods in the amounts of: (i)$54,417 and $50,450 and (ii)
$11,464and $9,583, respectively.
Pursuant to the advisory agreements in effect for the
following periods, the Trust incurred advisory fees in the following amounts for
the fiscal years ended May 31, 1999, 1998 and 1997: (i) $__________ (after
waivers of $__________), $742,324 (after waivers of $989,768) and $573,529
(after waivers of $764,704), respectively, for the Tax Exempt Money Market Fund;
(ii) $__________ (after waivers of $__________), 6,126,877 (after waivers of
$2,451,233) and $5,067,456 (after waivers of $2,026,982) and respectively, for
the Money Market Fund; and (iii) $__________ (after waivers of $__________),
$2,815,875 (after waivers of $1,126,349) and $2,415,282 (after waivers of
$966,112), respectively, for the Government Money Market Fund. Advisory fees in
the amounts of $__________ (after waivers of $__________), $766,895 (after
waivers of $153,379) and $794,834 (after waivers of $158,966) were incurred for
the fiscal year ended May 31, 1999, 1998 and 1997 with respect to the Treasury
Money Market Fund.
Pursuant to the Advisory Agreement, the Trust incurred
advisory fees in the amount of $__________ (after waivers of $__________) and
$142,220 (after waivers of $237,029) for the fiscal years ended May 31, 1999 and
1998 for the Pennsylvania Tax Exempt Money Market Fund. For the period from
September 9, 1996 (date of reorganization of the Predecessor Fund) until May 31,
1997, IMC, the Adviser of the Pennsylvania Tax Exempt Money Market Fund, earned
advisory fees of $224,379 and waived fees in the amount of $140,237 with respect
to that Fund. For the period from June 1, 1996 until September 9, 1996 and for
the one-month period ended May 31, 1996, the Integra Trust Company ("Integra"),
the investment adviser to the Predecessor Fund, earned advisory fees of $85,768
and $26,907, respectively. Integra waived fees in the amount of $51,068 and
$9,868. The Ohio Municipal Money Market Fund commenced operations on ________.
Advisory fees were $________, $_________ and $_________ for 1999, 1998 and 1997.
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Pursuant to the advisory agreements in effect for the
following periods, the Trust incurred with respect to the Ohio Tax Exempt Bond
Fund advisory fees of $__________, $0 (after waivers of $649,247) and $0 (after
waivers of $490,179).
Pursuant to the advisory agreements in effect for the fiscal
years ended May 31, 1999 and 1998, the Trust incurred with respect to the
Pennsylvania Tax Exempt Bond Fund advisory fees of $__________ and $150,120
(after waivers of $56,245). For the period from September 9, 1996 (date of
reorganization of the predecessor fund to the Pennsylvania Tax Exempt Bond Fund)
until May 31, 1997, National City Bank, the then adviser of the Pennsylvania Tax
Exempt Bond Fund, earned advisory fees of $147,646 and waived fees in the amount
of $2,684 with respect to that Fund. For the period from June 1, 1996 until
September 9, 1996, and for the one-month period ended May 31, 1996, Integra
Trust Company ("Integra"), the investment adviser to the Predecessor fund to the
Pennsylvania Tax Exempt Bond Fund, earned advisory fees of $73,107 and $23,057.
Integra waived fees in the amounts of $26,413 and $6,792.
For the fiscal year ended May 31, 1999 and the fiscal period
April 9, 1998 (commencement of operations) through May 31, 1998, the Trust
incurred with respect to the National Tax Exempt Bond Fund advisory fees of
$__________ and $0 (after waivers of $62,113).
Each Advisory and Sub-Advisory Agreement provides that the
Adviser and sub-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 or Sub-Advisory Agreements, except a loss resulting from a
breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Adviser or Sub-adviser in the performance of their
duties or from reckless disregard by them of their duties and obligations
thereunder.
The Advisory Agreement relating to the Money Market,
Government, Treasury, Tax Exempt and Pennsylvania Tax Exempt Funds was approved
by the shareholders of each Fund on November 19, 1997. The Advisory Agreement
with IMC relating to the Ohio Municipal Fund Funds was approved by the sole
shareholder of the Fund as of the day prior to the day it commenced operations.
The Advisory Agreement relating to the International Equity,
Small Cap Value and Small Cap Growth Funds was approved by the shareholders of
these Funds on August 13, 1998. The Advisory Agreement relating to the Equity
Growth and Equity Income Funds was approved by the shareholders of each of these
Funds on November 19, 1997. With respect to the Core Equity Fund, the Advisory
Agreement with National City and the Sub-Advisory Agreement with NAM was
approved by the Fund's shareholders on June 29, 1998. The Advisory Agreement
relating to the Tax Managed Equity and Equity Index Funds was approved by their
sole shareholders prior to the Funds' commencement of operations. The current
Advisory Agreement with respect to the Total Return Advantage Fund and Enhanced
Income Fund was
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approved by a majority of shareholders of each such Fund at a Special Meeting of
Shareholders held on June 29, 1998 in order to approve such Advisory Agreement.
The Advisory Agreement relating to the Ohio Tax Exempt and Pennsylvania Tax
Exempt Bond Funds was approved by the shareholders of the Funds on November 19,
1997 and by the sole shareholder of the National Tax Exempt Bond Fund as of the
day prior to the day it commenced operations. The current Advisory Agreement
with respect to the other Funds was approved by a majority of shareholders of
each such Fund at a Special Meeting of Shareholders held on November 19, 1997 in
order to approve such Advisory Agreement. The current Sub-Advisory Agreement
with respect to the Total Return Advantage Fund was approved by a majority of
shareholders of the Fund at a Special Meeting of Shareholders held on June 29,
1998 in order to approve such Sub-Advisory Agreement. The Advisory Agreement
with respect to the Mid Cap Growth, U.S. Government Income, Michigan Municipal
Bond and Treasury Plus Money Market Funds was approved by the sole shareholder
of each Fund on the date it commenced operations.
Unless sooner terminated, the Advisory Agreements will
continue in effect with respect to the Funds to which they relate until
September 30, 1999 and from year to year thereafter, subject to annual approval
by the Trust's Board of Trustees, or by a vote of a majority of the outstanding
shares of such Funds (as defined in the Funds' Prospectus) and a majority of the
trustees who are not parties to the Agreement or interested persons (as defined
in the 1940 Act) of any party by votes cast in person at a meeting called for
such purpose. The Advisory Agreements and Sub-Advisory Agreement may be
terminated by the Trust or the Adviser or sub-advisers on 60 days written
notice, and will terminate immediately in the event of its assignment.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations, including the Glass-Steagall Act
as presently interpreted by the Board of Governors of the Federal Reserve
System, (a) prohibit a bank holding company registered under the Federal Bank
Holding Company Act of 1956 or any affiliate thereof from sponsoring,
organizing, or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a bank holding company or affiliate from acting as investment adviser, transfer
agent, or custodian to such an investment company. The Adviser believes that it
may perform the services for the Fund contemplated by its Advisory Agreement
with the Trust as described in such agreement without violation of applicable
banking laws or regulations. However, there are no controlling judicial
precedents and future changes in legal requirements relating to the permissible
activities of banks and their affiliates, as well as future interpretations of
present requirements, could prevent the Adviser from continuing to perform
services for the Trust. If the Adviser were prohibited from providing services
to the Fund, the Board of Trustees would consider selecting another qualified
firm. Any new investment advisory agreement would be subject to shareholder
approval.
Should future legislative, judicial, or administrative action
prohibit or restrict the proposed activities of the Adviser, or its affiliated
and correspondent banks in connection with shareholder purchases of Fund shares,
the Adviser and its affiliated and correspondent banks might be required to
alter materially or discontinue the services offered by them to shareholders.
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It is not anticipated, however, that any resulting change in the Trust's method
of operations would affect its net asset value per share or result in financial
losses to any shareholder.
If current restrictions preventing a bank or its affiliates
from legally sponsoring, organizing, controlling, or distributing shares of an
investment company were relaxed, the Adviser, or an affiliate of the Adviser,
would consider the possibility of offering to perform additional services of the
Trust. Legislation modifying such restrictions has been proposed in past
sessions in Congress. It is not possible, of course, to predict whether or in
what form such legislation might be enacted or the terms upon which the Adviser,
or such an affiliate, might offer to provide such services.
ADMINISTRATION AGREEMENT AND SUB-ADMINISTRATION AGREEMENT
The Trust and SEI Fund Resources (the "Administrator") have
entered into an administration agreement (the "Administration Agreement")
effective May 1, 1998.
The Administration Agreement provides that the Administrator
shall not be liable for any error of judgment or mistake of law or for any loss
suffered by the Trust in connection with the matters to which the Administration
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or negligence on the part of the Administrator in the performance of its duties
or from reckless disregard by it of its duties and obligations thereunder.
The Administrator, a Delaware business trust, has its
principal business offices at One Freedom Valley Drive, Oaks, Pennsylvania
19456. SEI Investments Management Corporation ("SIMC"), a wholly-owned
subsidiary of SEI Investments Company ("SEI Investments"), is the owner of all
beneficial interests in the Administrator. SEI Investments and its affiliates,
including the Administrator, are leading providers of funds evaluation services,
trust accounting systems, and brokerage and information services to financial
institutions, institutional investors, and money managers. The Administrator and
its affiliates also serve as administrator or sub-administrator to the following
other mutual funds: The Achievement Funds Trust, The Advisors' Inner Circle
Fund, Alpha Select Funds, The Arbor Fund, ARK Funds, Armada Funds, Parkstone
Advantage Fund, Bishop Street Funds, Boston 1784 Funds(R), CNI Charter Funds,
CrestFunds, Inc., CUFUND, The Expedition Funds, First American Funds, Inc.,
First American Investment Funds, Inc., First American Strategy Funds, Inc.,
HighMark Funds, Huntington Funds, The Nevis Fund, Oak Associates Funds, The PBHG
Funds, Inc., PBHG Insurance Series Fund, Inc., SEI Asset Allocation Trust, SEI
Daily Income Trust, SEI Index Funds, SEI Institutional Investments Trust, SEI
Institutional Managed Trust, SEI Institutional International Trust, SEI Liquid
Asset Trust, SEI Tax Exempt Trust, STI Classic Funds, STI Classic Variable
Trust, TIP Funds and UAM Funds, Inc. II.
The Administrator is entitled to receive with respect to the
Funds, an administrative fee, computed daily and paid monthly, at an annual rate
of .07% of the aggregate average daily net assets of all of the investment funds
of Armada up to the first eighteen (18) billion dollars in assets, and .06% of
the aggregate average daily net assets over eighteen (18)
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billion dollars in assets, and is entitled to be reimbursed for its
out-of-pocket expenses incurred on behalf of the Funds.
IMC serves as sub-administrator for each of the Funds and
provides certain services as may be requested by the Administrator from time to
time. For its services as Sub-Administrator, IMC receives, from the
Administrator, pursuant to its Sub-Administration Agreement with the
Administrator, a fee, computed daily and paid monthly, at the annual rate of
.01% of the aggregate average daily net assets of all of the investment funds of
Armada up to the first $ 15 billion, and .015% of the aggregate average daily
net assets over $15 billion.
The Trust incurred the following fees to SEI for the fiscal
year ended May 31, 1999 and the period from May 1, 1998 (April 9, 1998 in the
case of the Tax Managed Equity Fund pursuant to an agreement substantially
identical to the Administration Agreement) through May 31, 1998: $8,857 (after
waivers of $0) with respect to the International Equity Fund; $__________ (after
waivers of $__________) and $16,100 (after waivers of $0) with respect to the
Small Cap Value Fund; $4,252 (after waivers of $0) with respect to the Small Cap
Growth Fund; $__________ (after waivers of $__________) and $19,814 with respect
to the Equity Growth Fund (after waivers of $0); $__________ (after waivers of
$__________) and $15,886 (after waivers of $0) with respect to the Tax Managed
Equity Fund; $__________ (after waivers of $__________) and $6,096 (after
waivers of $0) with respect to the Core Equity Fund; and $__________ (after
waivers of $__________) $__________ (after waivers of $__________) and $10,576
(after waivers of $0) with respect to the Equity Income Fund; .
The Equity Index Fund commenced operations on ___________, and
as of May 31, 1999 paid Administration fees of $____________.
Prior to May 1, 1998, PFPC served as the administrator and
accounting agent to the Funds other than the Tax Managed Equity Fund. Pursuant
to the former Administration and Accounting Services Agreement, the Trust
incurred the following fees to PFPC for the period from June 1, 1997 to April
30, 1998 and the fiscal year ended May 31, 1997 : $227,796 and $130,930 (after
waivers of $0 and $0) with respect to the Small Cap Value Fund; $264,998 and
$208,810 (after waivers of $0 and $0) with respect to the Equity Growth Fund;
and $148,763 and $89,214 (after waivers of $0 and $0) with respect to the Equity
Income Fund. For the period from August 1, 1997 (commencement of operations) to
April 30, 1998, the Small Cap Growth, International Equity and Core Equity Funds
incurred the following fees to PFPC pursuant to the former Administration and
Accounting Services Agreement: $7,970 (after waivers of $17,879) with respect to
the Small Cap Growth Fund; $0 (after waivers of $71,716) with respect to the
International Equity Fund; and $0 (after waivers of $80,647) with respect to the
Core Equity Fund.
For the fiscal year ended May 31, 1999, the Administrator
earned administration fees of $__________, $__________, $__________, $__________
and $__________, (after waivers of $__________, $__________, $__________,
$__________ and $__________) with respect to the Total Return Advantage, Bond,
Intermediate Bond, GNMA and Enhanced Income Funds. For the period from May 1,
1998 through May 31, 1998, the Administrator earned
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administration fees of $13,648, $6,901, $8,873, $4,405 and $4,081 with respect
to the Total Return Advantage, Bond, Intermediate Bond, GNMA and Enhanced Income
Funds.
Prior to May 1, 1998, PFPC served 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. Pursuant to
the former Administration and Accounting Services Agreement, the Trust incurred
the following respective fees to PFPC for the fiscal period ended April 30, 1998
and for the fiscal year ended May 31, 1997: (i) $241,258 and $258,768 for the
Total Return Advantage Fund; (ii) $135,648 and $121,554 for the Intermediate
Bond Fund; and (iii) $67,984 and $65,807 for the Enhanced Income Fund and the
Trust incurred $94,631 and $65,665 and in respective fees to PFPC for the fiscal
period ended April 30, 1998 with respect to Bond and GNMA Funds.
For the period from September 9, 1996 (date of reorganization
of the Predecessor Funds) until May 31, 1997, PFPC earned administration fees of
$66,618 and $46,576 for the Bond and GNMA Funds, respectively. SEI Financial
Management Corporation, a wholly-owned subsidiary of SEI Corporation, served as
administrator to the Predecessor Bond and GNMA Funds and earned the following
fees with respect to such funds for the stated periods: (i) $44,528 and $30,378
for the period from June 1, 1996 until September 9, 1996 and (ii) $13,797 and
$9,507 for the one-month period ended May 31, 1996.
For the fiscal year ended May 31, 1999, the Administrator
earned administration fees of $__________, $__________ and $__________ with
respect to the Ohio Tax Exempt, Pennsylvania Municipal and National Tax Exempt
Bond Funds (after waivers of $__________, $__________ and $_________). For the
period from May 1, 1998 (April 9, 1998 in the case of the National Tax Exempt
Bond Fund pursuant to an agreement substantially identical to the Administration
Agreement), the Administrator earned administration fees of $9,113, $2,069 and
$8,247 with respect to the Ohio Tax Exempt, Pennsylvania Municipal and National
Tax Exempt Bond Funds (after waivers of $0, $0 and $0), respectively.
Prior to May 1, 1998, PFPC served as the administrator and
accounting agent to the Ohio Tax Exempt and Pennsylvania Tax Exempt Bond Funds.
Pursuant to the Administration and Accounting Services Agreement, the Trust
incurred the following fees to PFPC for the period ended April 30, 1998, and
fiscal year ended May 31 1997 with respect to the Ohio Tax Exempt Bond Fund (i)
$105,026 and $89,124, respectively, for the Ohio Tax Exempt Bond Fund; and (ii)
$36,010, for the fiscal period end April 30, 1998 with respect to the
Pennsylvania Tax Exempt Bond Fund. For the period from September 9, 1996 (date
or reorganization of the Predecessor Fund) until May 31, 1997, PFPC earned
administration fees of $26,845 with respect to the Pennsylvania Tax Exempt Bond
Fund. For the period from June 1, 1996 until September 9, 1996 and for the
one-month period ended May 31, 1996 SEI Financial Management Corporation, a
wholly-owned subsidiary of SEI Corporation, served as administrator to the
Predecessor Fund and earned the following fees: $_______, $_________ and
$________, respectively, and waived fees of $________, ________ and ___________
respectively.
