<PAGE> 1
ARMADA FUNDS PROSPECTUS
A, B AND C SHARES (RETAIL)
[PHOTO]
DECEMBER 10, 1999
[logo etc.]
The Securities and Exchange Commission has not approved
any Fund shares or determined whether this prospectus is accurate
or complete. Any statement to the contrary is a criminal offense.
<PAGE> 2
Investment Adviser
NATIONAL CITY INVESTMENT
MANAGEMENT COMPANY
Investment Sub-Adviser
NATIONAL ASSET MANAGEMENT
CORPORATION
(ARMADA CORE EQUITY FUND AND
ARMADA TOTAL RETURN ADVANTAGE FUND)
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 infor-
mation that you should know about the
Class A, Class B and 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. The Funds are ordered according to
volatility within their respective asset class at the time of the printing of
this prospectus. On the next page, there is some general information you
should know about the Funds. For more detailed information about each Fund,
please see:
ARMADA INTERNATIONAL EQUITY FUND ........................................ 2
ARMADA SMALL CAP VALUE FUND ............................................. 5
ARMADA SMALL CAP GROWTH FUND ............................................ 8
ARMADA EQUITY GROWTH FUND ............................................... 11
ARMADA TAX MANAGED EQUITY FUND .......................................... 14
ARMADA CORE EQUITY FUND ................................................. 17
ARMADA EQUITY INDEX FUND ................................................ 20
ARMADA EQUITY INCOME FUND................................................ 22
ARMADA BALANCED ALLOCATION FUND.......................................... 25
ARMADA TOTAL RETURN
ADVANTAGE FUND ........................................................ 27
ARMADA BOND FUND ........................................................ 30
ARMADA INTERMEDIATE BOND FUND ........................................... 33
ARMADA GNMA FUND ........................................................ 36
ARMADA ENHANCED INCOME FUND ............................................. 39
ARMADA OHIO TAX EXEMPT BOND FUND ........................................ 42
ARMADA PENNSYLVANIA MUNICIPAL BOND FUND ................................. 45
ARMADA NATIONAL TAX EXEMPT BOND FUND .................................... 48
ARMADA OHIO MUNICIPAL MONEY MARKET FUND ................................. 51
ARMADA PENNSYLVANIA TAX EXEMPT
MONEY MARKET FUND ..................................................... 53
ARMADA TAX EXEMPT MONEY MARKET FUND ..................................... 55
ARMADA MONEY MARKET FUND ................................................ 58
ARMADA GOVERNMENT
MONEY MARKET FUND ..................................................... 61
ARMADA TREASURY MONEY MARKET FUND ....................................... 63
ARMADA MID CAP GROWTH FUND .............................................. 65
ARMADA LARGE CAP ULTRA FUND.............................................. 67
ARMADA U.S. GOVERNMENT INCOME FUND ...................................... 69
ARMADA MICHIGAN MUNICIPAL BOND FUND ..................................... 71
ARMADA TREASURY PLUS MONEY MARKET FUND .................................. 73
MORE INFORMATION ABOUT RISK ............................................. 76
EACH FUND'S OTHER INVESTMENTS ........................................... 80
THE INVESTMENT ADVISER, SUB-ADVISER
AND INVESTMENT TEAM ................................................... 80
PURCHASING, SELLING AND EXCHANGING FUND SHARES .......................... 82
DIVIDENDS AND TAXES ..................................................... 89
FINANCIAL HIGHLIGHTS .................................................... 92
<PAGE> 3
INTRODUCTION
Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using
professional investment managers, invests it in securities.
Fund performance is measured against 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.
Class A, Class B and Class C Shares have different expenses and other
characteristics, allowing you to choose the class that best suits your needs.
You should consider the amount you want to invest, how long you plan to have it
invested, and whether you plan to make additional investments.
Class A Shares
- Front-end sales charge
- 12b-1 fees
- $500 minimum initial investment
Class B Shares
- Contingent deferred sales charge
- Higher 12b-1 fees
- $500 minimum initial investment
Class C Shares
- Contingent deferred sales charge
- Higher 12b-1 fees
- $500 minimum initial investment
RISK/RETURN SUMMARY
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.
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.
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
primarily 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
EQUITY FUNDS
ARMADA INTERNATIONAL EQUITY FUND
================================================================================
FUND SUMMARY
INVESTMENT GOAL
Capital appreciation
INVESTMENT FOCUS
Equity securities of foreign issuers
SHARE PRICE VOLATILITY
(RELATIVE TO MUTUAL FUNDS GENERALLY)
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
PRINCIPAL INVESTMENT STRATEGIES
The Armada International Equity Fund's investment objective is to provide
capital appreciation by investing in a portfolio of equity securities of foreign
issuers. Equity securities of foreign issuers includes common stock, preferred
stock and convertible bonds, of companies headquartered outside the United
States. 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, Australasia, Far East (World EAFE)
Index. The World EAFE Index is an unmanaged index which represents the
performance of more than 1,000 equity securities of companies located in those
regions. The Adviser makes judgements about the attractiveness of countries
based upon a collection of criteria. The relative valuation, growth prospects,
fiscal, monetary and regulatory government policies are considered jointly and
generally in making these judgements. The percentage of the Fund in each country
is determined by its relative attractiveness and weight in the World EAFE Index.
More than 25% of the Fund's assets may be invested in the equity securities of
issuers located in the same country. Within foreign markets, the Adviser buys
and sells securities based on its analysis of competitive position and
valuation. The Adviser sells securities whose competitive position is
deteriorating or whose valuation is unattractive relative to industry peers.
Likewise, companies with strong and durable competitive advantages and
attractive valuation are considered for purchase.
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, and will lower Fund performance.
PRINCIPAL RISKS OF INVESTING
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.
Companies making up the World EAFE Index are generally issuers of larger cap
securities of multi-national companies who are affected by risks worldwide.
Investment in a particular country of 25% or more of the Fund's total assets
will make the Fund's performance more dependent upon the political and economic
circumstances of that country than a mutual fund more widely diversified among
issuers in different countries.
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. For additional information about risks, see "More Information
About Risk."
2 PROSPECTUS
<PAGE> 5
EQUITY FUNDS
ARMADA INTERNATIONAL EQUITY FUND (CONTINUED)
================================================================================
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.
There is no performance information for Class B or Class C Shares because
neither has completed a full calendar year of operations.
The performance of Class A, Class B and Class C Shares will differ due to
differences in expenses.
The bar chart does not reflect sales charges. If sales charges had been
reflected, the returns for Class A Shares of the Fund would be less than those
shown below.
<TABLE>
<CAPTION>
1998
<S> <C>
Calendar Year Total Return 19.53%
</TABLE>
Best Quarter 20.04% (12/31/98)
Worst Quarter -15.62% (9/30/98)
The Fund's performance from January 1, 1999 to September 30, 1999 was 10.05%.
This table compares the Fund's average annual total returns for the periods
ended December 31, 1998 to those of the Morgan Stanley World EAFE Index.
- --------------------------------------------------------------------------------
CLASS A SHARES 1 YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
Armada International
Equity Fund 12.95% 3.45%(1)
- --------------------------------------------------------------------------------
Morgan Stanley
(World EAFE) Index(2) 20.00% 12.35%(3)
- --------------------------------------------------------------------------------
(1) Since August 1, 1997.
(2) The Morgan Stanley Capital International Europe, Australasia
and Far East (World EAFE) Index is an unmanaged index
which represents the performance of more than 1,000 equity
securities of companies located in those regions.
(3) Since August 31, 1997.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you buy and hold
shares of the Fund.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)(1) 5.50% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales
Charge (Load) (as a percentage
of net asset value) None 5.00%(2) 1.00%(3)
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
and other Distributions (as a
percentage of offering price) None None None
- --------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
Investment Advisory Fees 1.15% 1.15% 1.15%
- --------------------------------------------------------------------------------
Distribution and Service
(12b-1) Fees 0.10% 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 0.48% 0.48% 0.48%
- --------------------------------------------------------------------------------
Total Annual Fund
Operating Expenses 1.73%(4) 2.38% 2.38%
- --------------------------------------------------------------------------------
(1)This sales charge varies depending upon how much you invest. See "Purchasing
Fund Shares."