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For the period from June 1, 1997 to April 30, 1998, PFPC
earned administration fees of $36,010 with respect to the Pennsylvania Tax
Exempt Fund. For the period from September 9, 1996 (date of reorganization of
the Predecessor Fund) until May 31, 1997, PFPC earned administration fees of
$24,530 with respect to the Pennsylvania Tax Exempt Fund. For the period from
June 1, 1996 until September 9, 1996, and for the one-month period ended May 31,
1996, SEI Financial Management Corporation, a wholly-owned subsidiary of SEI
Corporation, served as administrator to the Predecessor Fund and earned the
following fees: $28,589 and $8,969; respectively.
For the three year periods ending May 31, 1999, 1998 and 1997,
the Administrator earned administration fees of $__________, $__________,
$__________, $__________ and $__________ with respect to the Pennsylvania Tax
Exempt Funds, Tax Exempt, Money Market, Government and Treasury Funds. For the
period from May 1, 1998 through May 31, 1998, the Administrator earned
administration fees of $5,562, $29,782, $138,647, $68,244, and $18,670 with
respect to the Pennsylvania Tax Exempt, Tax Exempt, Money Market, Government,
and Treasury Funds.
Prior to May 1, 1998, PFPC served as the administrator and
accounting agent to the Funds. Pursuant to the former Administration and
Accounting Services Agreement, the Trust incurred the following fees to PFPC for
the period from June 1, 1997 to April 30, 1998 and the fiscal year ended 1997:
(i) $187,219 and $170,489, respectively, for the Tax Exempt Fund; (ii) $523,266
and $502,464, respectively, for the Money Market Fund; (iii) $239,017 and
$239,708, respectively, for the Government Fund; and (iv) $_____, $_______and
$_____ respectively for the Treasury Fund.
IMC serves as sub-administrator for each Fund and provides
certain services as may be requested by the Administrator from time to time. For
its services as Sub-Administrator, IMC receives, from the Administrator,
pursuant to its Sub-Administration Agreement with the Administrator, a fee,
computed daily and paid monthly, at the annual rate of .01% of the aggregate
average daily net assets of all of the investment funds of Armada up to the
first $15 billion, and .015% of the aggregate average daily net assets over $15
billion.
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 Class A Shares and Class I Shares (the "A
and I Shares Plan"), a Class B Shares Distribution and Servicing Plan(the "B
Shares Plan") and a Class C Shares Plan (the "C Shares Plan," and, collectively,
the "Distribution Plans") which permit the Trust to bear certain expenses in
connection with the distribution of Class I Shares and Class A Shares, Class B
Shares or Class C 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
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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 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 a Distribution Plan that would materially
increase the distribution expenses of a class would require approval by the
shareholders of such class, but otherwise, such Distribution Plan may be amended
by the trustees, including a majority of the disinterested trustees who do not
have any direct or indirect financial interest in the particular Plan or related
agreement. The Distribution Plans and related agreement may be terminated as to
a particular Fund or class by a vote of the Trust's disinterested trustees or by
vote of the shareholders of the Fund or class in question, on not more than 60
days written notice. The selection and nomination of disinterested trustees has
been committed to the discretion of such disinterested trustees as required by
the Rule.
The A and I Shares Plan provides that each fund will reimburse
the Distributor for distribution expenses related to the distribution of Class A
Shares and Class I Shares in an amount not to exceed .10% per annum of the
average aggregate net assets of such shares. The B Shares Plan provides that
each B share class will compensate the Distributor for distribution of Class B
Shares in an amount not to exceed .75% of the average net assets of such class.
The C Shares Plan provides that each C share class will compensate the
Distributor for distribution of Class C Shares in an amount not to exceed .75%
of the average net assets of such class. Distribution expenses reimbursable by
the Distributor pursuant to each Distribution Plan include direct and indirect
costs and expenses incurred in connection with advertising and marketing a
fund's shares, and direct and indirect costs and expenses of preparing, printing
and distribution of its prospectuses to other than current shareholders.
Under the former A and I Shares Plan and related distribution
agreement (effective for the period from June 1, 1997 to May 1, 1998) each fund
compensated the Distributor for distribution expenses related to the
distribution of Class I Shares and Class A Shares in an amount not to exceed
.10% per annum of the average aggregate net assets of such shares. This former
Plan provided that the Trust pay the Distributor an annual base fee of
$1,250,000 plus incentive fees based upon asset growth payable monthly and
accrued daily by all of the Trusts' investment funds with respect to the Class I
Shares and Class A Shares.
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
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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.
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For the fiscal year ended May 31, 1999, no Class C Shares
were issued or outstanding. During this same period, the Trust paid the
Distributor the following approximate amounts of under the A and I Shares Plan
and B Shares Plan for its distribution services and shareholder service
assistance:
<TABLE>
<CAPTION>
PORTFOLIO FISCAL YEAR 1999
<S> <C>
International Equity Fund $
Small Cap Value Fund $
Small Cap Growth $
Equity Growth Fund $
Tax Managed Equity Fund $
Core Equity Fund $
Equity Index Fund* $
Equity Income Fund $
Balanced Allocation Fund $
Total Return Advantage Fund $
Bond Fund $
Intermediate Bond Fund $
GNMA Fund $
Enhanced Income Fund $
Ohio Tax Exempt Bond Fund $
Pennsylvania Tax Exempt Bond Fund $
National Tax Exempt Bond Fund $
Ohio Municipal Money Market Fund $
Pennsylvania Tax Exempt Money Market Fund $
Tax Exempt Money Market Fund $
Money Market Fund $
Government Money Market Fund $
Treasury Money Market Fund $
Mid Cap Growth Fund NA
Large Cap Ultra Fund NA
U.S. Government Income Fund NA
Michigan Municipal Bond Fund NA
Treasury Plus Money Market Fund NA
</TABLE>
*The Equity Index Fund commenced operations on __________. The
figure listed represents distribution fees for the period since that date.
As of May 31, 1999, the Mid Cap Growth, Large Cap Ultra, U.S.
Government Income, Michigan Municipal Bond and Treasury Plus Money Market Funds
had not commenced operations.
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Of the aggregate amounts paid to the Distributor by the Trust with
respect to the Pennsylvania Tax Exempt Fund, approximately $__________ was
attributable to distribution services and approximately $___________ was
attributable to marketing/consultation. Of the aggregate amounts paid to the
Distributor by the Trust with respect to the Tax Exempt Fund, approximately
$__________ was attributable to distribution services and $__________ was
attributable to marketing/consultation. Of the aggregate amount paid to the
Distributor by the Trust with respect to the Government Fund, approximately
$__________ was attributable to distribution services and approximately
$__________ was attributable to marketing/consultation. Of the aggregate amounts
paid to the Distributor by the Trust with respect to the Treasury Fund
approximately $__________ was attributable to distribution services and
approximately $__________ was attributable to marketing/consultation.
Distribution services include broker/dealer and investor support, voice response
development, wholesaling services, legal review and NASD filings and transfer
agency management. Marketing/Consultation includes planning and development,
market and industry research and analysis and marketing strategy and planning.
Distribution services include broker/dealer and investor
support, voice response development, wholesaling services, legal review and NASD
filings and transfer agency management. Marketing/Consultation includes planning
and development, market and industry research and analysis and marketing
strategy and planning.
CUSTODIAN SERVICES AND TRANSFER AGENCY AGREEMENTS
National City Bank, 1900 East Ninth St., Cleveland, Ohio 44114
serves as the Trust's custodian with respect to the Funds. Under its Custodian
Services Agreement, National City Bank has agreed to: (i) maintain a separate
account or accounts in the name of 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 Funds, provided that it shall remain
responsible for the performance of all of its duties under the Custodian
Services Agreement and shall hold the Funds harmless from the acts and omissions
of any bank or trust company serving as sub-custodian. The Money Market,
Government, Treasury, Tax Exempt, Pennsylvania Tax Exempt and Ohio Money Market
Funds reimburse National City Bank for its direct and indirect costs and
expenses incurred in rendering custodial services, except that the costs and
expenses borne by each Fund in any year may not exceed $.225 for each $1,000 of
average gross assets of such Fund.
State Street Bank and Trust Company (the "Transfer Agent"),
P.O. Box 8421 Boston, Massachusetts 02266-8421 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
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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 each Fund.
SHAREHOLDER SERVICES PLANS
--------------------------
As stated in the Prospectus, the Trust has implemented the
Shareholder Services Plan for each Fund's Class A Shares, the B Shares Plan
for each Fund's Class B Shares and the C Shares Plan for each Fund's Class C
Shares. Pursuant to the Shareholder Services Plan and B Shares Plan, the Trust
may enter into agreements with financial institutions pertaining to the
provision of administrative services to their customers who are the beneficial
owners of Class A Shares or Class B Shares in consideration for the payment
of up to .25% (on an annualized basis) for the International Equity, Small Cap
Value, Small Cap Growth, Equity Growth, Tax Managed Equity, Core Equity, Equity
Index, Equity Income, Balanced Allocation, Total Return Advantage, Bond,
Intermediate Bond, GNMA, Ohio Tax Exempt, Pennsylvania Municipal, National Tax
Exempt Bond, Mid Cap Growth, U.S. Government Income and Michigan Municipal Bond
Funds; .15% (on an annualized basis) for the Ohio Municipal Money Market,
Pennsylvania Tax Exempt Money Market, Tax Exempt Money Market, Money Market,
Government Money Market, Treasury Money Market and Treasury Plus Money Market
Funds; .10% (on an annualized basis), in the case of the Enhanced Income Fund,
of the net asset value of such shares. Pursuant to the C Shares Plan, the Trust
may enter into agreements with financial institutions pertaining to the
provision of administrative services to their customers who are the beneficial
owners of Class C Shares in consideration for the payment of up to .25% (on an
annualized basis), of the net asset value of such shares. Such services may
include: (i) aggregating and processing purchase and redemption requests from
customers; (ii) providing customers with a service that invests the assets of
their accounts in Class A Shares, Class B Shares or Class C Shares; (iii)
processing dividend payments from the Funds; (iv) providing information
periodically to customers showing their position in Class A Shares, Class B
Sharesor Class C Shares; (v) arranging for bank wires; (vi) responding to
customer inquiries relating to the services performed with respect to Class A
Shares, Class B Shares or Class C 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, IMC is
responsible for making decisions with respect to and placing orders for all
purchases and sales of portfolio
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securities for the Fund. The Adviser or Sub-Adviser purchases portfolio
securities either directly from the issuer or from an underwriter or dealer
making a market in the securities involved. Purchases from an underwriter of
portfolio securities include a commission or concession paid by the issuer to
the underwriter and purchases from dealers serving as market makers may include
the spread between the bid and asked price. Transactions on stock exchanges
involve the payment of negotiated brokerage commissions. There is generally no
stated commission in the case of securities traded in the over-the-counter
market, but the price includes an undisclosed commission or mark-up.
For the fiscal years ended May 31, 1999, 1998 and 1997, the
Small Cap Value, Equity Growth, Equity Income and, Total Return Advantage Funds
paid $_____, $780,933 and $421,322; $_____, $1,398,444, and $803,733; $_____,
$86,349 and $102,856; $______, $0 and $0 in brokerage commissions, respectively.
For the same periods, the Intermediate Bond and Enhanced Income Funds did not
pay any brokerage commissions. For the fiscal year ending May 31, 1999 and the
period from August 1, 1997 (commencement of operations) to May 31, 1998, the
International Equity, Small Cap Growth and Core Equity Funds paid $_______ and
$290,141; $______ and $51,366; and $______ and $0, in brokerage commissions,
respectively. For the fiscal year ending May 31, 1999 and the period from April
9, 1998 (commencement of operations) to May 31, 1998, the Tax Managed Equity
Fund paid $__________ and $0 in brokerage commissions. As of May 31, 1999, the
Equity Index, Mid Cap Growth, Large Cap Ultra, U.S. Government Income, Michigan
Municipal Bond and Treasury Plus Money Market Funds had not yet commenced
operations.
[For the fiscal years ended May 31,1999, 1998, and the period
from September 9, 1996 (date of reorganization of the Predecessor Funds) until
May 31, 1997, the Bond and GNMA Funds paid no brokerage commissions. For the
period from June 1, 1996 until September 9, 1996, the one-month fiscal period
ended May 31, 1996, the Predecessor Bond and GNMA Funds did not pay any
brokerage commissions.]
[For the fiscal years ended May 31, 1999, 1998, 1997, the Ohio
Tax Exempt Bond Fund did not pay any brokerage commissions.]
For the fiscal years ended May 31, 1999 and 1998, the
Pennsylvania Tax Exempt Bond Fund paid $__________ and $0 in brokerage
commission. For the period from September 9, 1996 (date of reorganization of the
Predecessor fund to the Pennsylvania Tax Exempt Bond Fund) until May 31, 1997,
the Pennsylvania Tax Exempt Bond Fund paid brokerage commissions of $0. For the
period from June 1, 1996 until September 9, 1996, for the one-month period ended
May 31, 1996, the Pennsylvania Tax Exempt Bond Fund paid no brokerage
commissions. For the fiscal year 1999 and the period from April 9, 1998 (date of
commencement of operations) until May 31, 1998, the National Tax Exempt Bond
Fund paid brokerage commissions of $__________ and $0.
While the Adviser (including the Sub-Adviser) generally seeks
competitive spreads or commissions, it may not necessarily allocate each
transaction to the underwriter or dealer charging the lowest spread or
commission available on the transaction. Allocation of
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transactions, including their frequency, to various dealers is determined by the
Adviser in its best judgment and in a manner deemed fair and reasonable to
shareholders. Under the Advisory 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 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.
The Trust is required to identify any securities of its
"regular brokers or dealers" that it has acquired during its most recent fiscal
year. At May 31, 1999, (a) the International Equity Fund had entered into
repurchase transactions with: Goldman Sachs; (b) the Small Cap Growth Fund had
entered into repurchase transactions with: Goldman Sachs; (c) the Tax Managed
Equity Fund had entered into repurchase transactions with: Goldman Sachs; (d)
the Core Equity Fund had entered into repurchase transactions with: Goldman
Sachs; (e) the Bond Fund had entered into repurchase transactions with Goldman
Sachs; (f) the GNMA Fund had entered into repurchase transactions with: Goldman
Sachs; (g) the Tax Exempt Fund had entered into repurchase transactions with
Goldman Sachs; (h) the Money Market Fund had entered into repurchase
transactions with: Prudential Bache Securities; (i) the Government Fund had
entered into repurchase transactions with: Prudential Bache Securities and
Goldman Sachs; and (j) the Treasury Fund had entered into repurchase
transactions with Goldman Sachs; and .
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
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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 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.
The financial statements for periods or years prior to May 31,
1999 (May 31, 1997 for the Pennsylvania Tax Exempt Bond Fund) with respect to
the Predecessor Funds, which are incorporated by reference in this Statement of
Additional Information, were audited by Coopers & Lybrand, L.L.P., independent
accountants for the Predecessor Funds whose report dated July 26, 1996 expressed
an unqualified opinion on such financial statements, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
COUNSEL
-------
Drinker Biddle & Reath LLP (of which Mr. McConnel, Secretary
of the Trust, is a partner), with offices at One Logan Square, 18th and Cherry
Streets, Philadelphia, Pennsylvania 19103-6996, are counsel to the Trust and
will pass upon the legality of the shares offered hereby. Squire, Sanders &
Dempsey, LLP with offices at 4900 Key Center, 127 Publiz Square, Cleveland, Ohio
44114-1304 act as special Ohio tax counsel for the Trust and have reviewed the
sections of this Statement of Additional Information entitled "Special Risk
Considerations Regarding Investment in Ohio Municipal Securities."
YIELD AND PERFORMANCE INFORMATION
---------------------------------
Each 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:
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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 Equity Income, Balanced Allocation, Total Return
Advantage, Bond, Intermediate Bond, GNMA, Enhanced Income, the Tax-Exempt Funds,
Mid Cap Growth, U.S. Government Income and the Michigan Municipal Bond Funds
calculate interest earned on debt obligations held in their portfolios 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 will be adjusted monthly to reflect changes in the market
values of such debt obligations.
Interest earned on tax-exempt obligations that are issued
without original issue discount and have a current market discount is calculated
by using the coupon rate of interest instead of the yield to maturity. In the
case of tax-exempt obligations that are issued with original issue discount but
which have discounts based on current market value that exceed the
then-remaining portion of the original issue discount (market discount), the
yield to maturity is the imputed rate based on the original issue discount
calculation. On the other hand, in the case of tax-exempt obligations that are
issued with original issue discount but which have discounts based on current
market value that are less than the then-remaining portion of the original issue
discount (market premium), the yield to maturity is based on the market value.
Expenses accrued for the period (variable "b" in the formula)
include all recurring fees charged by the Fund to all shareholder accounts in
proportion to the length of the base period and the Fund's mean (or median)
account size. Undeclared earned income will be subtracted from the net asset
value per share (variable "d" in the formula). Undeclared earned income is the
net investment income which, at the end of the 30-day base period, has not been
declared as a dividend, but is reasonably expected to be and is declared as a
dividend shortly
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thereafter. For applicable sales charges, see "How to Purchase and Redeem Shares
- -- Sales Charges Applicable to Purchases of A Shares" and "Sales Charges
Applicable to Purchases of B Shares" in the Prospectus.
The "tax-equivalent yield" is computed by dividing the portion
of a Fund's yield (calculated as above) that is exempt from federal income tax
by one minus a stated federal income tax rate and adding that figure to that
portion, if any, of the Fund's yield that is not exempt from federal income tax.
For the period ended May 31, 1999, no Class C Shares were
issued or outstanding. Accordingly, no performance information is available for
Class C Shares.
For the 30-day period ended May 31, 1999, the respective
yields of the Class A Shares and Class I Shares of the Ohio Tax Exempt,
Pennsylvania Municipal and National Tax Exempt Bond Funds were: _____% and
_____% ; _____% and _____%; and _____% and _____%, respectively. The tax
equivalent yields (assuming a 39.6% federal tax rate and 6.799% Ohio tax rate
for 1998) for the Ohio Tax Exempt Bond Fund's Class A Shares and Class I
Shares for the same period were _____% and _____%, respectively. The tax
equivalent yields (assuming a 39.6% federal tax rate and a 2.8% Pennsylvania tax
rate) for the Pennsylvania Tax Exempt Bond Fund's Class A Shares and Class I
Shares for the same period were _____% and _____%, respectively. The tax
equivalent yield (assuming a 39.6% federal tax rate) for the National Tax Exempt
Bond Fund's Class I Shares for the same period was _____%.
The average annual total returns for the Ohio Tax Exempt Bond
Fund for the one year period ending May 31, 1999 were _____% (after taking into
account the sales load) and _____% (without taking into account any sales load)
for the Class A Shares and _____% for the Class I Shares. The average annual
total returns since the Fund's commencement of operations through May 31, 1999
were _____% (after taking into account the sales load) and _____% (without
taking into account any sales load) for the Class A Shares and _____% for the
Class I Shares. The Ohio Tax Exempt Bond Fund commenced investment operations
on January 5, 1990.
The average annual total returns for the fiscal year ending
May 31, 1999 for the Pennsylvania Tax Exempt Bond Fund were _____%, (after
taking into account the sales load) and _____% (without taking into account any
sales load) for the Class A Shares and _____% for the Class I Shares. The
average annual total returns since the predecessor fund to the Pennsylvania Tax
Exempt Bond Fund's commencement of operations through May 31, 1999 were _____%
(after taking into account the sales load) and _____% (without taking into
account any sales load) for the Class A Shares and _____% for the Class I
Shares. The predecessor fund to the Pennsylvania Tax Exempt Bond Fund commenced
investment operations on August 10, 1994.
The average annual total return for the predecessor fund to
the National Tax Exempt Bond Funds since the commencement of its operations
through May 31, 1999 was
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_____% for the Class I Shares. The predecessor fund to the National Tax Exempt
Bond commenced investment operations on August 16, 1964.
For the 30-day period ended May 31, 1999, the yields of the
Class A Shares and Class I Shares of the International Equity, Small Cap
Value, Small Cap Growth, Equity Growth, Tax Managed Equity, Core Equity and
Equity Income Funds were _____% and _____%, _____% and _____%, ____% and _____%,
_____% and _____%, _____%, and _____%, _____% and _____%, _____% and _____%,
respectively.
For the 30-day period ended May 31, 1999, the yields of the
Class A Shares and Class I Shares of the Total Return Advantage Fund, Bond,
Intermediate Bond Fund, GNMA Fund and Enhanced Income Fund were _____% and
_____%; _____% and _____%; _____%, and _____%; _____%, and _____%; and _____%
and _____%, respectively.
For the 30-day period ended May 31, 1999, the yields of the
Class B Shares of the Bond Fund and Intermediate Bond Fund were _____% and
_____%, respectively.
The current yield for each class of shares in the Money
Market Funds may be obtained by calling the Trust at the telephone number
provided on the cover page. Quoted yields are not indicative of future yields.
Yields will depend upon factors such as fund maturity, the Treasury Plus Money
Market Fund's expenses and the types of instruments held by the Fund.
Each 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 to the 1/n th power
T = [(-----) - 1]
P
Where: T = average annual total return
ERV = ending redeemable value at the end of the
period covered by the computation of a
hypothetical $1,000 payment made at the
beginning of the period
P = hypothetical initial payment of $1,000
n = period covered by the computation, expressed in terms
of years
Each 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
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<PAGE> 225
redeemable value of such investment. The formula for calculating aggregate total
return is as follows:
ERV
T = (---) - 1
P
The calculations of average annual total return and aggregate
total return assume the reinvestment of all dividends and capital gain
distributions on the reinvestment dates during the period and include all
recurring fees charged to all shareholder accounts, assuming an account size
equal to the Fund's mean (or 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.
For the period ended May 31, 1999, no Class C Shares were
issued or outstanding. Accordingly, no performance information is available for
Class C Shares.
The average annual total returns for the one year period ended
May 31, 1999 were _____% (after taking the sales load into account) and _____%
(without taking into account any sales load), for the Small Cap Value Fund's
Class A Shares, _____% (after taking the sales load into account) and _____%
(without taking into account any sales load) for its Class B Shares and _____%
for the Small Cap Value Fund's Class I Shares. The average annual total
returns since the Small Cap Value Fund's commencement of operations through May
31, 1999 were _____% (after taking into account the sales load) and _____%
(without taking into account any sales load), for its Class A Shares, _____%
(after taking the sales load into account) and _____% (without taking into
account any sales load) for its Class B Shares, and _____% for the Class I
Shares.
The average annual total returns for the one year period
ending May 31, 1999 were _____% (after taking the sales load into account) and
_____% (without taking into account any sales load), for the Equity Growth
Fund's Class A Shares, _____% (after taking the sales load into account) and
_____% (without taking into account any sales load) for its Class B Shares and
_____% for the Equity Growth Fund's Class I Shares. The average annual total
returns since the Equity Growth Fund's commencement of operations through May
31, 1999 were _____% (after taking into account the sales load) and _____%
(without taking into account any sales load), for its Class A Shares, _____%
(after taking the sales load into account) and _____% (without taking into
account any sales load) for its Class B Shares, and _____% for the Class I
Shares.
The average annual total returns for the one year period ended
May 31, 1999 were _____% (after taking the sales load into account) and _____%
(without taking into account any sales load), for the Equity Income Fund's Class
A Shares, _____% (after taking the sales load
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into account) and _____% (without taking into account any sales load) for its
Class B Shares and _____% for the Equity Income Fund's Class I Shares. The
average annual total returns since the Equity Income Fund's commencement of
operations through May 31, 1999 were _____% (after taking into account the sales
load) and _____% (without taking into account any sales load), for its Class A
Shares, _____% (after taking the sales load into account) and _____% (without
taking into account any sales load) for its Class B Shares, and _____% for the
Class I Shares.
The average annual total returns for the Total Return
Advantage Fund's fiscal year ended May 31, 1999 were _____% (after taking the
sales load into account) and _____% (without taking into account any sales load)
for its Class A Shares, and _____% for its Class I Shares. The average
annual total returns since the Total Return Advantage Fund's commencement of May
31, 1999 were _____% (after taking into account the sales load), and _____%
(without taking into account any sales load) for its Class A Shares and _____%
for its Class I Shares. The A share class of the Total Return Advantage Fund
commenced operations on September 6, 1994 and the I share class of the Total
Return Advantage Fund commenced operations on July 7, 1994.
The average annual total returns for the Bond Fund's fiscal
year ended May 31, 1999 were _____% (after taking the sales load into account)
and _____% (without taking into account any sales load) for its Class A Shares
and, _____% (after taking the sales load into account) and _____% (without
taking into account any sales load) for its Class B Shares and _____% for its
Class I Shares. The average annual total returns since the Bond Fund's
commencement of operations through May 31, 1999 were _____% (after taking into
account the sales load) and _____% (without taking into account any sales load)
for its Class A Shares, _____% (after taking the sales load into account) and
_____% (without taking into account any sales load) for its Class B Shares and
_____% for its Class I Shares. The Bond Fund commenced operations on August
10, 1994.
The average annual total returns for the Intermediate Bond
Fund's fiscal year ended May 31, 1999 were _____% (after taking the sales load
into account) and _____% (without taking into account any sales load) for its
Class A Shares, _____% (after taking the sales load into account) and _____%
(without taking into account any sales load) for its Class B Shares and _____%
for its Class I Shares. The average annual total returns since the
Intermediate Bond Fund's commencement of operations through May 31, 1999 were
_____% (after taking into account the sales load) and _____% (without taking
into account any sales load) for its Class A Shares, _____% (after taking the
sales load into account) and _____% (without taking into account any sales load)
for its Class B Shares, and _____% for its Class I Shares. The Intermediate
Bond Fund commenced operations on December 20, 1989.
The average annual total returns for the GNMA Fund's ended May
31, 1999 were _____% (after taking the sales load into account) and _____%
(without taking into account any sales load) for its Class A Shares and _____%
for its Class I Shares. The average annual total returns since the GNMA Fund's
commencement of operations through May 31, 1999 were _____% (after taking into
account the sales load) and _____% (without taking into account any sales load)
for its Class A Shares and _____% for its Class I Shares. The GNMA Fund
commenced operations on August 10, 1994.
The average annual total returns for the Enhanced Income
Fund's fiscal year ended May 31, 1999 were _____% (after taking the sales load
into account) and _____% (without taking into account any sales load) for its
Class A Shares and _____% for its Class I Shares. The average annual total
returns since the Enhanced Income Fund's commencement of operations through May
31, 1999 were _____% (after taking into account the sales load) and _____%
(without taking into account any
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<PAGE> 227
sales load) for its Class A Shares and _____% for its Class I Shares. The GNMA
Fund commenced operations on August 10, 1994.
The average annual total returns for the Enhanced Income
Fund's fiscal year ended May 31, 1999 were _____% (after taking the sales load
into account) and _____% (without taking into account any sales load) for its
Class A shares and ____% for its Class I operations through May 31, 1999 were
_____% (after taking into acco8unt the sales load) and _____% (without taking
into account any sales load) for its Class A Shares and _____% for its Class I
Shares. The A share class of the Enhanced Income Fund commenced operations on
September 9, 1994 and the I share class of the Enhanced Income Fund
commenced operations on July 7, 1994.
The average annual total returns for the Ohio Tax Exempt Bond
Fund for the one year period ending May 31, 1999 were _____% (after taking into
account the sales load) and _____% (without taking into account any sales load)
for the Class A Shares and _____% for the Class I Shares. The average annual
total returns since the Fund's commencement of operations through May 31, 1999
were _____% (after taking into account the sales load) and _____% (without
taking into account any sales load) for the Class A Shares and _____% for the
Class I Shares. The Ohio Tax Exempt Bond Fund commenced investment operations
on January 5, 1990.
The average annual total returns for the fiscal year ending
May 31, 1999 for the Pennsylvania Tax Exempt Bond Fund were _____%, (after
taking into account the sales load) and _____% (without taking into account any
sales load) for the Class A Shares and _____% for the Class I Shares. The
average annual total returns since the predecessor fund to the Pennsylvania Tax
Exempt Bond Fund's commencement of operations through May 31, 1999 were _____%
(after taking into account the sales load) and _____% (without taking into
account any sales load) for the Class A Shares and _____% for the Class I
Shares. The predecessor fund to the Pennsylvania Tax Exempt Bond Fund commenced
investment operations on August 10, 1994.
The average annual total return for the predecessor fund to
the National Tax Exempt Bond Funds since the commencement of its operations
through May 31, 1999 was _____% for the Class I Shares. The predecessor fund
to the National Tax Exempt Bond commenced investment operations on August 16,
1964.
The cumulative total returns for the period since commencement
of operations (August 1, 1997 with respect to Class A Shares and Class I
Shares and January 6, 1998 with respect to Class B Shares) until May 31, 1999
were _____% (after taking the sales load into account) and _____% (without
taking into account any sales load), for the International Equity Fund's Class A
Shares, _____% (after taking the sales load into account) and _____% (without
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<PAGE> 228
taking into account any sales load) for its Class B Shares and _____% for the
International Equity Fund's Class I Shares.
The cumulative total returns for the period since commencement
of operations (August 1, 1997 with respect to Class A Shares and Class I
Shares and January 6, 1998 with respect to Class B Shares) until May 31, 1999
were _____% (after taking the sales load into account) and _____% (without
taking into account any sales load), for the Small-Cap Growth Fund's Class A
Shares, _____% (after taking the sales load into account) and _____% (without
taking into account any sales load) for its Class B Shares and _____% for the
Small-Cap Growth Fund Class I Shares.
The cumulative total returns for the period since commencement
of operations (August 1, 1997 with respect to Class A Shares and Class I
Shares and January 6, 1998 with respect to Class B Shares) until May 31, 1999
were _____% (after taking the sales load into account), and _____% (without
taking into account any sales load) for the Core Equity Fund's Class A Shares,
_____% (after taking the sales load into account) and _____% (without taking
into account any sales load) for its Class B Shares and _____% for the Core
Equity Fund's Class I Shares.
Each Fund may also advertise the "aggregate total return" for
its shares which is computed by determining the aggregate compounded rates of
return during specified periods that likewise equate the initial amount invested
to the ending redeemable value of such investment. The formula for calculating
aggregate total return is as follows:
ERV
Aggregate Total Return = [(------)] - 1
P
The above calculations are made assuming that (1) all
dividends and capital gain distributions are reinvested on the reinvestment
dates at the price per Share existing on the reinvestment date, (2) all
recurring fees charged to all shareholder accounts are included, and (3) for any
account fees that vary with the size of the account, a mean (or median) account
size in a Fund during the periods is reflected. The ending redeemable value
(variable "ERV" in the formula) is determined by assuming complete redemption of
the hypothetical investment after deduction of all nonrecurring charges at the
end of the measuring period.
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<PAGE> 229
<TABLE>
<CAPTION>
Aggregate Aggregate Total Inception
Total Return Return From ---------
From Inception Inception Through Date
Through 5/31/99 (without ----
5/31/99 (with Deduction for Any
Deduction of Sales Charge)
Maximum Sales -------------
Charge)
-------
<S> <C> <C> <C>
Armada International Equity Fund
Class A
Class I
Class B _____% _____% 8/01/97
N/A _____% 8/01/97
_____% _____% 01/06/98
Armada Small Cap Value Fund
Class A _____% _____% 08/15/94
Class I N/A _____% 07/26/94
Class B _____% _____% 01/06/98
Armada Small Cap Growth Fund
Class A _____% _____% 8/01/97
Class I N/A _____% 8/01/97
Class B _____% _____% 01/06/98
Armada Equity Growth Fund
Class A _____% _____% 4/15/91
Class I N/A _____% 12/20/89
Class B _____% _____% 01/06/98
Armada Equity Income Fund
Class A _____% _____% 8/22/94
Class I N/A _____% 07/01/94
Class B _____% _____ 01/06/98
Armada Core Equity Fund
Class A _____% _____% 8/01/97
Class I N/A _____% 8/01/97
Class B _____% _____% 01/06/98
Armada Balanced Allocation 7/10/98
Fund N/A N/A
Class A N/A N/A
Class I N/A N/A
Class B
Armada Total Return Advantage
Fund
Class A _____% _____% 09/06/94
Class I N/A N/A 07/07 /A
Class B N/A N/A N/A
Armada Bond Fund
Class A _____% _____% 09/11/96
Class I N/A _____% 08/10/94
Class B _____% _____% 01/06/98
</TABLE>
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<PAGE> 230
<TABLE>
<CAPTION>
Aggregate Aggregate Total Inception
Total Return Return From ---------
From Inception Inception Through Date
Through 5/31/99 (without ----
5/31/99 (with Deduction for Any
Deduction of Sales Charge)
Maximum Sales -------------
Charge)
-------
<S> <C> <C> <C>
Armada Intermediate Bond Fund
Class A _____% _____% 04/15/91
Class I N/A _____% 12/20/89
Class B _____% _____% 1/06/98
Armada GNMA Fund
Class A _____% _____% 9/11/96
Class I N/A _____% 8/10/94
Class B N/A N/A N/A
Armada Enhanced Income Fund
Class A _____% _____% 09/09/94
Class I N/A _____% 07/07/94
Class B N/A N/A N/A
Armada Ohio Tax Exempt Bond Fund
Class A _____% _____% 04/15/91
Class I N/A _____% 01/05/90
Class B N/A N/A
Armada Pennsylvania Municipal
Bond Fund
Class A _____% _____% 09/11/96
Class I N/A _____% 08/10/94
Class B N/A N/A
</TABLE>
The Funds 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.