(2)This amount applies to redemptions during the first and second years. The
deferred sales charge decreases to 4.0%, 3.0% and 2.0% for redemptions made
during the third through fifth years, respectively. No deferred sales charge is
charged after the fifth year. For more information see "Selling Fund Shares."
(3)A contingent deferred sales charge is charged only with respect to Class C
Shares redeemed prior to 18 months from the date of purchase.
(4)The Fund's total actual annual operating expenses for Class A Shares for the
most recent fiscal year were less than the amounts shown above because the
Distributor waived a portion of the fees in order to keep total operating
expenses for Class A Shares at a specified level. With these fee waivers, the
Fund's actual total operating expenses for Class A Shares were 1.67%. The
Distributor expects to continue these waivers so that total operating expenses
for the current fiscal year will be 1.67%, however, the Distributor may
discontinue all or part of these waivers at any time.
For more information about these fees, see "Investment Adviser, Sub-Adviser and
Investment Team" and "Distribution of Fund Shares."
3 PROSPECTUS
<PAGE> 6
EQUITY FUNDS
ARMADA INTERNATIONAL EQUITY FUND (CONTINUED)
================================================================================
- --------------------------------------------------------------------------------
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, Fund expenses remain the
same and your Class B Shares convert to Class A Shares
after eight years. 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 A Shares $716 $1,065 $1,437 $2,479
Class B Shares $741 $1,142 $1,470 $2,552
Class C Shares $341 $742 $1,270 $2,716
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Class B Shares $241 $742 $1,270 $2,552
Class C Shares $241 $742 $1,270 $2,716
4 PROSPECTUS
<PAGE> 7
EQUITY FUNDS
ARMADA SMALL CAP VALUE FUND
================================================================================
FUND SUMMARY
INVESTMENT GOAL
Capital appreciation
INVESTMENT FOCUS
Small cap equity securities
SHARE PRICE VOLATILITY
(RELATIVE TO MUTUAL FUNDS GENERALLY)
High
PRINCIPAL INVESTMENT STRATEGY
Investing in value-oriented equity
securities of smaller issuers
INVESTOR PROFILE
Investors seeking capital appreciation,
who are willing to accept the risk of
share price volatility that may
accompany small cap investing
PRINCIPAL INVESTMENT STRATEGIES
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 the common stocks of small capitalization companies. The Fund may invest up
to 20% of its total assets at the time of purchase in foreign equity securities.
In buying and selling securities for the Fund, the Adviser uses a value-oriented
approach. The Adviser generally 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 generally sells securities based upon
price/earnings, price/book and price/cash flow ratios which rise above market
averages or when a company no longer has a small capitalization.
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. The Russell 2000 Value Index is an unmanaged index comprised of
securities in the Russell 2000 Index which have less than average growth
orientation. The Russell 2000 Index is an unmanaged index comprised of the 2000
smallest companies of the 3000 largest U.S. companies based on market
capitalization.
Due to its investment strategy, the Fund may buy and sell securities frequently.
This may increase transaction costs and capital gains tax liabilities, and will
lower Fund performance.
PRINCIPAL RISKS OF INVESTING
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.
Smaller capitalization companies may be more vulnerable to adverse business or
economic events than larger, more established companies. In particular, these
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. For additional information about risks, see "More Information About
Risk."
5 PROSPECTUS
<PAGE> 8
EQUITY FUNDS
ARMADA SMALL CAP VALUE FUND (CONTINUED)
================================================================================
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.
There is no performance information for Class B or Class C Shares because
neither has completed a full calendar year of operations.
The performance of Class A, Class B and Class C Shares will differ due to
differences in expenses.
This bar chart shows changes in the performance of the Fund's Class A Shares
from year to year.
The bar chart does not reflect sales charges. If sales charges had been
reflected, the returns for Class A Shares of the Fund would be less than those
shown below.
1995 1996 1997 1998
CALENDAR YEAR TOTAL RETURN 18.41% 22.32% 32.05% -7.64%
Best Quarter 17.65% (12/31/98)
Worst Quarter -17.92% (9/30/98)
The Fund's performance from January 1, 1999 to
September 30, 1999 was 1.25%.
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 -12.74% 13.53%(1)
- --------------------------------------------------------------------------------
Russell 2000
Value Index (2) -2.55% 13.71%(3)
- --------------------------------------------------------------------------------
(1) Since August 15, 1994.
(2) The Russell 2000 Value Index is comprised of securities in the
Russell 2000 Index with a less than average growth
orientation. Companies in the Russell 2000 Value Index
generally have low price to book and price-earnings ratios.
(3) Since August 31, 1994.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if
you buy and hold shares of the Fund.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
- --------------------------------------------------------------------------------
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)(1) 5.50% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales
Charge (Load) (as a percentage
of net asset value) None 5.00%(2) 1.00%(3)
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
and other Distributions (as a
percentage of offering price) None None None
- --------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
Investment Advisory Fees 1.00% 1.00% 1.00%
- --------------------------------------------------------------------------------
Distribution and Service
(12b-1) Fees 0.10% 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 0.40% 0.40% 0.40%
- --------------------------------------------------------------------------------
Total Annual Fund
Operating Expenses 1.50%(4) 2.15% 2.15%
- --------------------------------------------------------------------------------
(1) This sales charge varies depending upon how much you invest. See "Purchasing
Fund Shares."
(2) This amount applies to redemptions during the first and second years. The
deferred sales charge decreases to 4.0%, 3.0% and 2.0% for redemptions made
during the third through fifth years, respectively. No deferred sales charge is
charged after the fifth year. For more information see "Selling Fund Shares."
(3) A contingent deferred sales charge is charged only with respect to Class C
Shares redeemed prior to eighteen months from the date of purchase.
(4) The Fund's total actual annual operating expenses for Class A Shares for the
most recent fiscal year were less than the amounts shown above because the
Distributor waived a portion of the fees in order to keep total operating
expenses for Class A Shares at a specified level. With these fee waivers, the
Fund's actual total operating expenses for Class A Shares were 1.44%. The
Distributor expects to continue these waivers so that total operating expenses
for the current fiscal year will be 1.44%, however, the Distributor may
discontinue all or part of these waivers at any time.
For more information about these fees, see "Investment Adviser, Sub-Adviser and
Investment Team" and "Distribution of Fund Shares."
6 PROSPECTUS
<PAGE> 9
EQUITY FUNDS
ARMADA SMALL CAP VALUE FUND (CONTINUED)
================================================================================
- --------------------------------------------------------------------------------
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, Fund
expenses remain the same and your Class B Shares convert to Class A Shares after
eight years. 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 A Shares $694 $ 998 $1,323 $2,242
Class B Shares $718 $1,073 $1,354 $2,315
Class C Shares $318 $ 673 $1,154 $2,483
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Class B Shares $218 $673 $1,154 $2,315
Class C Shares $218 $673 $1,154 $2,483
7 PROSPECTUS
<PAGE> 10
EQUITY FUNDS
ARMADA SMALL CAP GROWTH FUND
================================================================================
FUND SUMMARY
INVESTMENT GOAL
Capital appreciation
INVESTMENT FOCUS
Small cap equity securities
SHARE PRICE VOLATILITY
(RELATIVE TO MUTUAL FUNDS GENERALLY)
High
PRINCIPAL INVESTMENT STRATEGY
Investing in growth-oriented equity
securities of smaller issuers
INVESTOR PROFILE
Investors seeking capital appreciation,
who are willing to accept the risk of
share price volatility that may
accompany small cap investing
PRINCIPAL INVESTMENT STRATEGIES
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
the common stocks 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
equity securities. The Adviser seeks to invest in small capitalization companies
with strong growth in revenue, earnings and cash flow. Purchase decisions are
also based on the security's valuation relative to the company's expected growth
rate, earnings quality and competitive position, valuation compared to similar
securities and the security's trading liquidity. Reasons for selling securities
include disappointing fundamentals, negative industry developments, evidence of
management's inability to execute a sound business plan, capitalization
exceeding the Adviser's definition of "small capitalization," desire to reduce
exposure to an industry or sector, and valuation levels which cannot be
justified by the company's fundamental growth prospects.