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<PAGE> 231
The Funds may also from time to time include discussions or
illustrations of the effects of compounding in Materials. "Compounding" refers
to the fact that, if dividends or other distributions on 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 Funds may also include in Materials
discussions and/or illustrations of the potential investment goals of a
prospective investor, investment management strategies, techniques, policies or
investment suitability of 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. With respect to the Money
Market, Government, Treasury, Tax Exempt and Pennsylvania Tax Exempt Funds, all
organization expenses are or were being amortized on the straight-line method
over a period of five years from the date of commencement of operations.
As used in the Prospectus, "assets belonging to the Fund"
means the consideration received by the Trust upon the issuance of shares in
that Fund, together with all income,
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<PAGE> 232
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 a Fund are charged with the liabilities in respect of that
Fund.
As of________________________, 1999, the following bank
subsidiaries of National City Corporation held of record 5% or more of the
outstanding Class I Shares of the Money Market, Government, Treasury, Tax
Exempt and Pennsylvania Tax Exempt Funds acting as agent or custodian for their
customers, but did not own such shares beneficially:
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING
CLASS I SHARES
Pennsylvania Government Treasury
Tax Money Tax Money Money
Exempt Market Exempt Market Market
Fund Fund
---- ---- Fund Fund Fund
---- ---- ----
<S> <C> <C> <C> <C> <C>
National City Bank, N/A N/A _____% N/A
N/A
Northeast
One Cascade Plaza
Akron, OH 44308
National City Bank of Dayton N/A N/A N/A _____% N/A
Gem Plaza, 6 N. Main
Dayton, OH 45412
National Bank of Columbus N/A _____% _____% _____% N/A
155 East Broad Street
Columbus, OH 43251
National City Bank of Kentucky _____% _____% N/A _____% N/A
National City Tower
101 South Fifth Street
Louisville, KY 40202
National City Bank of Indiana _____% _____% _____% _____% N/A
101 W. Washington Street
Indianapolis, IN 46255
National City Bank, Northwest _____% N/A N/A N/A N/A
405 Madison Avenue
Toledo, OH 43603
National City Bank of Pennsylvania _____% _____% _____% N/A _____%
400 Fourth Avenue
Pittsburgh, PA 15222
National City Trust Co. N/A N/A N/A N/A N/A
1401 Forum Way, Suite 503
West Palm Beach, FL 33401
</TABLE>
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<PAGE> 233
<TABLE>
<S> <C> <C> <C> <C> <C>
National City Bank, Cleveland _____% ______% _____% _____% N/A
1900 East Ninth Street
Cleveland, OH 44114
</TABLE>
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<PAGE> 234
As of _____________, 1999, the following persons owned of
record 5 percent or more of the shares of the Funds of the Trust:
<TABLE>
<S> <C> <C>
International Equity Fund (A)
- -----------------------------
OUTSTANDING SHARES PERCENTAGE
Wheat First Securities, Inc. _______________ _______________%
9912 Young Road
Wattsburg, PA 16442-9529
International Equity Fund (B)
- -----------------------------
OUTSTANDING SHARES PERCENTAGE
Wheat, First Securities _______________ _______________%
1190 Parkside Drive
Limestone, NY 14753-9704
SEI Investments Co. _______________ _______________%
Attn: Rob Silvestri
One Freedom Valley Drive
Oaks, PA 19456
International Equity Fund (I)
- -----------------------------
OUTSTANDING SHARES PERCENTAGE
National City Non-Contributory Retirement Trust _______________ _______________%
Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Whitelaw & Co. _______________ _______________%
c/o National City
Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Whitelaw & Co. _______________ _______________%
c/o National City
Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
</TABLE>
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<PAGE> 235
<TABLE>
<S> <C> <C>
National City Bank _______________ _______________%
Sheldon & Co. Pathway - 49
Attn: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Small Cap Value Fund (A)
- ------------------------
OUTSTANDING SHARES PERCENTAGE
Citicorp USA, Inc. _______________ _______________%
As Custodian for Marlboro
Equity Partners
One Sansome St., 24th Floor
San Francisco, CA 94104-4448
Citicorp USA Inc. _______________ _______________%
As Custodian for Suzanne Tito
One Sansome Street, 24th Floor
San Francisco, CA 94104-4448
Small Cap Value Fund (B)
- ------------------------
OUTSTANDING SHARES PERCENTAGE
Wheat, First Securities, Inc. _______________ _______________%
John K. Wojchowski IRA
WFS AS Custodian
Box 48, West Street
Mount Pleasant, OH 43939-0048
Wheat, First Securities, Inc. _______________ _______________%
1190 Parkside Drive
Limestone, NY 14753-9704
Wheat, First Securities, Inc. _______________ _______________%
Daniel P. Schultz IRA
WFS AS Custodian
7917 Conifer Drive
Louisville, KY 40258-2236
Wheat, First Securities, Inc. _______________ _______________%
1016 Westgate Place
Louisville, KY 40207-2327
Wheat, First Securities, Inc. _______________ _______________%
8123 Shobe Lane
Louisville, KY 40228-2274
Small Cap Value Fund (I)
- ------------------------
</TABLE>
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<PAGE> 236
<TABLE>
<S> <C> <C>
OUTSTANDING SHARES PERCENTAGE
Sheldon & Co. _______________ _______________%
Attn: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Sheldon & Co. _______________ _______________%
Attn: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
c/o National City Bank _______________ _______________%
Sheldon & Co. - Pathway 49
Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Sheldon & Co. _______________ _______________%
C/o National City Bank
Attn: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
National City Bank, Whitelaw & Co. _______________ _______________%
Daily Valuation Account
P.O. Box 94777
Attn: Trust Mutual Funds
Cleveland, OH 44101-4777
Small Cap Growth Fund (A)
- -------------------------
OUTSTANDING SHARES PERCENTAGE
Capital Network Services _______________ _______________%
One Bush Street, 11th Floor
San Francisco, CA 94104-4425
Schweizer Dipple Inc. (401k Plan) _______________ _______________%
James G. Dwyer
Attn: Lynn E. Ulrich
7227 Division Street
Oakwood Village, OH 44146-5405
Schweizer Dipple Inc. (401k Plan) _______________ _______________%
James G. Dwyer
Attn: Lynn E. Ulrich
7227 Division Street
Oakwood Village, OH 44146-5405
Small Cap Growth Fund (B)
- -------------------------
</TABLE>
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<PAGE> 237
<TABLE>
<CAPTION>
OUTSTANDING SHARES PERCENTAGE
<S> <C> <C>
SEI Investments Co. _______________ _______________%
Attn: Rob Silvestri
One Freedom Valley Drive
Oaks, PA 19456
Small Cap Growth Fund (I)
- -------------------------
OUTSTANDING SHARES PERCENTAGE
National City Corporation Non-Contributory _______________ _______________%
Retirement Trust
Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Whitelaw & Co. _______________ _______________%
C/o National City
Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Whitelaw & Co. _______________ _______________%
C/o National City
Trust Mutual Funds
P.O. Box 94984
Cleveland, OH 44101-4984
National City Bank _______________ _______________%
Sheldon & Co. Pathway-49
Attn: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Whitelaw & Co. _______________ _______________%
C/o National City
Trust Mutual Funds
P.O. Box 94984
Cleveland, OH 44101-4984
Equity Growth Fund (A)
- ----------------------
OUTSTANDING SHARES PERCENTAGE
State Street Bank & Trust _______________ _______________%
FBO First Energy Corp.
Savings Plan
200 Newport Avenue
North Quincey, MA 02171
</TABLE>
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<PAGE> 238
<TABLE>
<CAPTION>
Equity Growth Fund (B)
- ----------------------
OUTSTANDING SHARES PERCENTAGE
<S> <C> <C>
Wheat, First Securities, Inc. _______________ _______________%
1190 Parkside Drive
Limestone, NY 14753-9704
Wheat, First Securities, Inc. _______________ _______________%
12435 Pearl Road
Chardon, OH 44024-9125
Wheat, First Securities, Inc. _______________ _______________%
John K. Wojchowski IRA
Box 48 West Street
Mt. Pleasant, OH 43939-0048
Wheat, First Securities, Inc. _______________ _______________%
1016 Westgate Place
Louisville, KY 40207-2327
Equity Growth Fund (I)
- ----------------------
OUTSTANDING SHARES PERCENTAGE
Whitelaw & Co. _______________ _______________%
Daily Valuation Acct.
Attn: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Sheldon & Co. _______________ _______________%
c/o National City Bank
Attn: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Whitelaw & Co. _______________ _______________%
c/o National City Bank
Trust Mutual Funds/Pooled
Fund Conversion
P.O. Box 94984
Cleveland, OH 44101-4984
National City Non-Contributing Retirement Trust _______________ _______________%
Attn: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
</TABLE>
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<PAGE> 239
<TABLE>
<S> <C> <C>
National City Bank _______________ _______________%
Sheldon & Co. Pathway - 49
Attn: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Tax Managed Equity Fund (A)
- ---------------------------
OUTSTANDING SHARES PERCENTAGE
Wheat, First Securities, Inc. _______________ _______________%
130 Penn Street
New Bethlehem, PA 16242-1042
Robert Thomas Securities _______________ _______________%
Attn: Mutual Funds Transfer
880 Carillon Parkway
St. Petersburg, FL 33733
Tracy L. Sambuco, Custodian _______________ _______________%
Austin P. Sambuco, UTMA-OH
48970 Cadiz Harrisville Rd.
Cadiz, OH 43907-9707
Wheat, First Securities Inc. _______________ _______________%
1717 Tenth Street
Cuyahoga Falls, OH 44221-4511
Tax Managed Equity Fund (B)
- ---------------------------
OUTSTANDING SHARES PERCENTAGE
Wheat, First Securities, Inc. _______________ _______________%
6706 Old Healey Road
Louisville, KY 40299-5206
Wheat, First Securities, Inc. _______________ _______________%
Anna M. Kusner
3501 Executive Parkway
Apt. 729
Toledo, OH 43606-5523
Wheat, First Securities, Inc. _______________ _______________%
Indar M. Jhamb MD. PSP & TR
Indar M. Jhamb MD. TTEE
FBO Indarr M. Jhamb MD.
1228 Ashley Circle
</TABLE>
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<TABLE>
<S> <C> <C>
Wheat, First Securities, Inc. _______________ _______________%
Lois S. Wood
266 Windemere Place
Westerville, OH 43082-6349
Wheat, First Securities, Inc. _______________ _______________%
10 Jordan Drive
Norwich, OH 43767-9770
Wheat, First Securities, Inc. _______________ _______________%
19645 Detroit Rd., Box 238
Rocky River, OH 44116-1811
Wheat, First Securities, Inc. _______________ _______________%
Linda D. Musick
Lisa A. Skaggs
2779 Stuart Road
Rockbridge, OH 43149
Tax Managed Equity Fund (I)
- ---------------------------
OUTSTANDING SHARES PERCENTAGE
Sheldon & Co. _______________ _______________%
C/o National City Bank
Trust Mutual Funds
P.O. Box 94984
Cleveland, OH 44101-4984
Core Equity Fund (A)
- --------------------
OUTSTANDING SHARES PERCENTAGE
Wheat First FBO _______________ _______________%
Vincent A. DiGirolamo &
Nancy S. DiGirolamo
2002 Fox Trace Trail
Cuyahoga Falls, OH 44223-3738
Charles W. Edwards, Jr. _______________ _______________%
570 Bennett Way
Florence, AL 35634-2604
Wheat First Securities, Inc. _______________ _______________%
FBO Everette M. Bride
RD #1 Box 155 B1
SEI Trust Company for the _______________ _______________%
Rollover of Macklin H. Thomas
2418 E. 91st Street
Indianapolis, IN 46240-2010
</TABLE>
-129-
<PAGE> 241
<TABLE>
<S> <C> <C>
Wheat, First Securities, Inc. _______________ _______________%
122 Oberlin Dr.
Butler, PA 16001-1710
Wheat, First Securities, Inc. _______________ _______________%
Erskine X-Press Inc.
John R. Swab, Sr.
6210 Center Road
Lowellville, OH 44436-9521
Core Equity Fund (B)
- --------------------
OUTSTANDING SHARES PERCENTAGE
Richard P. Nover _______________ _______________%
Kathleen Cain Nover
3146 Sable Ridge Place
Greenwood, IN 46142-9773
James H. Turner _______________ _______________%
137 Vanderbilt Drive
Lexington, KY 40517-1540
SEI Trust Company _______________ _______________%
Custodian for the IRA of
Jack Lewis
10099 Meadville St., Lot 31
Cranesville, PA 16410-9331
SEI Investments Co. _______________ _______________%
Attn: Rob Silvestri
One Freedom Valley Drive
Oaks, PA 19456
Wheat, First Securities, Inc. _______________ _______________%
802 Broad Street
New Bethlehem, PA 16242-1108
Core Equity Fund (I)
- --------------------
OUTSTANDING SHARES PERCENTAGE
National City Non-Contributory Retirement Trust _______________ _______________%
Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Equity Index Fund (I)
- ---------------------
OUTSTANDING SHARES PERCENTAGE
</TABLE>
-130-
<PAGE> 242
<TABLE>
<S> <C> <C>
Whitelaw & Co. _______________ _______________%
Daily Valuation Account
Attn: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Whitelaw & Co. _______________ _______________%
C/o National City Bank
Trust Mutual Funds
P.O. Box 94984
Cleveland, OH 44101-4984
Whitelaw & Co. - Voyage _______________ _______________%
P.O. Box 94777
Attn: Trust Mutual Funds
Cleveland, OH 44101-4777
Equity Income Fund (B)
- ----------------------
OUTSTANDING SHARES PERCENTAGE
Wheat, First Securities, Inc. _______________ _______________%
1190 Parkside Drive
Limestone, NY 14753-9704
Wheat, First Securities, Inc. _______________ _______________%
12435 Pearl Road
Chardon, OH 44024-9125
Wheat, First Securities, Inc. _______________ _______________%
4314 Churchill Rd.
Louisville, KY 40207-4047
Wheat, First Securities, Inc. _______________ _______________%
72 Birchwood Drive
Transfer, PA 16154-2406
Equity Income Fund (I)
- ----------------------
OUTSTANDING SHARES PERCENTAGE
Sheldon & Co. _______________ _______________%
C/o National City Bank
Attn: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
</TABLE>
-131-
<PAGE> 243
<TABLE>
<S> <C> <C>
C/o National City Bank _______________ _______________%
Sheldon & Co. - Pathway - 49
Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
National City Bank, Cleveland _______________ _______________%
Non-Contributory Retirement Trust
Attn: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Balanced Allocation Fund (A)
- ----------------------------
OUTSTANDING SHARES PERCENTAGE
Wheat, First Securities, Inc. _______________ _______________%
908 Aetna Drive
Ellwood City, PA 16117-1410
Wheat, First Securities, Inc. _______________ _______________%
308 Division Avenue
Ellwood City, PA 16117-2209
Wheat, First Securities, Inc. _______________ _______________%
P.O. Box 194, Route 18
Wampum, PA 16157-0194
Balanced Allocation Fund (I)
- ----------------------------
OUTSTANDING SHARES PERCENTAGE
Whitelaw & Co. _______________ _______________%
c/o National City Bank
Trust Mutual Funds
P.O. Box 94984
Cleveland, OH 44101-4984
Whitelaw & Co. _______________ _______________%
Daily Valuation Acct.
Attn: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Total Return Advantage Fund (A)
- -------------------------------
OUTSTANDING SHARES PERCENTAGE
Fifth Third Bank _______________ _______________%
P.O. Box 630074
Cincinnati, OH 45263-0778
</TABLE>
-132-
<PAGE> 244
<TABLE>
<S> <C> <C>
Fifth Third Bank _______________ _______________%
P.O. Box 630074
Cincinnati, OH 45263-0778
Total Return Advantage Fund (I)
- -------------------------------
OUTSTANDING SHARES PERCENTAGE
Sheldon & Co. _______________ _______________%
Attn: Trust Mutual Funds
P.O. Box 94984
Cleveland, OH 44101-4984
Sheldon & Co. _______________ _______________%
P.O. Box 94777
Attn: Trust Mutual Funds
Cleveland, OH 44101-4777
Sheldon & Co. _______________ _______________%
C/o National City Bank
P.O. Box 94777
Attn: Trust Mutual Funds
Cleveland, OH 44101-4777
Bond Fund (A)
- -------------
OUTSTANDING SHARES PERCENTAGE
Wheat First Union _______________ _______________%
FBO Benjamin Kimmel IRA
c/o National City
10700 North Park Drive
Glen Allen, VA 23060-9243
Wheat, First Securities, Inc. _______________ _______________%
Anna M. Kusner
3501 Executive Parkway
Apt. 729
Toledo, OH 43606-5523
Wheat, First Securities, Inc. _______________ _______________%
9912 Young Road
Wattsburg, PA 16442-9529
Wheat, First Securities, Inc. _______________ _______________%
James R. Luke
62 North Lake Street
North East, PA 16428-1321
</TABLE>
-133-
<PAGE> 245
<TABLE>
<S> <C> <C>
Wheat, First Securities, Inc. _______________ _______________%
7041 Truck World Blvd.
Hubbard, OH 44425-3254
Bond Fund (B)
- -------------
OUTSTANDING SHARES PERCENTAGE
Wheat, First Securities, Inc. _______________ _______________%
1190 Parkside Drive
Limestone, NY 14753-9704
Wheat First Securities, Inc. _______________ _______________%
4314 Churchill Rd.
Louisville, KY 40207-4047
Bond Fund (I)
- -------------
OUTSTANDING SHARES PERCENTAGE
Sheldon & Co. _______________ _______________%
c/o National City Bank
Attn: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
National City Bank _______________ _______________%
Sheldon & Co. Pathway 49
Attn: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Whitelaw & Co. _______________ _______________%
Daily Valuation Acct.
Attn: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Whitelaw & Co. _______________ _______________%
c/o National City Bank
Trust Mutual Funds/Pooled
Fund Conversion
P.O. Box 94984
Cleveland, OH 44101-4984
Intermediate Bond Fund (A)
- --------------------------
OUTSTANDING SHARES PERCENTAGE
</TABLE>
-134-
<PAGE> 246
<TABLE>
<S> <C> <C>
Wheat, First Securities, Inc. _______________ _______________%
Brandon G. Schnorf
5217 Monroe Street
Suite A
Toledo, OH 43623-4604
Wheat, First FBO Mary M. _______________ _______________%
Montgomery IRA
603 East 8th Street
Port Clinton, OH 43452-2014
Wheat, First FBO Marian L. Crayne, IRA _______________ _______________%
5139 Jolly Road
Sylvania, OH 43560-9711
Intermediate Bond Fund (B)
- --------------------------
OUTSTANDING SHARES PERCENTAGE
SEI Investments Co. _______________ _______________%
Attn: Rob Silvestri
One Freedom Valley Drive
Oaks, PA 19456
SEI Trust Company _______________ _______________%
Custodian for the IRA
Of Roger J. Thompson
25645 Buena Vista Road
Rockbridge, OH 43149-9507
Intermediate Bond Fund (I)
- --------------------------
OUTSTANDING SHARES PERCENTAGE
SEI Trust Company _______________ _______________%
Attn: Mutual Fund Administrator
One Freedom Valley Drive
Oaks, PA 19456
GNMA Fund (A)
- -------------
OUTSTANDING SHARES PERCENTAGE
</TABLE>
-135-
<PAGE> 247
<TABLE>
<S> <C> <C>
Schweizer Dipple Inc. _______________ _______________%
401(k) Plan
Dennis J. Clark, Sr.
Attn: Lynn E. Ulrich
7227 Division Street
Oakwood Village, OH 44146-5405
Wheat First Union _______________ _______________%
FBO Benjamin Kimmel IRA
c/o Nat City
10700 North Park Drive
Glen Allen, VA 23060-9243
GNMA Fund (I)
- -------------
OUTSTANDING SHARES PERCENTAGE
National City Bank _______________ _______________%
Sheldon & Co. Pathay-49
Attn: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Enhanced Income Fund (A)
- ------------------------
OUTSTANDING SHARES PERCENTAGE
David T. Olsen & Ann M. Olsen _______________ _______________%
2914 Dark Branch Road
Fayetteville, NC 28304-3717
Wheat First FBO Eleanor D. _______________ _______________%
Hendershot IRA
351 Buckeye Drive
Berea, OH 44017-1303
Wheat First FBO Harvey M. Brunner, Jr. IRA _______________ _______________%
700 Brick Mill Run, Apt. 106
Westlake, OH 44145-1655
Enhanced Income Fund (I)
- ------------------------
OUTSTANDING SHARES PERCENTAGE
</TABLE>
-136-
<PAGE> 248
<TABLE>
<S> <C> <C>
Key Trust Company _______________ _______________%
FBO St. Luke's Self Ins.
P.O. Box 94871
Cleveland, OH 44101-4871
Sheldon & Co. _______________ _______________%
Future Quest
c/o National City Bank
Attn: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Sheldon & Co. _______________ _______________%
Future Quest
c/o National City Bank
Attn: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
c/o National City Bank _______________ _______________%
Sheldon & Co.-Pathway 49
Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Ohio Tax Exempt Bond Fund (Class A Shares)
- -------------------------------------------
OUTSTANDING SHARES PERCENTAGE
Wheat First FBO David J. _______________ _______________%
Beverly & Pamela C. Beverly
1128 Laguna Drive
Huron, OH 44839-2605
Wheat First Securities, Inc. _______________ _______________%
FBO Edward B. Brandon &
Phyllis P. Brandon
Lakepoint Office Park
3201 Enterprise Parkway
Suite 470
Beachwood, OH 44122-7320
Ohio Tax Exempt Bond Fund (Class I Shares)
- -------------------------------------------
OUTSTANDING SHARES PERCENTAGE
</TABLE>
-137-
<PAGE> 249
<TABLE>
<S> <C> <C>
Sheldon and Co. (Cash) _______________ _______________%
National City Bank
Trust Mutual Funds-5312
P.O. Box 94984
Cleveland, OH 44101-4984
Pennsylvania Tax Exempt Bond Fund (Class A
- -------------------------------------------
Shares)
- -------
OUTSTANDING SHARES PERCENTAGE
Helen M. Weyer _______________ _______________%
James N. Weyer
2600 Mohawk Drive
White Oak, PA 15131-3121
Robert H. Rhone _______________ _______________%
C/O Michael Rhone
P.O. Box 175
Rew, PA 16744-0175
Wheat, First Securities, Inc. _______________ _______________%
304 Michigan Avenue
Lower Burrell, PA 15068-2936
Pennsylvania Tax Exempt Bond Fund (Class I
- -------------------------------------------
Shares)
- -------
OUTSTANDING SHARES PERCENTAGE
National City Bank _______________ _______________%
Sheldon & Co. Pathway-49
Attn: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
National Tax Exempt Bond Fund (Class A Shares)
- -----------------------------------------------
OUTSTANDING SHARES PERCENTAGE
JJB Hilliard WL Lyons, Inc. _______________ _______________%
Frederick W. Krieg
Attn: James H. Watson MSO4
120 Hilliard Lyons Center
Louisville, KY 40202
National Tax Exempt Bond Fund(Class I Shares)
- -----------------------------------------------
OUTSTANDING SHARES PERCENTAGE
</TABLE>
-138-
<PAGE> 250
<TABLE>
<S> <C> <C>
Sheldon & Co. _______________ _______________%
c/o National City Bank
Trust Mutual Funds
P.O. Box 94984
Cleveland, OH 44101-4984
Pennsylvania Tax Exempt Money Market Fund (A )
- ----------------------------------------------
OUTSTANDING SHARES PERCENTAGE
FBO Corporate Autosweep Customers _______________ _______________%
c/o National City Bank of PA
300 Fourth Street 2-191
Pittsburgh, PA 15278-0001
National City Bank of Pennsylvania _______________ _______________%
FBO PCG/Retail Sweep Customers
Cash Management Operations
770 W. Broad Street 16-0347
Columbus, OH 43222-1419
Pennsylvania Tax Exempt Money Market Fund (I )
- ----------------------------------------------
OUTSTANDING SHARES PERCENTAGE
National City Bank _______________ _______________%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
Tax Exempt Money Market Fund (A )
- ---------------------------------
OUTSTANDING SHARES PERCENTAGE
Wheat First Securities _______________ _______________%
P.O. Box 6629
Glen Allen, VA 23058-6629
National City Bank _______________ _______________%
FBO PCG/Retail Sweep Customers
770 W. Broad Street, Location 16-0347
Columbus, OH 43222-1419
Tax Exempt Money Market Fund (I )
- ---------------------------------
OUTSTANDING SHARES PERCENTAGE
</TABLE>
-139-
<PAGE> 251
<TABLE>
<S> <C> <C>
National City Bank _______________ _______________%
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank _______________ _______________%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland,, OH 44135-1389
National City Bank _______________ _______________%
Operations Center
Attn: Trust Operations Funds
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank _______________ _______________%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank _______________ _______________%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank _______________ _______________%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
- ------------------------------------------------ ------------------------------------- ------------------------------------
- ------------------------------------------------ ------------------------------------- ------------------------------------
Money Market Fund (A)
- ---------------------
- ------------------------------------------------ ------------------------------------- ------------------------------------
- ------------------------------------------------ ------------------------------------- ------------------------------------
OUTSTANDING SHARES PERCENTAGE
- ------------------------------------------------ ------------------------------------- ------------------------------------
- ------------------------------------------------ ------------------------------------- ------------------------------------
- ------------------------------------------------ ------------------------------------- ------------------------------------
Wheat First Securities _______________ _______________%
P.O. Box 6629
Glen Allen, VA 23058-6629
- ------------------------------------------------ ------------------------------------- ------------------------------------
- ------------------------------------------------ ------------------------------------- ------------------------------------
FBO Corporate Autosweep Customers _______________ _______________%
c/o National City Bank of PA
300 Fourth Street 2-191
Pittsburgh, PA 15278-0001
</TABLE>
-140-
<PAGE> 252
<TABLE>
<S> <C> <C>
- ------------------------------------------------ ----------------------------------- --------------------------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
National City Bank _______________ _______________%
FBO PCG/Retail Sweep Customer
770 W. Broad St. Location 16-0347
Columbus, OH 43222-1419
- ------------------------------------------------ ----------------------------------- --------------------------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
Money Market Fund (B)
- ---------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
OUTSTANDING SHARES PERCENTAGE
- ------------------------------------------------ ----------------------------------- --------------------------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
SEI Trust Company _______________ _______________%
Custodian for the IRA Rollover
of Robert W. Best
6518 Calais Circle
Indianapolis, IN 46220
- ------------------------------------------------ ----------------------------------- --------------------------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
SEI Trust Company _______________ _______________%
Custodian for the IRA of Jack Lewis
10099 Meadville Street, Lot 31
Cranesville, PA 16410-9331
- ------------------------------------------------ ----------------------------------- --------------------------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
Money Market Fund (I )
- ----------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
OUTSTANDING SHARES PERCENTAGE
- ------------------------------------------------ ----------------------------------- --------------------------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
National City Bank _______________ _______________%
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
- ------------------------------------------------ ----------------------------------- --------------------------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
National City Bank _______________ _______________%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
- ------------------------------------------------ ----------------------------------- --------------------------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
National City Bank _______________ _______________%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
- ------------------------------------------------ ----------------------------------- --------------------------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
National City Bank _______________ _______________%
Operations Center
Attn: Trust Operations Funds
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
- ------------------------------------------------ ----------------------------------- --------------------------------------
</TABLE>
-141-
<PAGE> 253
<TABLE>
<S> <C> <C>
- ------------------------------------------------ ----------------------------------- --------------------------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
National City Bank _______________ _______________%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
- ------------------------------------------------ ----------------------------------- --------------------------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
Whitelaw & Co. _______________ _______________%
Daily Valuation Account - Disc.
Attn: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
- ------------------------------------------------ ----------------------------------- --------------------------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
- ------------------------------------------------ ------------------------------------- ------------------------------------
Government Money Market Fund (A)
- --------------------------------
- ------------------------------------------------ ------------------------------------- ------------------------------------
- ------------------------------------------------ ------------------------------------- ------------------------------------
OUTSTANDING SHARES PERCENTAGE
- ------------------------------------------------ ------------------------------------- ------------------------------------
- ------------------------------------------------ ------------------------------------- ------------------------------------
FBO Corporate Autosweep Customers _______________ _______________%
c/o National City Bank of PA
300 Fourth Street 2-191
Pittsburgh, PA 15278-0001
- ------------------------------------------------ ------------------------------------- ------------------------------------
Wheat First Securities _______________ _______________%
P.O. Box 6629
Glen Allen, VA 23058-6629
- ------------------------------------------------ ------------------------------------- ------------------------------------
- ------------------------------------------------ ------------------------------------- ------------------------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
Government Money Market Fund (I )
- ---------------------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
OUTSTANDING SHARES PERCENTAGE
- ------------------------------------------------ ----------------------------------- --------------------------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
National City Bank _______________ _______________%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 West 150th Street
Cleveland, OH 44135-1389
- ------------------------------------------------ ----------------------------------- --------------------------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
National City Bank _______________ _______________%
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
- ------------------------------------------------ ----------------------------------- --------------------------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
National City Bank _______________ _______________%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
- ------------------------------------------------ ----------------------------------- --------------------------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
</TABLE>
-142-
<PAGE> 254
<TABLE>
<S> <C> <C>
- ------------------------------------------------ ----------------------------------- --------------------------------------
National City Bank _______________ _______________%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
- ------------------------------------------------ ----------------------------------- --------------------------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
National City Bank _______________ _______________%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
- ------------------------------------------------ ----------------------------------- --------------------------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
National City Bank _______________ _______________%
Operations Center
Attn: Trust Operations Funds
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
- ------------------------------------------------ ----------------------------------- --------------------------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
Treasury Money Market Fund (A )
- -------------------------------
- ------------------------------------------------ ------------------------------------- ------------------------------------
- ------------------------------------------------ ------------------------------------- ------------------------------------
OUTSTANDING SHARES PERCENTAGE
- ------------------------------------------------ ------------------------------------- ------------------------------------
- ------------------------------------------------ ------------------------------------- ------------------------------------
Triple S Plastics Georgetown _______________ _______________%
Cont. Fund
Attn: John Crandle, Commercial Loans
108 E. Michigan Avenue
Kalamazoo, MI 49007-3966
- ------------------------------------------------ ------------------------------------- ------------------------------------
Wheat First Securities _______________ _______________%
P.O. Box 6629
Glen Allen, VA 23058-6629
- ------------------------------------------------ ------------------------------------- ------------------------------------
- ------------------------------------------------ ------------------------------------- ------------------------------------
Warner Theatre Preservation _______________ _______________%
Trust Corp.
P.O. Box 1645
Erie, PA 16507-0645
- ------------------------------------------------ ------------------------------------- ------------------------------------
- ------------------------------------------------ ------------------------------------- ------------------------------------
National City Bank _______________ _______________%
FBO PCG/Retail Sweep Customers
770 W. Broad St. Location 16-0347
Columbus, OH 43222-1419
- ------------------------------------------------ ------------------------------------- ------------------------------------
- ------------------------------------------------ ------------------------------------- ------------------------------------
AFSCME Benefit Trust _______________ _______________%
P.O. Box 845
Springfield, IL 62705-0845
- ------------------------------------------------ ------------------------------------- ------------------------------------
- ------------------------------------------------ ------------------------------------- ------------------------------------
Treasury Money Market Fund (I )
- -------------------------------
</TABLE>
-143-
<PAGE> 255
<TABLE>
<S> <C> <C>
- ------------------------------------------------ ----------------------------------- --------------------------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
OUTSTANDING SHARES PERCENTAGE
- ------------------------------------------------ ----------------------------------- --------------------------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
National City Bank _______________ _______________%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
- ------------------------------------------------ ----------------------------------- --------------------------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
National City Bank _______________ _______________%
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
- ------------------------------------------------ ----------------------------------- --------------------------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
National City Bank _______________ _______________%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
- ------------------------------------------------ ----------------------------------- --------------------------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
National City Bank _______________ _______________%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
- ------------------------------------------------ ----------------------------------- --------------------------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
National City Bank _______________ _______________%
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
- ------------------------------------------------ ----------------------------------- --------------------------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
- ------------------------------------------------ ----------------------------------- --------------------------------------
</TABLE>
-144-
<PAGE> 256
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 economic conditions, the obligor is not likely to
have the capacity to meet its financial commitment on the obligation.