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
Growth Index. The Russell 2000 Growth Index is an unmanaged index comprised of
securities in the Russell 2000 Index with a greater than average growth
orientation. The Russell 2000 Index is an unmanaged index comprised of the 2000
smallest companies of the 3000 largest U.S. companies based on market
capitalization.
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, and will lower Fund performance.
PRINCIPAL RISKS OF INVESTING
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 upon a relatively small management group.
Therefore, small cap stocks may be more volatile than those of larger companies
may. 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. For additional information about risks, see "More Information About
Risk."
8 PROSPECTUS
<PAGE> 11
EQUITY FUNDS
ARMADA SMALL CAP GROWTH FUND (CONTINUED)
================================================================================
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.
There is no performance information for Class B or Class C Shares because
neither has completed a full calendar year of operations.
The performance of Class A, Class B and Class C Shares will differ due to
differences in expenses.
The bar chart does not reflect sales charges. If sales charges had been
reflected, the returns for Class A Shares of the Fund would be less than those
shown below.
1998
CALENDAR YEAR TOTAL RETURN 7.28%
Best Quarter 22.67% (12/31/98)
Worst Quarter -21.18% (9/30/98)
The Fund's performance from January 1, 1999 to September 30, 1999 was -0.35%.
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 1.39% 6.03%(1)
- --------------------------------------------------------------------------------
Russell 2000
Growth Index(2) -2.55% 0.81%(3)
- --------------------------------------------------------------------------------
(1)Since August 1, 1997.
(2)The Russell 2000 Growth Index is comprised of securities in
the Russell 2000 Stock Index with a greater than average
growth orientation.
(3)Since August 31, 1997.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you buy and hold
shares of the Fund.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)(1) 5.50% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales
Charge (Load) (as a percentage
of net asset value) None 5.00%(2) 1.00%(3)
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
and other Distributions (as a
percentage of offering price) None None None
- --------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
Investment Advisory Fees 1.00% 1.00% 1.00%
- --------------------------------------------------------------------------------
Distribution and Service
(12b-1) Fees 0.10% 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 0.42% 0.42% 0.42%
- --------------------------------------------------------------------------------
Total Annual Fund
Operating Expenses 1.52%(4) 2.17% 2.17%
- --------------------------------------------------------------------------------
(1) This sales charge varies depending upon how much you invest. See "Purchasing
Fund Shares."
(2) This amount applies to redemptions during the first and second years. The
deferred sales charge decreases to 4.0%, 3.0% and 2.0% for redemptions made
during the third through fifth years, respectively. No deferred sales charge is
charged after the fifth year. For more information see "Selling Fund Shares."
(3) A contingent deferred sales charge is charged only with respect to Class C
Shares redeemed prior to eighteen months from the date of purchase.
(4) The Fund's total actual annual operating expenses for Class A Shares for the
most recent fiscal year were less than the amounts shown above because the
Distributor waived a portion of the fees in order to keep total operating
expenses for Class A Shares at a specified level. With these fee waivers, the
Fund's actual total operating expenses for Class A Shares were 1.46%. The
Distributor expects to continue these waivers so that total operating expenses
for the current fiscal year will be 1.46%, however, the Distributor may
discontinue all or part of these waivers at any time.
For more information about these fees, see "Investment Adviser, Sub-Adviser and
Investment Team" and "Distribution of Fund Shares."
9 PROSPECTUS
<PAGE> 12
EQUITY FUNDS
ARMADA SMALL CAP GROWTH FUND (CONTINUED)
================================================================================
- --------------------------------------------------------------------------------
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, Fund
expenses remain the same and your Class B Shares convert to Class A Shares after
eight years. 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 A Shares $696 $1,004 $1,333 $2,263
Class B Shares $720 $1,079 $1,364 $2,336
Class C Shares $320 $679 $1,164 $2,503
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Class B Shares $220 $679 $1,164 $2,336
Class C Shares $220 $679 $1,164 $2,503
10 PROSPECTUS
<PAGE> 13
EQUITY FUNDS
ARMADA EQUITY GROWTH FUND
================================================================================
FUND SUMMARY
INVESTMENT GOAL
Capital appreciation
INVESTMENT FOCUS
Large cap equity securities
SHARE PRICE VOLATILITY
(RELATIVE TO MUTUAL FUNDS GENERALLY)
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
PRINCIPAL INVESTMENT STRATEGIES
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 equity
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&P500 Composite
Index. The S&P500 Composite Index is a widely recognized, unmanaged index of 500
common stocks which are generally representative of the U.S. stock market as a
whole.
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, and will lower Fund performance.
PRINCIPAL RISKS OF INVESTING
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.
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. For additional information about risks, see "More Information About
Risk."
11 PROSPECTUS
<PAGE> 14
EQUITY FUNDS
ARMADA EQUITY GROWTH FUND (CONTINUED)
================================================================================
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.
There is no performance information for Class B or Class C Shares because
neither has completed a full calendar year of operations.
The performance of Class A, Class B and Class C Shares will differ due to
differences in expenses.
This bar chart shows changes in the performance of the Fund's Class A Shares
from year to year.
The bar chart does not reflect sales charges. If sales charges had been
reflected, the returns for Class A Shares of the Fund would be less than those
shown below.
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C>
CALENDAR YEAR TOTAL RETURN 6.05% -0.47% -0.94% 28.51% 19.98% 36.34% 28.74%
Best Quarter 22.85% (12/31/98)
Worst Quarter -9.00% (9/30/98)
The Fund's performance from January 1, 1999 to September 30, 1999 was 3.89%.
This table compares the Fund's average annual total returns for the periods
ended December 31, 1998 to those of the S&P 500 Composite Index.
- --------------------------------------------------------------------------------
CLASS A SHARES 1 YEAR 5 YEARS SINCE INCEPTION
- --------------------------------------------------------------------------------
Armada Equity
Growth Fund 21.66% 20.43% 15.61%(1)
- --------------------------------------------------------------------------------
S&P500
Composite Index(2) 28.60% 24.05% 19.64%(3)
- --------------------------------------------------------------------------------
(1)Since April 15, 1991.
(2)The S&P500 Composite Index is a widely recognized,
unmanaged index of 500 common stocks which are generally
representative of the U.S. stock market as a whole.
(3)Since April 30, 1991.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you buy and hold
shares of the Fund.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)(1) 5.50% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales
Charge (Load) (as a percentage
of net asset value) None 5.00%(2) 1.00%(3)
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
and other Distributions (as a
percentage of offering price) None None None
- --------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
Investment Advisory Fees 0.75% 0.75% 0.75%
- --------------------------------------------------------------------------------
Distribution and Service
(12b-1) Fees 0.10% 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 0.38% 0.38% 0.38%
Total Annual Fund
Operating Expenses 1.23%(4) 1.88% 1.88%
- --------------------------------------------------------------------------------
</TABLE>
(1) This sales charge varies depending upon how much you invest. See "Purchasing
Fund Shares."
(2) This amount applies to redemptions during the first and second years. The
deferred sales charge decreases to 4.0%, 3.0% and 2.0% for redemptions made
during the third through fifth years, respectively. No deferred sales charge is
charged after the fifth year. For more information see "Selling Fund Shares."
(3) A contingent deferred sales charge is charged only with respect to Class C
Shares redeemed prior to eighteen months from the date of purchase.
(4) The Fund's total actual annual operating expenses for Class A Shares for the
most recent fiscal year were less than the amounts shown above because the
Distributor waived a portion of the fees in order to keep total operating
expenses for Class A Shares at a specified level. With these fee waivers, the
Fund's actual total operating expenses for Class A Shares were 1.17%. The
Distributor expects to continue these waivers so that total operating expenses
for the current fiscal year will be 1.17%, however, the Distributor may
discontinue all or part of these waivers at any time.
For more information about these fees, see "Investment Adviser, Sub-Adviser and
Investment Team" and "Distribution of Fund Shares."