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"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.
"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.
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"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.
"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.
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"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 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
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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 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.
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"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.
"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.
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COMMERCIAL PAPER RATINGS
A Standard & Poor's ("S&P") commercial paper rating is a
current assessment of the likelihood of timely payment of debt having an
original maturity of no more than 365 days. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category
indicating that the obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
"B" - Obligations are regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and
are dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The "D"
rating will be used upon the filing of a bankruptcy petition or the taking of a
similar action if payments on an obligation are jeopardized.
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
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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 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.
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"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 IBCA short-term ratings apply to debt obligations that
have time horizons of less than 12 months for most obligations, or up to three
years for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This
designation indicates a satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
"F3" - Securities possess fair credit quality. This
designation indicates that the capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.
"B" - Securities possess speculative credit quality. This
designation indicates minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson Financial 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 Financial BankWatch:
"TBW-1" - This designation represents Thomson Financial
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 Financial
BankWatch's second-highest category and indicates that while the degree of
safety regarding timely repayment of
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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 Financial
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 Financial
BankWatch's lowest rating category and indicates that the obligation is regarded
as non-investment grade and therefore speculative.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit risk
and long-term risk. The following summarizes the ratings by Moody's Investors
Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes best quality.
There is present strong protection by established cash flows, superior liquidity
support or demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality, with
margins of protection ample although not so large as in the preceding group.
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"MIG-3"/"VMIG-3" - This designation denotes favorable quality,
with all security elements accounted for but lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt
instruments in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings
described under Commercial Paper Ratings for municipal notes.
TAX-EXEMPT 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.
"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.
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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 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.
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"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 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.
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"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.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit risk
and long-term risk. The following summarizes the ratings by Moody's Investors
Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes best quality.
There is present strong protection by established cash flows, superior liquidity
support or demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality, with
margins of protection ample although not so large as in the preceding group.
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"MIG-3"/"VMIG-3" - This designation denotes favorable quality,
with all security elements accounted for but lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt
instruments in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings
described under Commercial Paper Ratings for municipal notes.
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APPENDIX B
----------
As stated in the Prospectus, the Small Cap Value, Equity
Growth, Equity Income, Small Cap Growth, International Equity, Equity Index, Tax
Managed Equity and Balanced Allocation Funds (the "Funds") may enter into
certain futures transactions and options for hedging purposes. Such transactions
are described in this Appendix.
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 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
<PAGE> 272
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 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.
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<PAGE> 273
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 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.
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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 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.
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<PAGE> 275
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.
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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 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 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
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<PAGE> 277
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
increased prices which reflect the rising market. The Fund may have to sell
securities at a time when it may be disadvantageous to do so.
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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.
OTHER MATTERS
Accounting for futures contracts will be in accordance with
generally accepted accounting principles.
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FORM N-1A
---------
Part C - Other Information
Item 23. EXHIBITS.
---------
a. 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 on Form N-1A (File Nos.
33-488/811-4416) filed on December 16, 1986 ("PEA No.
1").
1. 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 on Form
N-1A (File Nos. 33-488/811-4416) filed on
August 1, 1989 ("PEA No. 6").
2. 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 on Form
N-1A (File Nos. 33-488/811-4416) filed on
May 11, 1995 ("PEA No. 23").
3. Certificate of Classification of Shares
reflecting the creation of Class A, Class B,
Class C, Class D, Class E and Class F Shares
of beneficial interest as filed with the
Office of the Secretary of State of
Massachusetts on September 30, 1985 is filed
herewith.
4. 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 on Form N-1A (File
Nos. 33-488/811-4416) filed on May 15, 1996
("PEA No. 26").
5. 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
Funds as filed with the Office of Secretary
of State of Massachusetts on December 11,
1989 is incorporated herein by reference to
Exhibit 1(e) to PEA No. 26.
<PAGE> 280
6. 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
Funds 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.
7. 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 Fund, Equity Income
Fund, Mid Cap Regional Equity Fund, 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.
8. Certificate of Classification of Shares
reflecting the creation of Class Q and Class
Q-Special Series 1, Class R and Class
R-Special Series 1, Class S and Class
S-Special Series 1, and Class T and Class
T-Special Series 1 shares representing
interests in the Pennsylvania Tax Exempt,
Intermediate Government Fund, 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 on
Form N-1A (File Nos. 33-488/811-4416) filed
on April 11, 1997 ("PEA No. 33").
9. 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 on Form N-1A (File
Nos. 33-488/811-4416) filed on July 22, 1997
("PEA No. 35").
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<PAGE> 281
10. Certificate of Classification of Shares
reflecting the creation of Class X and Class
X-Special Series 1 shares and Class Y and
Class Y-Special Series 1 shares representing
interests in the Small Cap Growth Fund and
Real Return Advantage Funds, respectively,
as filed with the Office of the Secretary of
State of Massachusetts on June 27, 1997 is
incorporated herein by reference to Exhibit
1(i) to PEA No. 35.
11. 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, as filed with the Office of
the Secretary of State of Massachusetts on
December 29, 1997 and with the City of
Boston, Office of the City Clerk on December
26, 1997, is incorporated herein by
reference to Exhibit 1(j) to Post-Effective
Amendment No. 44 to Registrant's
Registration Statement on Form N-1A (File
Nos. 33-488/811-4416) filed on September 18,
1998 ("PEA No 44").
12. Certificate of Classification of Shares
reflecting the creation of Class Z, Class Z
- Special Series 1 and Class Z - Special
Series 2, Class AA, Class AA - Special
Series 1 and Class AA - Special Series 2
Shares representing interests in the Tax
Managed Equity and Balanced Allocation
Funds, respectively, as filed with the
Office of the Secretary of State of
Massachusetts and with the City of Boston,
Office of the City Clerk on July 13, 1998 is
incorporated herein by reference to Exhibit
(1)(k) to PEA No. 44.
13. Certificate of Classification of Shares
reflecting the creation of Class BB and
Class BB - Special Series 1 shares in the
Ohio Municipal Money Market Fund, as filed
with the Office of the Secretary of State
and with the City of Boston, Office of the
City Clerk on September 15, 1998, is
incorporated herein by reference to Exhibit
1(k) to Post-Effective Amendment No. 43 to
Registrant's Registration Statement on Form
N-1A (File Nos. 33-488/811-4416) filed on
September 15, 1998 ("PEA No. 43").
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<PAGE> 282
b. 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 on Form N-1A (File Nos.
33-488/811-4416) filed on January 30, 1986
("Pre-Effective Amendment No. 2").
1. Amendment No. 1 to Code of Regulations is
incorporated herein by reference to Exhibit
2(a) to PEA No. 6.
2. 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.
c. 1. 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.
2. Specimen copy of share certificate for Class
A - Special Series 1 units of beneficial
interest is incorporated herein by reference
to Exhibit 4(b) to Post-Effective Amendment
No. 13 to the Registrant's Registration
Statement on Form N-1A (File Nos.
33-488/811-4416) filed on July 27, 1990
("PEA No. 13").
3. 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.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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.
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<PAGE> 283
9. 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 on Form
N-1A (File Nos. 33-488/811-4416) filed on
April 17, 1990 ("PEA No. 10").
10. 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.
11. 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.
12. Specimen copy of share certificate for Class
I - Special Series 1 units of beneficial
interest is incorporated herein by reference
to Exhibit 4(l) to PEA No. 10.
13. 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.
14. 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.
d. 1. Advisory Agreement for the Money Market,
Treasury Money Market, Government Money
Market, Tax Exempt Money Market,
Pennsylvania Tax Exempt Money Market,
National Tax Exempt, Intermediate Bond,
GNMA, Bond, Equity Growth, Equity Income,
Small Cap Value, Ohio Tax Exempt and
Pennsylvania Municipal Funds between
Registrant and National City Bank, as dated
November 19, 1997 is incorporated by
reference to Exhibit 5 (a) to PEA No. 44.
2. Interim Advisory Agreement for the Enhanced
Income and Total Return Advantage Funds
between Registrant and National Asset
Management Corporation dated March 6, 1998
is incorporated by reference to Exhibit 5(b)
to PEA No. 44.
3. Interim Advisory Agreement for the Core
Equity Fund between Registrant and National
Asset Management Corporation dated March 6,
1998 is incorporated by reference to Exhibit
5(c) to PEA No. 44.
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<PAGE> 284
4. New Advisory Agreement for the Core Equity,
Enhanced Income and Total Return Advantage
Funds between Registrant and National City
Bank dated March 6, 1998 is incorporated by
reference to Exhibit 5(d) to PEA No. 44.
5. Sub-Advisory Agreement for the Core Equity
and Total Return Advantage Funds between
Registrant and National Asset Management
Corporation dated March 6, 1998 is
incorporated by reference to Exhibit 5(e) to
PEA No. 44.
6. Advisory Agreement for the International
Equity, Small Cap Value, Small Cap Growth,
Equity Index, Real Return Advantage, Tax
Managed Equity, Balanced Allocation and Ohio
Municipal Money Market Funds between
Registrant and National City Bank dated
April 9, 1998 is incorporated herein by
reference to Exhibit 5(m) Post-Effective
Amendment No. 42 to Registrant's
Registration Statement on Form N-1A (File
Nos. 33-488/811-4416) filed on July l, 1998
("PEA No. 42").
e. Distribution Agreement between Registrant
and SEI Investments Distribution Co., dated
May 1, 1998 is incorporated by reference to
Exhibit 6 to PEA No. 44.
f. None.
g. 1. 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 on Form N-1A (File
Nos. 33-488/811-4416) filed on December 30,
1994 ("PEA No. 22").
2. 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.
3. 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.
4. Form of Amended Exhibit A to the Custodian
Services Agreement between Registrant and
National City Bank is incorporated herein by
reference to Exhibit 8(d) to PEA No. 41.
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<PAGE> 285
h. 1. Interim Administration Agreement between
Registrant and SEI Fund Resources, dated
April 1, 1998 is incorporated by reference
to Exhibit 9(a) to PEA No. 44.
2. Administration Agreement between Registrant
and SEI Fund Resources, dated May 1, 1998 is
incorporated by reference to Exhibit 9(b) to
PEA No. 44.
3. Sub-Administration Agreement between SEI
Fund Resources and National City Bank, dated
May 1, 1998 is incorporated by reference to
Exhibit 9(c) to PEA No. 44.
4. 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.
5. Form of Addendum No. 1 to Amended and
Restated Transfer Agency and Dividend
Disbursement Agreement between Registrant
and State Street Bank and Trust Company is
incorporated herein by reference to Exhibit
9(d) to PEA No. 41.
6. 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.
7. 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.
8. Assumption Agreement between National City
Bank, National City Investment Management
Company, Armada Funds, National Asset
Management Corporation and SEI Fund
Resources, dated August 5, 1998 is
incorporated herein by reference to Exhibit
h(8) to Post-Effective Amendment No. 46 to
Registrant's Registration Statement on Form
N-1A (File Nos. 33-488/811-4416) filed on
July 15, 1999 ("PEA No. 46").
i. Opinion of Drinker Biddle & Reath LLP as counsel to
Registrant is incorporated herein by reference to
Exhibit 10(a) to PEA No. 44.
j. Consent of Drinker Biddle & Reath LLP.
k. None
-7-
<PAGE> 286
l. 1. Purchase Agreements between Registrant and
McDonald & Company Securities, Inc. are
incorporated herein by reference to Exhibit
13 to PEA No. 1.
2. 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
on Form N-1A (File Nos. 33-488/811-4416)
filed on January 19, 1989 ("PEA No. 5").
3. 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.
4. 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.
5. 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.
6. Purchase Agreement between Registrant and
Allmerica Investments, Inc. with respect to
the Enhanced Income Fund, dated July 5,
1994, is incorporated herein by reference to
Exhibit 13(e) to PEA No. 21.
7. 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.
8. 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.
9. 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.
-8-
<PAGE> 287
10. 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.
11. 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.
12. 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.
13. 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.
14. 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.
15. 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.
16. 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.
17. 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.
18. 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.
19. 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.
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<PAGE> 288
20. 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.
21. Form of Purchase Agreement between
Registrant and SEI Investments Distribution
Co. with respect to the Aggressive
Allocation, Balanced Allocation and
Conservative Allocation Funds is
incorporated herein by reference to Exhibit
13(t) to PEA No. 41.
22. Form of Purchase Agreement between
Registrant and SEI Investments Distribution
Co. with respect to the Ohio Municipal Money
Market Fund is incorporated herein by
reference to Exhibit 13(u) to PEA 42.
m. 1. Service and Distribution Plan for A
(formerly, Retail) and I (formerly,
Institutional) Share Classes is incorporated
herein by reference to Exhibit 15(a) to PEA
No. 38.
2. B shares Distribution and Servicing Plan is
incorporated herein by reference to Exhibit
15(b) to PEA No. 38.
3. C Shares Distribution and Servicing Plan is
filed herewith
n. Revised Plan Pursuant to Rule 18f-3 for
Operation of a Multi-Class System is filed
herewith
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
--------------------------------------------------
REGISTRANT.
-----------
Registrant is controlled by its Board of Trustees.
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<PAGE> 289
ITEM 25. INDEMNIFICATION.
----------------
Indemnification of Registrant's principal underwriter,
custodian and transfer agent against certain losses is provided for,
respectively, in Article 6 of the Distribution Agreement, incorporated by
reference as Exhibit (6) hereto, and Sections 12 and 6, respectively, of the
Custodian Services and Transfer Agency Agreements, incorporated by reference as
Exhibits (8)(a) and (9)(h) hereto. In Article 6 of the Distribution Agreement,
the Trust agrees to indemnify and hold harmless the Distributor and each of its
directors and officers and each person, if any, who controls the Distributor
within the meaning of Section 15 of the 1933 Act against any loss, liability,
claim, damages or expense (including the reasonable cost of investigating or
defending any alleged loss, liability, claim, damages or expense and reasonable
counsel fees and disbursements incurred in connection therewith), arising by
reason of any person acquiring any Shares, based upon the ground that the
registration statement, prospectus, Shareholder reports or other information
filed or made public by the Trust (as from time to time amended) included an
untrue statement of a material fact or omitted to state a material fact required
to be stated or necessary in order to make the statements made not misleading.
However, the Trust does not agree to indemnify the Distributor or hold it
harmless to the extent that the statements or omission was made in reliance
upon, and in conformity with, information furnished to the Trust by or on behalf
of the Distributor.
In addition, Section 9.3 of Registrant's Declaration of Trust
dated January 28, 1986, incorporated by reference as Exhibit (1) hereto,
provides as follows:
9.3 INDEMNIFICATION OF TRUSTEES, REPRESENTATIVES AND
EMPLOYEES. The Trust shall indemnify each of its Trustees
against all liabilities and expenses (including amounts paid
in satisfaction of judgments, in compromise, as fines and
penalties, and as counsel fees) reasonably incurred by him in
connection with the defense or disposition of any action, suit
or other proceeding, whether civil or criminal, in which he
may be involved or with which he may be threatened, while as a
Trustee or thereafter, by reason of his being or having been
such a Trustee EXCEPT with respect to any matter as to which
he shall have been adjudicated to have acted in bad faith,
willful misfeasance, gross negligence or reckless disregard of
his duties, PROVIDED that as to any matter disposed of by a
compromise payment by such person, pursuant to a consent
decree or otherwise, no indemnification either for said
payment or for any other expenses shall be provided unless the
Trust shall have received a written opinion from independent
legal counsel approved by the Trustees to the effect that if
either the matter of willful misfeasance, gross negligence or
reckless disregard of duty, or the matter of bad faith had
been adjudicated, it would in the opinion of such counsel have
been adjudicated in favor of such person. The rights accruing
to any person under these provisions shall not exclude any
other right to which he may be lawfully entitled, PROVIDED
that no person may satisfy any right of indemnity or
reimbursement hereunder except out of the property of the
Trust. The Trustees may make advance payments in connection
with the indemnification under this Section 9.3, PROVIDED that
the indemnified person shall have provided a secured written
undertaking to
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<PAGE> 290
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 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.
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<PAGE> 291
(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
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
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<PAGE> 292
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.
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.
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<PAGE> 293
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
-----------------------------------------------------
(a) Investment Adviser: National City Investment
Management Company ("IMC")
IMC performs investment advisory services for Registrant and
certain other investment advisory customers. IMC is an indirect wholly owned
subsidiary of National City Corporation (the "Corporation"). The Corporation
recently consolidated its mutual fund investment management operations under
IMC, a registered investment adviser. As of August 5, 1998, IMC assumed National
City Bank's rights, responsibilities, liabilities and obligations under its
Advisory Agreements with the Registrant relating to each of the Funds, its
Sub-Advisory Agreement with National Asset Management Corporation relating to
the Core Equity Fund, and its Sub-Administration Agreement with SEI Fund
Resources relating to each of the Funds. As of August 1, 1998, Wellington
Management Company LLP (the "sub-adviser") ceased serving as the sub-adviser to
the Small Cap Growth Fund under a sub-advisory agreement with National City Bank
and the Small Cap Growth Team of IMC began making the investment decisions for
the Fund.
To the knowledge of Registrant, none of the directors or
officers of IMC, except those set forth below, is or has been, at any time
during the past two calendar years, engaged in any other business, profession,
vocation or employment of a substantial nature, except that certain directors
and officers also hold various positions with, and engage in business for, the
Corporation, which owns all the outstanding stock of National City Bank of
Michigan/Illinois (formerly, First of America Bank, N.A.), which in turn owns
all the outstanding stock of IMC, or other subsidiaries of the Corporation. Set
forth below are the names and principal businesses of the directors and certain
of the senior executive officers of IMC who are engaged in any other business,
profession, vocation or employment of a substantial nature.
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<PAGE> 294
NATIONAL CITY INVESTMENT MANAGEMENT COMPANY
<TABLE>
<CAPTION>
Position with
National
City Investment
Management Other Business Type of
Name Company Connections Business
- ---- --------------- -------------- --------
<S> <C> <C> <C>
Kathleen T. Barr Managing Director, National City Bank Bank affiliate
Sales and Marketing
Susan E. Kentosch Vice President and National City Bank Bank affiliate
Chief Compliance
Officer
Robert M. Leggett Vice Chairman of the National City Bank Bank affiliate
Board, President and
Managing Director
Michael Minnaugh Chairman of the Board National City Bank Bank affiliate
and Managing Director
Joseph C. Penko Vice President and National City Bank Bank affiliate
Director, Legal
Affairs
Donald L. Ross Chief Investment National City Bank Bank affiliate
Officer and Managing
Director
</TABLE>
(b) Sub-Investment Adviser: National Asset Management
Corporation ("NAM").
NAM performs sub-investment advisory services for the
Registrant's Total Return Advantage and Core Equity Funds. NAM is an investment
adviser registered under the Investment Advisers Act of 1940 (the "Advisers
Act").
To the knowledge of Registrant, none of the directors or
officers of NAM, except those set forth below, is or has been at any time during
the past two calendar years engaged in any other business, profession, vocation
or employment of a substantial nature. Set forth below
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<PAGE> 295
are the names and principal business of the directors and certain of the senior
executive officers of NAM who are engaged in any other business, profession,
vocation, or employment of a substantial nature.
NATIONAL ASSET MANAGEMENT CORPORATION
<TABLE>
<CAPTION>
Position with Other
National Asset Business Type of
Name Management Connections Business
- ---- ---------- ----------- --------
<S> <C> <C> <C>
William F. Chandler Founder and Principal
Carl W. Hafele CEO and Principal None
Michael C. Heyman Principal None
David B. Hiller Principal None
Stephen G. Mullins Principal None
Larry J. Walker Principal None
John W. Ferreby Principal None
Catherine R. Stodghill Principal None
Erik N. Evans Principal None
Brent A. Bell Principal None
Randall T. Zipfel COO and Principal None
Matt Bevin Principal None
Dave Chick Principal None
</TABLE>
ITEM 27. 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.
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<PAGE> 296
Registrant's distributor, SEI Investments Distribution Co.
(the "Distributor"), acts as distributor for:
SEI Daily Income Trust
SEI Liquid Asset Trust
SEI Tax Exempt Trust
SEI Index Funds
SEI Institutional Managed Trust
SEI Institutional International Trust
The Advisors' Inner Circle Fund
The Pillar Funds
CUFUND
STI Classic Funds
First American Funds, Inc.
First American Investment Funds, Inc.
The Arbor Fund
Boston 1784 Funds
The PBHG Funds, Inc.
Morgan Grenfell Investment Trust
The Achievement Funds Trust
Bishop Street Funds
CrestFunds, Inc.
STI Classic Variable Trust
ARK Funds
Huntington Funds
SEI Asset Allocation Trust
TIP Funds
SEI Institutional Investments Trust
First American Strategy Funds, Inc.
HighMark Funds
Armada Funds
PBHG Insurance Series Fund, Inc.
The Expedition Funds
Alpha Select Funds
Oak Associates Funds
The Nevis Fund, Inc.
The Parkstone Group of Funds
CNI Charter Funds
The Parkstone Advantage Fund
The Distributor 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
-18-
<PAGE> 297
Evaluation") and automated execution, clearing and settlement
of securities transactions ("MarketLink").
(b) Furnish the information required by the following
table with respect to each director, officer or partner of
each principal underwriter named in the answer to Item 21 of
Part B. Unless otherwise noted, the principal business address
of each director or officer is Oaks, PA 19456.
<TABLE>
<CAPTION>
Position and Office Positions and Offices
Name with Underwriter with Registrant
- ---- ---------------- ---------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman of the Board of --
Directors
Henry H. Greer Director --
Carmen V. Romeo Director --
Mark J. Held President & Chief Operating Officer --
Gilbert L. Beebower Executive Vice President --
Richard B. Lieb Executive Vice President --
Dennis J. McGonigle Executive Vice President --
Robert M. Silvestri Chief Financial Officer & Treasurer --
Carl A. Guarino Senior Vice President --
Larry Hutchison Senior Vice President --
Jack May Senior Vice President --
Hartland J. McKeown Senior Vice President --
Barbara J. Moore Senior Vice President --
Kevin P. Robins Senior Vice President & General Counsel --
& Secretary
Patrick K. Walsh Senior Vice President --
Robert Aller Vice President --
Gordon W. Carpenter Vice President --
Todd Cipperman Vice President & Assistant Secretary --
S. Courtney E. Collier Vice President & Assistant Secretary --
Robert Crudup Vice President & Managing Director --
Barbara Doyne Vice President --
Jeff Drennen Vice President --
Vic Galef Vice President & Managing Director --
Lydia A. Gavalis Vice President & Assistant Secretary --
</TABLE>
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<PAGE> 298
<TABLE>
<CAPTION>
Position and Office Positions and Offices
Name with Underwriter with Registrant
- ---- ---------------- ---------------
<S> <C> <C>
Greg Gettinger Vice President & Assistant Secretary --
Kathy Heilig Vice President & Treasurer --
Jeff Jacobs Vice President --
Samuel King Vice President --
Kim Kirk Vice President & Managing Director --
John Krzeminski Vice President & Managing Director --
Carolyn McLaurin Vice President & Managing Director --
W. Kelso Morrill Vice President & Managing Director --
Mark Nagle Vice President --
Joanne Nelson Vice President --
Cynthia M. Parrish Vice President & Assistant Secretary
Kim Rainey Vice President --
Rob Redican Vice President --
Maria Rinehart Vice President --
Mark Samuels Vice President & Managing Director --
Steve Smith Vice President --
Daniel Spaventa Vice President --
Kathryn L. Stanton Vice President & Assistant Secretary Assistant Treasurer
Lynda J. Striegel Vice President & Assistant Secretary --
Lori L. White Vice President & Assistant Secretary --
Wayne M. Withrow Vice President & Managing Director --
</TABLE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
---------------------------------
(a) National City Investment Management Company, 1900
East Ninth Street, Cleveland, Ohio, 44114-3484, and
National City Bank, Trust Operations, 4100 West 150th
Street, Cleveland, Ohio 44135, (records relating to
their functions as investment adviser and custodian);
and National Asset
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<PAGE> 299
Management Corporation, 101 South Fifth Street,
Louisville, KY 40202. (records relating to its
function as sub-adviser to the Core Equity and Total
Return Advantage Funds.)
(b) SEI Investments Distribution Co., One Freedom Valley
Drive, Oaks, Pennsylvania 19456 (records relating to
its function as distributor, accounting agent and
administrator).
(c) Drinker Biddle & Reath LLP, One Logan Square, 18th
and Cherry Streets, Philadelphia, Pennsylvania
19103-6996 (Registrant's Declaration of Trust, Code
of Regulations and Minute Books).
(d) State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110 (records relating
to its function as transfer agent).
ITEM 29. MANAGEMENT SERVICES.
--------------------
Inapplicable.
ITEM 30. UNDERTAKINGS.
-------------
Registrant undertakes to furnish each person to whom a
prospectus is delivered a copy of the Registrant's most recent annual report to
shareholders, upon request and without charge.
-21-
<PAGE> 300
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. 47 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 10th day of September, 1999
ARMADA FUNDS
*Robert D. Neary
---------------------------------
Trustee and Chairman of the Board
Robert D. Neary
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 47 to Registrant's Registration Statement has
been signed below by the following persons in the capacities and on the dates
indicated.
Signature Title Date
- --------- ----- ----
/s/John H. Leven Treasurer September 10, 1999
- ------------------
John H. Leven
*Leigh Carter Trustee September 10, 1999
- ------------------
Leigh Carter
*John F. Durkott Trustee September 10, 1999
- ------------------
John F. Durkott
*Robert J. Farling Trustee September 10, 1999
- ------------------
Robert J. Farling
*Richard E. Furst Trustee September 10, 1999
- ------------------
Richard W. Furst
*Gerald Gherlein Trustee September 10, 1999
- ------------------
Gerald Gherlein
*Herbert Martens President and Trustee September 10, 1999
- ------------------
Herbert Martens
-22-
<PAGE> 301
* Robert D. Neary Trustee and Chairman September 10, 1999
- ------------------ of the Board
Robert D. Neary
* J. William Pullen Trustee September 10, 1999
- ------------------
J. William Pullen
*By: /s/ W. Bruce McConnell, III
----------------------------
W. Bruce McConnell, III
Attorney-in-Fact
-23-
<PAGE> 302
ARMADA FUNDS
Certificate of Secretary
The following resolution was duly adopted by the Board of Trustees of
Armada Funds on May 11, 1999 and remains in effect on the date hereof:
FURTHER RESOLVED, that the officers of Armada and the Group
required to execute amendments to Armada's and the Group's Registration
Statements be, and hereby are, authorized to execute a Power of Attorney
appointing Herbert R. Martens, Jr. and W. Bruce McConnel, III, and either of
them, their true and lawful attorney or attorneys, to execute in their name,
place and stead, any and all amendments to the Registration Statements, and all
instruments necessary or incidental in connection therewith, and to file the
same with the Securities and Exchange Commission; and either of said attorneys
shall have full power of substitution and resubstitution; and to do in the name
and on behalf of said officers, 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 each or any of said officers might or could do in person.
ARMADA FUNDS
By: /s/ W. Bruce McConnel, III
--------------------------
W. Bruce McConnel, III
Secretary
Dated: September 10, 1999
-24-
<PAGE> 303
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
-25-
<PAGE> 304
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
-26-
<PAGE> 305
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
-27-
<PAGE> 306
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
-28-
<PAGE> 307
ARMADA FUNDS
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, Robert
J. Farling, hereby constitutes and appoints Herbert R. Martens, Jr. and W. Bruce
McConnel, III, his true and lawful attorneys, to execute in his name, place, and
stead, in his capacity as Trustee or officer, or both, of Armada Funds, the
Registration Statement and any amendments thereto and all instruments necessary
or incidental in connection therewith, and to file the same with the Securities
and Exchange Commission; and said attorneys shall have full power and authority
to do and perform in his name and on his behalf, in any and all capacities,
every act whatsoever requisite or necessary to be done in the premises, as fully
and to all intents and purposes as he might or could do in person, said acts of
said attorneys being hereby ratified and approved.
DATED: September 17, 1997
/s/ Robert J. Farling
- ---------------------
Robert J. Farling
-29-
<PAGE> 308
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
-30-
<PAGE> 309
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.
-31-
<PAGE> 310
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
-32-
<PAGE> 311
EXHIBIT INDEX
No. Description
- -------- --------------------------------------------------------------
(a)(3) Certificate of Classification of Shares reflecting the
creation of Class A, Class B, Class C, Class D, Class E and
Class F Shares of beneficial interest as filed with the Office
of the Secretary of State of Massachusetts on September 30,
1985.
(j) Consent of Drinker Biddle & Reath LLP
(m)(3) Distribution and Services Plan with respect to Class C Shares
(n) Amended 18f-3 Plan to include Class C Shares
-33-
<PAGE> 1
Exhibit (a)(3)
NCC FUNDS
(A MASSACHUSETTS BUSINESS TRUST)
CERTIFICATE; CLASSIFICATION OF SHARES
I, W. Bruce McConnel, III, do hereby certify as follows:
(1) That I am the duly elected Secretary of NCC Funds (the
"Trust");
(2) That in such capacity I have examined the records of
actions taken by the Board of Trustees of the Trust;
(3) That the Board of Trustees of the Trust duly adopted the
following resolutions, by unanimous written consent on August 23, 1985:
RESOLVED, that pursuant to Section 5.1 of the Trust's
Declaration of Trust an unlimited number of unissued shares of beneficial
interest in the Trust be, and hereby are, classified into seven classes of
Shares designated as (a) Class A Shares of beneficial interest, (b) Class B
Shares of beneficial interest, (c) Class C Shares of beneficial interest, (d)
Class D Shares of beneficial interest, (e) Class E Shares of beneficial interest
(f) Class F Shares of beneficial interest, and (g) Class G Shares of beneficial
interest.
FURTHER RESOLVED, that each class of Shares classified
pursuant to the foregoing resolution shall have the preferences, conversion and
other rights, voting powers, restrictions, limitations, qualifications and terms
and conditions of redemption provided for in the Declaration of Trust with
respect to Shares of any class.
<PAGE> 2
(4) That the foregoing resolutions remain in full force and
effect the date hereof.
/s/ W. Bruce McConnel, III
--------------------------
W. Bruce McConnel, III
Dated: September 5, 1985
Subscribed and Sworn to before me this 5th day of September,
1985.
/s/Susan L. Lubas
-----------------
Notary Public
My Commission Expires: August 22, 1988 SUSAN L.LUBAS
Notary Public, Phila., Phila. Co.
My Commission Expires Aug. 22, 1988
<PAGE> 1
Exhibit J
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 Statement of Additional
Information that is included in Post-Effective Amendment No. 47 to the
Registration Statement on Form N-1A under the Investment Company Act of 1940, as
amended, of Armada Funds. This consent does not constitute a consent under
Section 7 of the Securities Act of 1933, and in consenting to the use of our
name and the references to our Firm under such caption we have not certified any
part of the Registration Statement and do not otherwise come within the
categories of persons whose consent is required under Section 7 or the rules and
regulations of the Securities and Exchange Commission thereunder.
/s/ Drinker Biddle & Reath LLP
------------------------------
DRINKER BIDDLE & REATH LLP
Philadelphia, Pennsylvania
September 10, 1999
<PAGE> 1
Exhibit (m)(3)
Adopted July 21, 1999
ARMADA FUNDS
C SHARES DISTRIBUTION AND SERVICING PLAN
----------------------------------------
This Distribution and Shareholder Services Plan (the "Plan")
has been adopted by the Board of Trustees of ARMADA FUNDS (the "Trust") in
connection with the Class C shares ("C shares") of its Funds in conformance with
Rule 12b-1 under the Investment Company Act of 1940, as amended (the "1940
Act").
Section 1. EXPENSES. The Trust may incur expenses under the
Plan in an amount not to exceed 1.00% annually of the average daily net assets
of each Fund's C shares.
Section 2. DISTRIBUTION PAYMENTS. The Trust may pay the
Distributor (or any other person) a fee of up to .75% annually of the average
daily net assets of a Fund's C shares (a "Distribution Fee"). Such Distribution
Fee shall be calculated and accrued daily, paid monthly and shall be in
consideration for distribution services and the assumption of related expenses
in conjunction with the offering and sale of C shares of the Funds. In
determining the amounts payable on behalf of a Fund under the Plan, the net
asset value of such C shares shall be computed in the manner specified in the
Trust's then current Prospectuses and Statements of Additional Information
describing such C shares.