12 PROSPECTUS
<PAGE> 15
EQUITY FUNDS
ARMADA EQUITY GROWTH FUND (Continued)
================================================================================
- --------------------------------------------------------------------------------
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, Fund
expenses remain the same and your Class B Shares convert to Class A Shares after
eight years. 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 A Shares $668 $919 $1,188 $1,957
Class B Shares $691 $991 $1,216 $2,030
Class C Shares $291 $591 $1,016 $2,201
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Class B Shares $191 $591 $1,016 $2,030
Class C Shares $191 $591 $1,016 $2,201
13 PROSPECTUS
<PAGE> 16
EQUITY FUNDS
ARMADA TAX MANAGED EQUITY FUND
================================================================================
FUND SUMMARY
INVESTMENT GOAL
Capital appreciation, while minimizing
the impact of taxes
INVESTMENT FOCUS
Equity securities
SHARE PRICE VOLATILITY
(RELATIVE TO MUTUAL FUNDS GENERALLY)
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
PRINCIPAL INVESTMENT STRATEGIES
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 the Fund's total assets in common stocks. The
Fund may invest up to 20% of its total assets at the time of purchase in foreign
equity securities. Equity securities of foreign issuers includes common stock,
preferred stock and convertible bonds, of companies headquartered outside the
United States. 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. 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. The Fund may redeem in-kind redemptions
consistent with its investment objective. An in-kind redemption may serve to
minimize any tax impact on the remaining shareholders, because a Fund generally
recognizes no taxable gain (or loss) on the securities used to make an in-kind
redemption. 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
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. For
additional information about risks, see "More Information About Risk."
14 PROSPECTUS
<PAGE> 17
EQUITY FUNDS
ARMADA TAX MANAGED EQUITY FUND (CONTINUED)
================================================================================
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.
There is no performance information for Class B or
Class C Shares because neither has completed a full
calendar year of operations.
The performance of Class A, Class B and Class C Shares
will differ due to differences in expenses.
This bar chart shows changes in the performance of the
Fund's Class A Shares from year to year.
The bar chart does not reflect sales charges. If sales
charges had been reflected, the returns for Class A Shares
of the Fund would be less than those shown below.
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CALENDAR YEAR TOTAL RETURN 29.63% -1.08% 34.07% 6.89% 1.20% -1.85% 29.51% 20.64% 39.06% 37.25%
</TABLE>
Best Quarter 23.02% (12/31/98)
Worst Quarter -14.38% (9/30/90)
The Fund's performance from January 1, 1999 to
September 30, 1999 was 2.40%.
This table compares the Fund's average annual total returns
for the periods ended December 31, 1998 to those of the S&P
500 Composite Index.
SINCE
CLASS A SHARES 1 YEAR 5 YEARS 10 YEARS INCEPTION
- --------------------------------------------------------------------------------
Armada Tax
Managed
Equity Fund 29.74% 22.57% 17.80% 17.65%(1)
S&P 500
Composite
Index(2) 28.60% 24.05% 19.19% 18.97%(1)
- --------------------------------------------------------------------------------
(1)Since June 30, 1984.
(2)The S&P 500 Composite Index is a widely recognized,
unmanaged index of 500 common stocks which are generally
representative of the U.S. stock market as a whole.
The performance of the Armada Tax Managed Equity Fund for the period prior to
May 11, 1998 is represented by the performance of a common trust fund ("common
trust fund") which operated prior to the effectiveness of the registration
statement of the Tax Managed Equity Fund. The common trust fund was advised by
National City Bank, an affiliate of the Adviser. At the time of the Tax Managed
Equity Fund's inception, the common trust fund was operated using materially
equivalent investment objectives, policies, guidelines and restrictions as the
Fund. In connection with the Tax Managed Equity Fund's commencement of
operations, on May 11, 1998, the common trust fund transferred its assets to the
Fund. At the time of the transfer, the Adviser did not manage any other
collective investment or common trust funds using materially equivalent
investment objectives, policies, guidelines and restrictions to those of the Tax
Managed Equity Fund.
The common trust fund was not open to the public generally, nor registered under
the Investment Company Act of 1940 (the "1940 Act") or subject to certain
restrictions that are imposed by the 1940 Act and the Internal Revenue Code. If
the common trust fund had been registered under the 1940 Act, performance may
have been adversely affected. Performance quotations of the common trust fund
represent past performance of the Adviser managed common trust fund, which are
separate and distinct from the Tax Managed Equity Fund; do not represent past
performance of the Fund; and should not be considered as representative of
future results of the Fund.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)(1) 5.50% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales
Charge (Load) (as a percentage
of net asset value) None 5.00%(2) 1.00%(3)
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
and other Distributions (as a
percentage of offering price) None None None
- --------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
15 PROSPECTUS
<PAGE> 18
EQUITY FUNDS
ARMADA TAX MANAGED EQUITY FUND (CONTINUED)
================================================================================
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Investment Advisory Fees 0.75% 0.75% 0.75%
- --------------------------------------------------------------------------------
Distribution and Service
(12b-1) Fees 0.10% 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 0.40% 0.40% 0.40%
- --------------------------------------------------------------------------------
Total Annual Fund
Operating Expenses 1.25%(4) 1.90% 1.90%
- --------------------------------------------------------------------------------
</TABLE>
(1) This sales charge varies depending upon how much you invest. See "Purchasing
Fund Shares."
(2) This amount applies to redemptions during the first and second years. The
deferred sales charge decreases to 4.0%, 3.0% and 2.0% for redemptions made
during the third through fifth years, respectively. No deferred sales charge is
charged after the fifth year. For more information see "Selling Fund Shares."
(3) A contingent deferred sales charge is charged only with respect to Class C
Shares redeemed prior to eighteen months from the date of purchase.
(4) The Fund's total actual annual operating expenses for Class A Shares for the
most recent fiscal year were less than the amounts shown above because the
Distributor waived a portion of the fees in order to keep total operating
expenses for Class A Shares at a specified level. With these fee waivers, the
Fund's actual total operating expenses for Class A Shares were 1.19%. The
Distributor expects to continue these waivers so that total operating expenses
for the current fiscal year will be 1.19%, however, the Distributor may
discontinue all or part of these waivers at any time.
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, Fund
expenses remain the same and your Class B Shares convert to Class A Shares after
eight years. 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:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $670 $925 $1,199 $1,978
Class B Shares $693 $997 $1,226 $2,051
Class C Shares $293 $597 $1,026 $2,222
</TABLE>
If you do not sell your shares at the end of the period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B Shares $193 $597 $1,026 $2,051
Class C Shares $193 $597 $1,026 $2,222
</TABLE>
16 PROSPECTUS
<PAGE> 19
EQUITY FUNDS
ARMADA CORE EQUITY FUND
================================================================================
FUND SUMMARY
INVESTMENT GOAL
Capital appreciation
INVESTMENT FOCUS
Large cap common stocks
SHARE PRICE VOLATILITY
(RELATIVE TO MUTUAL FUNDS GENERALLY)
High
PRINCIPAL INVESTMENT STRATEGY
Investing in large capitalization
common stocks
INVESTOR PROFILE
Investors seeking capital appreciation,
who are willing to accept the risk of
investing in equity securities
PRINCIPAL INVESTMENT STRATEGIES
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 will normally invest between 20% and 50% of its
assets in the following three types of equity securities: (1) common stocks that
meet the Sub-Adviser's criteria for five-year annual earnings-per-share rate
during the last five years; (2) common stocks with price-to-earnings ratios
below the average of the companies included in the S&P 500 Composite Index; and
(3) common stocks that pay dividends at a rate above the average of the
companies included in the S&P 500 Composite Index.
The Sub-Adviser utilizes a systematic, disciplined investment process when
selecting individual securities. This includes: (1) screening a database for
liquidity and the criteria listed above; (2) scoring each issue emphasizing
fundamental, valuation and technical indicators; and (3) security analysis that
further evaluates the company and the stock, which includes an analysis of
company fundamentals such as earnings, profitability and management, valuation
such as price/earnings, price/book and yield, and technical analysis emphasizing
individual stock price trends.
The sell discipline involves the monitoring of each company's fundamental,
valuation, and technical measures. If one of these measures is unfavorable, an
immediate review of that company is performed. If two of these three measures
are unfavorable, that stock is sold. The Fund may invest up to 20% of its total
assets at the time of purchase in foreign equity securities.
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 Composite
Index. The S&P 500 Composite Index is a widely recognized, unmanaged index of
500 common stocks which are generally representative of the U.S. stock market as
a whole.
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, and will lower Fund performance.
PRINCIPAL RISKS OF INVESTING
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.
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. For additional information about risks, see "More Information About
Risk."