Section 3. DISTRIBUTION EXPENSES AND ACTIVITIES COVERED BY
PLAN. Payments to the Distributor under Section 2 shall be used by the
Distributor to cover expenses and activities primarily intended to result in the
sale of C shares. Such expenses and activities may include but are not limited
to: (a) direct out-of-pocket promotional expenses incurred by the Distributor in
advertising and marketing C shares; (b) expenses incurred in connection with
preparing, printing, mailing, and distributing or publishing advertisements and
sales literature; expenses incurred in connection with printing and mailing
Prospectuses and Statements of Additional Information to other than current
shareholders; (c) periodic payments or commissions to one or more securities
dealers, brokers, financial institutions or other industry professionals, such
as investment advisers, accountants, and estate planning firms (severally, "a
Distribution Organization") with respect to a Fund's C shares beneficially owned
by customers for whom the Distribution Organization is the dealer of record or
holder of record of such C shares; (d) the direct or indirect cost of financing
the payments or expenses included in (a) and (c) above; or (e) for such other
services as may be construed, by any court or governmental agency or commission,
including the Securities and Exchange Commission (the "Commission"), to
constitute distribution services under the 1940 Act or rules and regulations
thereunder.
<PAGE> 2
Section 4. ADMINISTRATIVE SERVICES COVERED BY PLAN. The Trust
may also pay securities dealers, brokers, financial institutions or other
industry professionals, such as investment advisors, accountants, and estate
planning firms (severally, a "Service Organization") for administrative support
services provided with respect to their customers' C shares. Such administrative
support services shall be provided pursuant to the administrative servicing
agreements in substantially the form attached ("Servicing Agreements"). Any
organization providing distribution assistance may also become a Service
Organization and receive administrative servicing fees pursuant to a Servicing
Agreement under this Plan.
Section 5. SHAREHOLDER SERVICING FEES COVERED BY 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 C shares of the
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.
Section 6. EXPENSES ALLOCATED, COMPLIANCE.
(a) Amounts paid by a Fund must be for distribution and/or shareholder
administrative support services rendered for or on behalf of the holders of the
Fund's C shares. However, joint distribution financing with respect to such C
shares (which may involve other investment portfolios or companies that are
affiliated persons of the Trust or affiliated persons of the Distributor) shall
be permitted in accordance with applicable regulations of the Commission as in
effect from time to time.
(b) Amounts paid to a broker-dealer under Section 2 above shall be
subject to compliance by the broker-dealer with the terms of an agreement
between the broker-dealer and the Distributor, including a provision that each
broker-dealer shall warrant and represent that it is licensed as a dealer under
applicable law. Amounts paid under Section 5 above shall be subject to
compliance by the Service Organization with the terms of an agreement between
the Service Organization and the Trust, including a provision that each Service
Organization shall warrant and represent that it is licensed as a dealer under
applicable law or will not engage in activities that would require it to be so
licensed. The Trust's current 18(f)(3) Plan permits allocation of such expenses
proportionally to the assets held with respect to a Fund's C shares, provided
that the Board of Trustees has determined that such expenses should be so
allocated.
Section 7. REPORTS TO TRUST. So long as this Plan is in
effect, the Distributor shall provide the Trust's Board of Trustees, and the
Trustees shall review, at least quarterly, a written report of the amounts
expended pursuant to the Plan and the purposes for which such expenditures were
made.
Section 8. APPROVAL OF PLAN. This Plan will become effective
with respect to a particular Fund's C shares (a) on the date the public offering
of such shares commences upon the approval by written consent of the sole
shareholder of outstanding C shares of that Fund, and (b) upon the approval by a
majority of the Board of Trustees, including a majority of those Trustees who
are not "interested persons" (as defined in the Act) of the Trust and who have
no direct or
-2-
<PAGE> 3
indirect financial interest in the operation of the Plan or in any agreements
entered into in connection with the Plan (the "Disinterested Trustees"),
pursuant to a vote cast in person at a meeting called for the purpose of voting
on the approval of the Plan.
Section 9. CONTINUANCE OF PLAN. Unless sooner terminated in
accordance with the terms hereof, this Plan shall continue until _____________
__, ______, and thereafter, shall continue in effect for so long as its
continuance is specifically approved at least annually by the Trust's Board of
Trustees in the manner described in Section 8(b) hereof.
Section 10. AMENDMENTS. This Plan may be amended at any time
by the Board of Trustees provided that (a) any amendment to increase materially
the costs which the C shares of a Fund may bear for distribution pursuant to the
Plan shall be effective only upon approval by a vote of a majority of the
outstanding C shares affected by such matter, and (b) any material amendments of
the terms of the Plan shall become effective only upon approval in the manner
described in Section 8(b) hereof.
Section 11. TERMINATION. This Plan, as to any Fund, is
terminable without penalty at any time by (a) a vote of a majority of the
Disinterested Trustees, or (b) a vote of a majority of the outstanding C shares
of such Fund.
Section 12. SELECTION/NOMINATION OF TRUSTEES. While this Plan
is in effect, the selection and nomination of those Disinterested Trustees shall
be committed to the discretion of such Disinterested Trustees.
Section 13. MISCELLANEOUS. The captions in this Plan 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.
Adopted: July 21, 1999
-3-
<PAGE> 1
Exhibit (n)
ARMADA FUNDS
(THE "TRUST")
REVISED PLAN PURSUANT TO RULE 18F-3 FOR OPERATION OF
A MULTI-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
multi-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 four classes of shares for all Funds except the
Tax-Exempt Money Market, Treasury Money Market, Government Money Market,
Pennsylvania Tax Exempt Money Market, Ohio Municipal Money Market and Treasury
Plus Money Market Funds. The four classes of shares are: I shares, A shares, B
shares and C shares. The Tax-Exempt Money Market Fund shall offer three classes
of shares, I shares, A shares and B shares. The Treasury Money Market,
Government Money Market, Pennsylvania Tax Exempt Money Market, Ohio Municipal
Money Market and Treasury Plus Money Market Funds shall offer two classes of
shares, I shares and A shares.
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 I,
<PAGE> 2
A, B and C shares of each Fund, as applicable, 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, B
Shares Distribution and Servicing Plan and C 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 Distribution Plan, B
Shares Distribution and Servicing Plan or C 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
------------------
A SHARES
A shares of each money market fund shall be available for
purchase by the public, primarily through financial institutions such as banks,
brokers and dealers.
A shares of each money market fund shall not be subject to a
sales charge. A 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 A shares; (iii) processing dividend payments
from the fund; (iv) providing information periodically to customers showing
their position in A shares; (v) arranging for bank wires;
-2-
<PAGE> 3
(vi) responding to customer inquiries relating to the services performed with
respect to A 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 A and I classes of shares of the money market funds (the "A and
I Plan"). The A and I Plan provides that each fund will compensate the
distributor for distribution expenses related to the distribution of the A and I
shares in an amount not to exceed .10% of the average aggregate net assets of
such A and I shares classes.
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
-3-
<PAGE> 4
"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 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.
C SHARES
C 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 C shares of
the Trust's other Funds. Of the money market funds, C shares of only the Money
Market Fund shall be available for purchase by the public, primarily through
financial institutions such as banks, brokers and dealers.
C shares of the Money Market Fund shall not be subject to a
sales charge, unless a shareholder holding such shares obtained them as a result
of an exchange from C shares of another Fund. Pursuant to the Trust's
Distribution Agreement as it relates to C shares and the Class C Shares
Distribution and Servicing Plan, total distribution costs, expenses and payments
in connection with the distribution of the Trust's C 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 C shares.
-4-
<PAGE> 5
C shares shall be subject to a distribution fee payable
pursuant to the C 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 C Shares Distribution and Servicing Plan.
The Trust may also pay Service Organizations for
administrative support services provided with respect to their customers' C
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 C 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 C shares of the money
market 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 C 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 C shares; (v) arranging for bank wires; (vi)
responding to customer inquiries relating to the services performed with respect
to C shares beneficially owned by customers; (vii) forwarding shareholder
communications; and (viii) other similar services requested by the Trust.
I SHARES
I shares of each money market fund shall be available for
purchase by banks and National Asset Management Corporation customers.
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<PAGE> 6
I 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 the A and I Plan relating to the A and
I classes of shares of the money market funds. The A and I Plan provides that
each fund will compensate the distributor for distribution expenses related to
the distribution of the A and I shares in an amount not to exceed .10% of the
average aggregate net assets of such A and I shares classes.
2. Fixed Income Funds
------------------
A SHARES
A shares of each fixed income fund shall be available for
purchase by the public, primarily through financial institutions such as banks,
brokers and dealers.
A shares of the fixed income funds, except for the Enhanced
Income Fund, shall be subject to a sales charge which shall not as of the date
hereof exceed 4.75% of the offering price of those shares. A shares of the
Enhanced Income Fund shall be subject to a sales charge which shall not as of
the date hereof exceed 2.75% of the offering price of those shares. A 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 other fixed income 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 A shares; (iii) processing dividend
payments from the fund; (iv) providing information periodically to customers
showing their position in A shares; (v) arranging for bank wires; (vi)
responding to customer inquiries relating to the services performed with respect
to A shares beneficially owned by customers; (vii) forwarding shareholder
communications; and (viii) other similar services requested by the Trust.
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<PAGE> 7
Pursuant to the Trust's Distribution Agreement and Rule 12b-1
under the 1940 Act, the Trust has adopted the A and I Plan relating to the A and
I classes of shares of the fixed income funds. The A and I Plan provides that
each fund will compensate the distributor for distribution expenses related to
the distribution of the A and I shares in an amount not to exceed .10% of the
average aggregate net assets of such A and I shares 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 each fixed income fund 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 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 each
fixed income fund except the Enhanced Income Fund, 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
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<PAGE> 8
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.
C SHARES
C shares of each fixed income fund shall be available for
purchase by the public, primarily through financial institutions such as banks,
brokers and dealers.
C shares of each fixed income fund shall be subject to a CDSC
if the C shares are redeemed within eighteen months of purchase. The CDSC shall
not exceed 1.00% of the redemption price of those shares. Pursuant to the
Trust's Distribution Agreement as it relates to C shares and the Class C Shares
Distribution and Servicing Plan, total distribution costs, expenses and payments
in connection with the distribution of the Trust's C 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 C shares.
C shares shall be subject to a distribution fee payable
pursuant to the C 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 C Shares Distribution and Servicing Plan.
The Trust may also pay Service Organizations for
administrative support services provided with respect to their customers' C
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 C Shares Distribution and Servicing Plan. Fees paid to a
Service Organization shall be in consideration for the
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<PAGE> 9
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
each fixed income fund except for the Enhanced Income Fund, and up to .25% of
the daily net asset value of the C 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 C 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 C shares; (iii) processing dividend
payments from the fund; (iv) providing information periodically to customers
showing their position in C shares; (v) arranging for bank wires; (vi)
responding to customer inquiries relating to the services performed with respect
to C shares beneficially owned by customers; (vii) forwarding shareholder
communications; and (viii) other similar services requested by the Trust.
I SHARES
I shares of each of the fixed income funds shall be available
for purchase by banks and National Asset Management Corporation customers.
I 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 the A and I Plan relating to the A and
I classes of shares of the fixed income funds. The A and I Plan provides that
each fund will compensate the distributor for distribution expenses related to
the distribution of the A and I shares in an amount not to exceed .10% of the
average aggregate net assets of such A and I shares classes.
3. Equity Funds
------------
A SHARES
A 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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<PAGE> 10
A 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. A 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 A shares; (iii) processing dividend payments
from the fund; (iv) providing information periodically to customers showing
their position in A shares; (v) arranging for bank wires; (vi) responding to
customer inquiries relating to the services performed with respect to A 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 the A and I Plan relating to the A and
I classes of shares of the equity funds. The A and I Plan provides that each
fund will compensate the distributor for distribution expenses related to the
distribution of the A and I shares in an amount not to exceed .10% of the
average aggregate net assets of such A and I shares 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.
B shares of each equity fund 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.
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<PAGE> 11
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 each equity 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.
C SHARES
C shares of each equity fund shall be available for purchase
by the public, primarily through financial institutions such as banks, brokers
and dealers.
C shares of each equity fund shall be subject to a CDSC if the
C shares are redeemed within eighteen months of purchase. The CDSC shall not
exceed 1.00% of the redemption price of those shares. Pursuant to the Trust's
Distribution Agreement as it relates to C shares and the Class C Shares
Distribution and Servicing Plan, total distribution costs, expenses and payments
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<PAGE> 12
in connection with the distribution of the Trust's C shares may not exceed an
annual rate of .75% of the average net assets of each fund's C shares of the
Trust.
C shares shall be subject to a distribution fee payable
pursuant to the C 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 C Shares Distribution and Servicing Plan.
The Trust may also pay Service Organizations for
administrative support services provided with respect to their customers' C
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 C shares of each equity 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 C 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 C shares; (iii) processing dividend
payments from the fund; (iv) providing information periodically to customers
showing their position in C shares; (v) arranging for bank wires; (vi)
responding to customer inquiries relating to the services performed with respect
to C shares beneficially owned by customers; (vii) forwarding shareholder
communications; and (viii) other similar services requested by the Trust.
I SHARES
I shares of each equity fund shall be available for purchase
by banks and National Asset Management Corporation customers.
I 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.
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<PAGE> 13
Pursuant to the Trust's Distribution Agreement and Rule 12b-1
under the 1940 Act, the Trust has adopted the A and I Plan relating to the A and
I classes of shares of the equity funds. The A and I Plan provides that each
fund will compensate the distributor for distribution expenses related to the
distribution of the A and I shares in an amount not to exceed .10% of the
average aggregate net assets of such A and I shares classes.
4. Tax Exempt Funds
----------------
A SHARES
A shares of the tax exempt funds shall be available for
purchase by the public, primarily through financial institutions such as banks,
brokers and dealers.
A 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, 3.75%
for the National Tax Exempt Fund and 4.75% for the Michigan Municipal Bond Fund.
A 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 A
shares of the tax exempt funds 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 A shares; (iii) processing dividend payments
from the fund; (iv) providing information periodically to customers showing
their position in A shares; (v) arranging for bank wires; (vi) responding to
customer inquiries relating to the services performed with respect to A 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 the A and I Plan relating to the A and
I classes of shares of the tax exempt funds. The A and I Plan provides that each
fund will compensate the distributor for distribution expenses related to the
distribution of the A and I shares in an amount not to exceed .10% of the
average aggregate net assets of such A and I shares
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<PAGE> 14
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 each tax exempt fund 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 each tax
exempt 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
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<PAGE> 15
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.
C SHARES
C shares of each tax exempt fund shall be available for
purchase by the public, primarily through financial institutions such as banks,
brokers and dealers.
C shares of each tax exempt fund shall be subject to a CDSC if
the C shares are redeemed within eighteen months of purchase. The CDSC shall not
exceed 1.00% of the redemption price of those shares. Pursuant to the Trust's
Distribution Agreement as it relates to C shares and the Class C Shares
Distribution and Servicing Plan, total distribution costs, expenses and payments
in connection with the distribution of the Trust's C 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 C shares of the
Trust.
C shares shall be subject to a distribution fee payable
pursuant to the C 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 C Shares Distribution and Servicing Plan.
The Trust may also pay Service Organizations for
administrative support services provided with respect to their customers' C
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 average daily net asset value of C shares of each tax
exempt 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.
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<PAGE> 16
Services provided under the C 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 C shares; (iii) processing dividend
payments from the fund; (iv) providing information periodically to customers
showing their position in C shares; (v) arranging for bank wires; (vi)
responding to customer inquiries relating to the services performed with respect
to C shares beneficially owned by customers; (vii) forwarding shareholder
communications; and (viii) other similar services requested by the Trust.
I SHARES
I shares of each tax exempt fund shall be available for
purchase by banks and National Asset Management Corporation customers.
I shares of each tax exempt fund 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 the A and I Plan relating to the A and
I classes of shares of the tax exempt funds. The A and I Plan provides that each
fund will compensate the distributor for distribution expenses related to the
distribution of the A and I shares in an amount not to exceed .10% of the
average aggregate net assets of such A and I shares classes.
C. Exchange Privileges
-------------------
A SHARES
Holders of A shares generally shall be permitted to exchange
their A shares in a Fund for A shares of other Funds of the Trust in which the
shareholders maintain an existing account. No additional sales charge will be
incurred when exchanging A shares of a Fund for A shares of another Fund that
imposes a sales charge. The Trust shall not initially charge any exchange fee.
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<PAGE> 17
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.
C SHARES
Holders of C Shares generally shall be permitted to exchange
their C Shares in a Fund for C Shares of other Funds of the Trust without paying
any exchange fee or CDSC at the time the exchange is made.
I SHARES
Holders of I shares generally shall be permitted to exchange
those shares for I shares of another Fund of the Trust.
D. Conversion Features
-------------------
A SHARES
The Trust shall not offer a conversion feature to holders of A
shares.
B SHARES
B shares acquired by purchase generally shall convert
automatically to A 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 A 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.
C SHARES
The Trust shall not offer a conversion feature to holders of C
shares.
I SHARES
The Trust shall not offer a conversion feature to
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<PAGE> 18
holders of I 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
July 21, 1999
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