17 PROSPECTUS
<PAGE> 20
EQUITY FUNDS
ARMADA CORE EQUITY FUND (CONTINUED)
================================================================================
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.
There is no performance information for Class B or Class C Shares because
neither has completed a full calendar year of operations.
The performance of Class A, Class B and Class C Shares will differ due to
differences in expenses.
The bar chart does not reflect sales charges. If sales charges had been
reflected, the returns for Class A Shares of the Fund would be less than those
shown below.
1998
CALENDAR YEAR TOTAL RETURN 31.99%
Best Quarter 25.04% (12/31/98)
Worst Quarter -6.90% (9/30/98)
The Fund's performance from January 1, 1999 to
September 30, 1999 was 6.63%.
This table compares the Fund's average annual total returns for the periods
ended December 31, 1998 to those of the S&P 500 Composite Index.
CLASS A SHARES 1 YEAR SINCE INCEPTION
- -------------------------------------------------------------------------------
Armada Core
Equity Fund 24.68% 19.13%(1)
S&P 500
Composite Index(2) 28.60% 28.38%(3)
- -------------------------------------------------------------------------------
(1)Since August 1, 1997.
(2)The S&P 500 Composite Index is a widely recognized,
unmanaged index of 500 common stocks which are generally
representative of the U.S. stock market as a whole.
(3)Since August 31, 1997.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if
you buy and hold shares of the Fund.
- -------------------------------------------------------------------------------
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- -------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)(1) 5.50% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales
Charge (Load) (as a percentage
of net asset value) None 5.00%(2) 1.00%(3)
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
and other Distributions (as a
percentage of offering price) None None None
- --------------------------------------------------------------------------------
Redemption Fee (as a
percentage of amount
redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
- -------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
Investment Advisory Fees 0.75% 0.75% 0.75%
- --------------------------------------------------------------------------------
Distribution and Service
(12b-1) Fees 0.10% 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 0.37% 0.37% 0.37%
- --------------------------------------------------------------------------------
Total Annual Fund
Operating Expenses 1.22%(4) 1.87% 1.87%
- --------------------------------------------------------------------------------
(1) This sales charge varies depending upon how much you invest. See "Purchasing
Fund Shares."
(2) This amount applies to redemptions during the first and second years. The
deferred sales charge decreases to 4.0%, 3.0% and 2.0% for redemptions made
during the third through fifth years, respectively. No deferred sales charge is
charged after the fifth year. For more information see "Selling Fund Shares."
(3) A contingent deferred sales charge is charged only with respect to Class C
Shares redeemed prior to eighteen months from the date of purchase.
(4) The Fund's total actual annual operating expenses for Class A Shares for the
most recent fiscal year were less than the amounts shown above because the
Distributor waived a portion of the fees in order to keep total operating
expenses for Class A Shares at a specified level. With these fee waivers, the
Fund's actual total operating expenses for Class A Shares were 1.16%. The
Distributor expects to continue these waivers so that total operating expenses
for the current fiscal year will be 1.16%, however, the Distributor may
discontinue all or part of these waivers at any time.
For more information about these fees, see "Investment Adviser, Sub-Adviser and
Investment Team" and "Distribution of Fund Shares."
18 PROSPECTUS
<PAGE> 21
EQUITY FUNDS
ARMADA CORE EQUITY FUND (CONTINUED)
================================================================================
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, Fund
expenses remain the same and your Class B Shares convert to Class A Shares after
eight years. 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 A Shares $667 $916 $1,183 $1,946
Class B Shares $690 $988 $1,211 $2,019
Class C Shares $290 $588 $1,011 $2,190
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Class B Shares $190 $588 $1,011 $2,019
Class C Shares $190 $588 $1,011 $2,190
19 PROSPECTUS
<PAGE> 22
EQUITY FUNDS
ARMADA EQUITY INDEX FUND
================================================================================
FUND SUMMARY
INVESTMENT GOAL
To approximate, before Fund expenses,
the investment results of the S&P500
Composite Index
INVESTMENT FOCUS
Common stocks of larger issuers
SHARE PRICE VOLATILITY
(RELATIVE TO MUTUAL FUNDS GENERALLY)
High
PRINCIPAL INVESTMENT STRATEGY
Investing in stocks that comprise the
S&P 500 Composite Index
INVESTOR PROFILE
Investors seeking returns similar to the
S&P 500 Composite Index, who are
willing to accept the risk of investing
in equity securities
PRINCIPAL INVESTMENT STRATEGIES
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 Composite Index by
investing in securities comprising the S&P 500 Composite Index. The investment
objective may be changed without a shareholder vote. The S&P 500 Composite Index
is made up of common stocks of 500 large, publicly traded companies. The Fund
buys and holds all stocks included in the S&P 500 Composite Index in exactly the
same proportion as those stocks are held in the Index. Stocks are eliminated
from the Fund when removed from the S&P 500 Composite Index. The Adviser makes
no attempt to "manage" the Fund in the traditional sense (i.e., by using
economic, financial or market analysis).
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, and will lower Fund performance.
PRINCIPAL RISKS OF INVESTING
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
Composite Index of common stocks, may underperform other equity market segments
or the equity market as a whole.
The Fund's ability to duplicate the performance of the S&P 500 Composite 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. For additional
information about risks, see "More Information About Risk."
20 PROSPECTUS
<PAGE> 23
EQUITY FUNDS
ARMADA EQUITY INDEX FUND (CONTINUED)
================================================================================
PERFORMANCE INFORMATION
There is no bar chart or performance information for the Class A, Class B or
Class C Shares because none has completed a full calendar year of operations.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if
you buy and hold shares of the Fund.
- -------------------------------------------------------------------------------
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- -------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)(1) 3.75% None None
- -------------------------------------------------------------------------------
Maximum Deferred Sales
Charge (Load) (as a percentage
of net asset value) None 5.00%(2) 1.00%(3)
- -------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
and other Distributions (as a
percentage of offering price) None None None
- -------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if
applicable) None None None
- -------------------------------------------------------------------------------
Exchange Fee None None None
- -------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
- -------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
Investment Advisory Fees 0.35% 0.35% 0.35%
- -------------------------------------------------------------------------------
Distribution and Service
(12b-1) Fees 0.10% 0.75% 0.75%
- -------------------------------------------------------------------------------
Other Expenses 0.41% 0.41% 0.41%
- -------------------------------------------------------------------------------
Total Annual Fund
Operating Expenses(4) 0.86% 1.51% 1.51%
- -------------------------------------------------------------------------------
(1) This sales charge varies depending upon how much you invest. See "Purchasing
Fund Shares."
(2) This amount applies to redemptions during the first and second years. The
deferred sales charge decreases to 4.0%, 3.0% and 2.0% for redemptions made
during the third through fifth years, respectively. No deferred sales charge is
charged after the fifth year. For more information see "Selling Fund Shares."
(3) A contingent deferred sales charge is charged only with respect to Class C
Shares redeemed prior to eighteen months from the date of purchase.
(4) The Fund's total actual annual operating expenses for Class A Shares for
the most recent fiscal year were less than the amounts shown above because the
Adviser and Distributor each waived a portion of the fees in order to keep
total operating expenses for Class A Shares at a specified level. With these
fee waivers, the Fund's actual total operating expenses were 0.61% for the
Class A Shares. Based on the foregoing, total operating expenses for Class A,
Class B and Class C Shares are expected to be 0.61%, 1.36% (estimated) and
1.36% (estimated), respectively. The Adviser and Distributor expect to continue
these waivers, however, they may discontinue all or part of these waivers at
any time.
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, Fund
expenses remain the same and your Class B Shares convert to Class A Shares after
eight years. 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 A Shares $459 $639 $834 $1,396
Class B Shares $654 $877 $1,024 $1,624
Class C Shares $254 $477 $824 $1,802
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------
Class B Shares $154 $477 $824 $1,624
Class C Shares $154 $477 $824 $1,802
21 PROSPECTUS
<PAGE> 24
EQUITY FUNDS
ARMADA EQUITY INCOME FUND
================================================================================
FUND SUMMARY
INVESTMENT GOAL
Capital appreciation
INVESTMENT FOCUS
Income producing equity securities
SHARE PRICE VOLATILITY
(RELATIVE TO MUTUAL FUNDS GENERALLY)
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
PRINCIPAL INVESTMENT STRATEGIES
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. Equity
securities include public and privately issued equity securities, common and
preferred stocks, warrants, rights to subscribe to common stock and convertible
securities, as well as instruments that attempt to track the price movement of
equity indices. The investment objective may be changed without a shareholder
vote.
The Fund normally invests at least 80% of its total assets in common stocks and
securities convertible into common stocks of companies that have the ability to
pay dividends with a yield above the S&P 500 Composite Index. The Fund may
invest up to 20% of its total assets at the time of purchase in foreign equity
securities. In buying and selling securities for the Fund, the Adviser
emphasizes equity securities and convertible 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.
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, and will lower Fund performance.
PRINCIPAL RISKS OF INVESTING
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.
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. For additional information about risks, see "More Information
About Risk."
22 PROSPECTUS
<PAGE> 25
EQUITY FUNDS
ARMADA EQUITY INCOME FUND (CONTINUED)
================================================================================
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.
There is no performance information for Class B or Class C Shares because
neither has completed a full calendar year of operations.
The performance of Class A, Class B and Class C Shares will differ due to
differences in expenses.
This bar chart shows changes in the performance of the Fund's Class A Shares
from year to year.
The bar chart does not reflect sales charges. If sales charges had been
reflected, the returns for Class A Shares of the Fund would be less than those
shown below.
<TABLE>
<CAPTION>
1995 1996 1997 1998
<S> <C> <C> <C> <C>
CALENDAR YEAR TOTAL RETURN 27.37% 17.89% 28.87% 9.77%
</TABLE>
Best Quarter 12.50% (6/30/97)
Worst Quarter -8.97% (9/30/98)
The Fund's performance from January 1, 1999 to September 30, 1999 was 0.49%.
This table compares the Fund's average annual total returns for the periods
ended December 31, 1998 to those of the S&P 500/Barra Value Index.
CLASS A SHARES 1 YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
Armada Equity
Income Fund 3.72% 16.79%(1)
S&P 500/Barra
Value Index(2) 14.68% 22.21%(3)
- --------------------------------------------------------------------------------
(1)Since August 22, 1994.
(2)The S&P 500/Barra Value Index is comprised of securities in the S&P 500
Composite Index that have a lower than average price-to-book ratio. The S&P 500
Composite Index is a widely recognized, unmanaged index of 500 common stocks
which are generally representative of the U.S. stock market as a whole.
(3)Since August 31, 1994.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you buy and hold
shares of the Fund.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)(1) 5.50% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales
Charge (Load) (as a percentage
of net asset value) None 5.00%(2) 1.00%(3)
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
and other Distributions (as a
percentage of offering price) None None None
- --------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
Investment Advisory Fees 0.75% 0.75% 0.75%
- --------------------------------------------------------------------------------
Distribution and Service
(12b-1) Fees 0.10% 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 0.39% 0.39% 0.39%
- --------------------------------------------------------------------------------
Total Annual Fund
Operating Expenses 1.24%(4) 1.89% 1.89%
- --------------------------------------------------------------------------------
(1) This sales charge varies depending upon how much you invest. See "Purchasing
Fund Shares."
(2) This amount applies to redemptions during the first and second years. The
deferred sales charge decreases to 4.0%, 3.0% and 2.0% for redemptions made
during the third through fifth years, respectively. No deferred sales charge is
charged after the fifth year. For more information see "Selling Fund Shares."
(3) A contingent deferred sales charge is charged only with respect to Class C
Shares redeemed prior to eighteen months from the date of purchase.
(4) The Fund's total actual annual operating expenses for Class A Shares for the
most recent fiscal year were less than the amounts shown above because the
Distributor waived a portion of the fees in order to keep total operating
expenses for Class A Shares at a specified level. With these fee waivers, the
Fund's actual total operating expenses for Class A Shares were 1.18%. The
Distributor expects to continue these waivers so that total operating expenses
for the current fiscal year will be 1.18%, however, the Distributor may
discontinue all or part of these waivers at any time.
For more information about these fees, see "Investment Adviser, Sub-Adviser and
Investment Team" and "Distribution of Fund Shares."
23 PROSPECTUS
<PAGE> 26
EQUITY FUNDS
ARMADA EQUITY INCOME FUND (CONTINUED)
================================================================================
- --------------------------------------------------------------------------------
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, Fund
expenses remain the same and your Class B Shares convert to Class A Shares after
eight years. 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 A Shares $669 $922 $1,194 $1,967
Class B Shares $692 $994 $1,221 $2,040
Class C Shares $292 $594 $1,021 $2,212
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Class B Shares $192 $594 $1,021 $2,040
Class C Shares $192 $594 $1,021 $2,212
24 PROSPECTUS
<PAGE> 27
BALANCED FUND
AMADA BALANCED ALLOCATION FUND
================================================================================
FUND SUMMARY
INVESTMENT GOAL
Long-term capital appreciation and
current income
INVESTMENT FOCUS
A combination of growth-oriented
common stocks, fixed income
securities and cash equivalents
SHARE PRICE VOLATILITY
(RELATIVE TO MUTUAL FUNDS GENERALLY)
Medium
PRINCIPAL INVESTMENT STRATEGY
Investing in a diversified portfolio of
growth-oriented common stocks,
investment grade fixed income
securities and cash equivalents with
varying asset allocations depending
on the Adviser's assessment of
market conditions
INVESTOR PROFILE
Investors seeking a broad diversifi-
cation by asset class and style to
manage risk and provide the potential
for above-average total returns (as
gauged by the returns of the S&P500
Composite Index and the Lehman
Brothers Aggregate Bond Index)
PRINCIPAL INVESTMENT STRATEGIES
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 investment grade fixed income securities such as corporate bonds and
U.S. Government securities and up to 30% of its net assets in cash and cash
equivalent securities. The Fund may invest up to 20% of its total assets at the
time of purchase in foreign securities (which includes common stock, preferred
stock and convertible bonds of companies headquartered outside the United
States). The Fund also invests in the common stock of small capitalization
companies. 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) for current income. If a
fixed income security is downgraded, the Adviser will reevaluate the holding
to determine whether it is in the best interests of investors to sell. The
Adviser buys and sells fixed income securities and cash equivalents based on a
number of factors, including yield to maturity, maturity, quality and the
outlook for particular issuers and market sectors. The Fund invests in cash
equivalent, short-term obligations for stability and liquidity.
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, and will lower Fund performance.
PRINCIPAL RISKS OF INVESTING
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, including governments.
Generally, the Fund's fixed income securities will decrease in value if interest
rates rise and vice versa. 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
may. 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
(continued)
25 PROSPECTUS
<PAGE> 28
BALANCED FUND
ARMADA BALANCED ALLOCATION FUND (CONTINUED)
================================================================================
PRINCIPAL RISKS OF INVESTING (continued)
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. For additional information about risks, see "More Information About
Risk."
PERFORMANCE INFORMATION
There is no performance information for the Class A, Class B and Class C Shares
because none has completed a full calendar year of operations.
The performance of Class A, Class B and Class C Shares will differ due to
differences in expenses.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you buy and hold
shares of the Fund.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)(1) 4.75% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales
Charge (Load) (as a percentage
of net asset value) None 5.00%(2) 1.00%(3)
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
and other Distributions (as a
percentage of offering price) None None None
- --------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
Investment Advisory Fees 0.75% 0.75% 0.75%
- --------------------------------------------------------------------------------
Distribution and Service
(12b-1) Fees 0.10% 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 0.46% 0.46% 0.46%
- --------------------------------------------------------------------------------
Total Annual Fund
Operating Expenses 1.31%(4) 1.96% 1.96%
- --------------------------------------------------------------------------------
(1) This sales charge varies depending upon how much you
invest. See "Purchasing Fund Shares."
(2) This amount applies to redemptions during the first and second years. The
deferred sales charge decreases to 4.0%, 3.0% and 2.0% for redemptions made
during the third through fifth years, respectively. No deferred sales charge is
charged after the fifth year. For more information see "Selling Fund Shares."
(3) A contingent deferred sales charge is charged only with respect to Class C
Shares redeemed prior to eighteen months from the date of purchase.
(4) The Fund's total actual annual operating expenses for Class A Shares for the
most recent fiscal year were less than the amounts shown above because the
Distributor waived a portion of the fees in order to keep total operating
expenses for Class A Shares at a specified level. With these fee waivers, the
Fund's actual total operating expenses for Class A Shares were 1.25%. The
Distributor expects to continue these waivers so that total operating expenses
for the current fiscal year will be 1.25%, however, the Distributor may
discontinue all or part of these waivers at any time.
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, Fund
expenses remain the same and your Class B Shares convert to Class A Shares after
eight years. 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 A Shares $602 $870 $1,159 $1,979
Class B Shares $699 $1,015 $1,257 $2,115
Class C Shares $299 $615 $1,057 $2,285
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Class B Shares $199 $615 $1,057 $2,115
Class C Shares $199 $615 $1,057 $2,285
26 PROSPECTUS
<PAGE> 29
FIXED INCOME FUNDS
ARMADA TOTAL RETURN ADVANTAGE FUND
================================================================================
FUND SUMMARY
INVESTMENT GOAL
Current income as well as preservation
of capital
INVESTMENT FOCUS
Investment grade fixed income
securities
SHARE PRICE VOLATILITY
(RELATIVE TO MUTUAL FUNDS GENERALLY)
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
PRINCIPAL INVESTMENT STRATEGIES
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 investment grade fixed income
securities of all types, including asset-backed securities and mortgage-backed
securities and obligations of corporate and U.S. Government issuers. Corporate
obligations may include bonds, notes and debentures. U.S. Government securities
may include U.S. Treasury obligations and obligations of certain U.S. Government
agencies or instrumentalities such as Ginnie Maes and Fannie Maes. Fixed income
securities are designed to provide a fixed rate of interest at maturity and
return the principal value at the end of the term. High- and medium-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. If a security is downgraded, the Adviser will re-evaluate whether
continuing to hold the security is in the best interest of shareholders. In
buying and selling securities 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,
sometimes known as "junk bonds." The Fund does not intend to invest in junk
bonds rated below C.
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, and will lower Fund performance.
PRINCIPAL RISKS OF INVESTING
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.
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
on a timely basis and ultimately to repay principal upon maturity.
Discontinuation of these payments could substantially adversely affect the
market value of the security. (continued)
27 PROSPECTUS
<PAGE> 30
FIXED INCOME FUNDS
ARMADA TOTAL RETURN ADVANTAGE FUND (CONTINUED)
================================================================================
PRINCIPAL RISKS OF INVESTING (continued)
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.
Debt extension risk is the risk that an issuer will exercise its right to pay
principal on obligation held by the Fund (such as an asset-backed security)
later than expected. This may happen during a period of rising interest rates.
Under these circumstances, the value of the obligation will decrease and the
Fund will suffer from the inability to invest in higher yielding 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 full faith and credit of the United States,
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, high- and
medium-grade fixed income securities, may underperform other fixed income market
segments or the fixed income market as a whole. For additional information about
risks, see "More Information About Risk."
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.
There is no performance information for Class B or Class C Shares because
neither has completed a full calendar year of operations.
The performance of Class A, Class B and Class C Shares will differ due to
differences in expenses.
This bar chart shows changes in the performance of the Fund's Class A Shares
from year to year.
The bar chart does not reflect sales charges. If sales charges had been
reflected, the returns for Class A Shares of the Fund would be less than those
shown below.
CALENDAR YEAR TOTAL RETURN
1995 1996 1997 1998
18.37% 2.86% 8.54% 8.68%
Best Quarter 6.28% (6/30/95)
Worst Quarter -2.58% (3/31/96)
The Fund's performance from January 1, 1999 to September 30, 1999 was -2.47%.
This table compares the Fund's average annual total returns for the periods
ended December 31, 1998 to those of the Lehman Government/Corporate Bond Index.
- --------------------------------------------------------------------------------
CLASS A SHARES 1 YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
Armada Total Return
Advantage Fund 3.51% 7.33%(1)
Lehman Government/
Corporate Bond Index(2) 9.47% 9.66%(3)
- --------------------------------------------------------------------------------
(1)Since September 6, 1994.
(2)The Lehman Government/Corporate Bond Index is a widely recognized index of
government and corporate debt securities rated investment grade or better, with
maturities of at least 1 year.
(3)Since September 30, 1994.
28 PROSPECTUS
<PAGE> 31
FIXED INCOME FUNDS
ARMADA TOTAL RETURN ADVANTAGE FUND (CONTINUED)
================================================================================
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you buy and hold
shares of the Fund.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)(1) 4.75% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales
Charge (Load) (as a percentage
of net asset value) None 5.00%(2) 1.00%(3)
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
and other Distributions (as a
percentage of offering price) None None None
- --------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
Investment Advisory Fees 0.55% 0.55% 0.55%
- --------------------------------------------------------------------------------
Distribution and Service
(12b-1) Fees 0.10% 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 0.39% 0.39% 0.39%
- --------------------------------------------------------------------------------
Total Annual Fund
Operating Expenses(4) 1.04% 1.69% 1.69%
- --------------------------------------------------------------------------------
(1) This sales charge varies depending upon how much you
invest. See "Purchasing Fund Shares."
(2) This amount applies to redemptions during the first and second years. The
deferred sales charge decreases to 4.0%, 3.0% and 2.0% for redemptions made
during the third through fifth years, respectively. No deferred sales charge is
charged after the fifth year. For more information see "Selling Fund Shares."
(3) A contingent deferred sales charge is charged only with respect to Class C
Shares redeemed prior to eighteen months from the date of purchase.
(4) The Fund's total actual annual operating expenses for Class A and Class B
Shares for the most recent fiscal year were less than the amounts shown above
because the Adviser and Distributor each waived a portion of the fees in order
to keep total operating expenses at a specified level. With these fee waivers,
the Fund's actual total operating expenses were 0.74% and 1.49%, respectively,
for the Class A and Class B Shares. Based on the foregoing, total operating
expenses for Class A, Class B and Class C Shares are expected to be 0.74%, 1.49%
and 1.49% (estimated), respectively. The Adviser and Distributor expect to
continue these waivers, however, they may discontinue all or part of these
waivers at any time. 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, Fund
expenses remain the same and your Class B Shares convert to Class A Shares after
eight years. 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 A Shares $576 $790 $1,022 $1,686
Class B Shares $672 $933 $1,118 $1,823
Class C Shares $272 $533 $918 $1,998
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Class B Shares $172 $533 $918 $1,823
Class C Shares $172 $533 $918 $1,998
29 PROSPECTUS
<PAGE> 32
FIXED INCOME FUNDS
ARMADA BOND FUND
================================================================================
FUND SUMMARY
INVESTMENT GOAL
Current income as well as preservation
of capital
INVESTMENT FOCUS
Investment grade fixed income
securities
SHARE PRICE VOLATILITY
(RELATIVE TO MUTUAL FUNDS GENERALLY)
Medium
PRINCIPAL INVESTMENT STRATEGY Investing in a diversified portfolio of investment
grade fixed income securities, 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
PRINCIPAL INVESTMENT STRATEGIES
The Armada Bond 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 high- and medium-grade fixed income securities of all
types, including obligations of corporate and U.S. Government issuers and
mortgage- backed and asset-backed securities. Corporate obligations may include
bonds, notes and debentures. U.S. Government securities may include U.S.
Treasury obligations and obligations of certain U.S. Government agencies or
instrumentalities such as Ginnie Maes and Fannie Maes. High- and medium-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. If a security is downgraded, the Adviser will re-evaluate
the holding to determine whether it is in the best interests of investors to
sell. 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
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, and will lower Fund performance.
PRINCIPAL RISKS OF INVESTING
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. 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.
Debt extension risk is the risk that an issuer will exercise its right to pay
principal on an obligation held by the Fund (such as an asset-backed security)
later than expected. This may happen during a period of rising interest rates.
Under these circumstances, the value of the obligation will decrease and the
Fund will suffer from the inability to invest in higher yielding 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. For additional information about risks, see
"More Information About Risk."
30 PROSPECTUS
<PAGE> 33
FIXED INCOME FUNDS
ARMADA BOND FUND (CONTINUED)
================================================================================
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.
There is no performance information for Class B or Class C Shares because
neither has completed a full calendar year of operations.
The performance of Class A, Class B and Class C Shares will differ due to
differences in expenses.
This bar chart shows changes in the performance of the Fund's Class A Shares
from year to year.
The bar chart does not reflect sales charges. If sales charges had been
reflected, the returns for Class A Shares of the Fund would be less than those
shown below.
CALENDAR YEAR TOTAL RETURN
1997 1998
7.71% 8.19%
Best Quarter 4.59% (9/30/98)
Worst Quarter -0.12% (12/31/98)
The Fund's performance from January 1, 1999 to September 30, 1999 was -1.57%.
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 3.05% 6.12%(1)
Lehman Aggregate
Bond Index(2) 8.67% 9.55%(3)
- --------------------------------------------------------------------------------
(1)Since September 11, 1996.
(2)The Lehman Aggregate Bond Index is an unmanaged, fixed income, market
value-weighted index that includes treasury issues, agency issues, corporate
bond issues and mortgage-backed securities.
(3)Since September 30, 1996.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you buy and hold
shares of the Fund.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)(1) 4.75% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales
Charge (Load) (as a percentage
of net asset value) None 5.00%(2) 1.00%(3)
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
and other Distributions (as a
percentage of offering price) None None None
- --------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
Investment Advisory Fees 0.55% 0.55% 0.55%
- --------------------------------------------------------------------------------
Distribution and Service
(12b-1) Fees 0.10% 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 0.39% 0.39% 0.39%
- --------------------------------------------------------------------------------
Total Annual Fund
Operating Expenses 1.04%(4) 1.69% 1.69%
- --------------------------------------------------------------------------------
(1) This sales charge varies depending upon how much you
invest. See "Purchasing Fund Shares."
(2) This amount applies to redemptions during the first and second years. The
deferred sales charge decreases to 4.0%, 3.0% and 2.0% for redemptions made
during the third through fifth years, respectively. No deferred sales charge is
charged after the fifth year. For more information see "Selling Fund Shares."
(3) A contingent deferred sales charge is charged only with respect to Class C
Shares redeemed prior to eighteen months from the date of purchase.
(4) The Fund's total actual annual operating expenses for Class A Shares for the
most recent fiscal year were less than the amounts shown above because the
Distributor waived a portion of the fees in order to keep total operating
expenses for Class A Shares at a specified level. With these fee waivers, the
Fund's actual total operating expenses for Class A Shares were 0.98%. The
Distributor expects to continue these waivers so that total operating expenses
for the current fiscal year will be 0.98%, however, the Distributor may
discontinue all or part of these waivers at any time.
For more information about these fees, see "Investment Adviser, Sub-Adviser
and Investment Team" and "Distribution of Fund Shares."
31 PROSPECTUS
<PAGE> 34
FIXED INCOME FUNDS
ARMADA BOND FUND (CONTINUED)
================================================================================
- --------------------------------------------------------------------------------
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, Fund
expenses remain the same and your Class B Shares convert to Class A Shares after
eight years. 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 A Shares $576 $790 $1,022 $1,686
Class B Shares $672 $933 $1,118 $1,823
Class C Shares $272 $533 $918 $1,998
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class B Shares $172 $533 $918 $1,823
Class C Shares $172 $533 $918 $1,998
32 PROSPECTUS
<PAGE> 35
FIXED INCOME FUNDS
ARMADA INTERMEDIATE BOND FUND
================================================================================
FUND SUMMARY
INVESTMENT GOAL
High current income as well as
preservation of capital
INVESTMENT FOCUS
Investment grade fixed income
securities
SHARE PRICE VOLATILITY
(RELATIVE TO MUTUAL FUNDS GENERALLY)
Medium
PRINCIPAL INVESTMENT STRATEGY
Investing in investment grade fixed income securities, while maintaining a
dollar-weighted average maturity of between three and ten years
INVESTOR PROFILE
Investors seeking current income, and
who are willing to accept the risks of
investing in fixed income securities
PRINCIPAL INVESTMENT STRATEGIES
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 domestic and foreign high- and medium-grade
fixed income securities of all types, including obligations of corporate and
governmental issuers and mortgage-backed and asset-backed securities. Corporate
obligations include bonds, notes and debentures. Governmental obligations
include securities issued by U.S. Government, its agencies and
instrumentalities, as well as obligations of foreign governments. High- and
medium-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. If a security is downgraded, the Adviser will re-evaluate
the holding to determine whether it is in the best interests of investors to
sell. 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 maturity of between three and ten years.
PRINCIPAL RISKS OF INVESTING
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. 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.
Debt extension risk is the risk that an issuer will exercise its right to pay
principal on an obligation held by the Fund (such as an asset-backed security)
later than expected. This may happen during a period of rising interest rates.
Under these circumstances, the value of the obligation will decrease and the
Fund will suffer from the inability to invest in higher yielding 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.
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.
(continued)
33 PROSPECTUS
<PAGE> 36
FIXED INCOME FUNDS
ARMADA INTERMEDIATE BOND FUND (CONTINUED)
================================================================================
PRINCIPAL RISKS OF INVESTING (continued)
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. For additional information about risks, see
"More Information About Risk."
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.
There is no performance information for Class B or Class C Shares because
neither has completed a full calendar year of operations.
The performance of Class A, Class B and Class C Shares will differ due to
differences in expenses.
This bar chart shows changes in the performance of the Fund's Class A Shares
from year to year.
The bar chart does not reflect sales charges. If sales charges had been
reflected, the returns for Class A Shares of the Fund would be less than those
shown below.
CALENDAR YEAR TOTAL RETURN
1992 1993 1994 1995 1996 1997 1998
6.91% 10.81% -4.78% 15.39% 2.77% 6.67% 7.44%
Best Quarter 5.33% (6/30/95)
Worst Quarter -3.34% (3/31/94)
The Fund's performance from January 1, 1999 to September 30, 1999 was -0.43%.
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 2.32% 4.27% 6.45%(1)
Lehman Intermediate
Government/Corporate
Bond Index(2) 8.42% 6.59% 7.77%(3)
- --------------------------------------------------------------------------------
(1)Since April 15, 1991.
(2)The Lehman Intermediate Government/Corporate Bond Index is an unmanaged index
which is representative of intermediate-term bonds.
(3)Since April 30, 1991.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you buy and hold
shares of the Fund.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)(1) 4.75% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales
Charge (Load) (as a percentage
of net asset value) None 5.00%(2) 1.00%(3)
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
and other Distributions (as a
percentage of offering price) None None None
- --------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
Investment Advisory Fees 0.55% 0.55% 0.55%
- --------------------------------------------------------------------------------
Distribution and Service (12b-1) Fees 0.10% 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 0.40% 0.40% 0.40%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses(4) 1.05% 1.70% 1.70%
- --------------------------------------------------------------------------------
(1) This sales charge varies depending upon how much you invest. See "Purchasing
Fund Shares."
(2) This amount applies to redemptions during the first and second years. The
deferred sales charge decreases to 4.0%, 3.0% and 2.0% for redemptions made
during the third through fifth years, respectively. No deferred sales charge is
charged after the fifth year. For more information see "Selling Fund Shares."
(3) A contingent deferred sales charge is charged only with respect to Class C
Shares redeemed prior to eighteen months from the date of purchase.
(4) The Fund's total actual annual operating expenses for Class A and Class B
Shares for the most recent fiscal year were less than the amounts shown above
because the Adviser and Distributor each waived a portion of the fees in order
to keep total operating expenses at a specified level. With these fee waivers,
the Fund's actual total operating expenses were 0.84% and 1.55%, respectively,
for the Class A and Class B Shares. Based on the foregoing, total operating
expenses for Class A, Class B and Class C Shares are expected to be 0.84%,
1.55%, and 1.55% (estimated), respectively. The Adviser and Distributor expect
to continue these waivers, however, they may discontinue all or part of these
waivers at any time.
For more information about these fees, see "Investment Adviser, Sub-Adviser and
Investment Team" and "Distribution of Fund Shares."
34 PROSPECTUS
<PAGE> 37
FIXED INCOME FUNDS
ARMADA INTERMEDIATE BOND FUND (CONTINUED)
================================================================================
- --------------------------------------------------------------------------------
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, Fund
expenses remain the same and your Class B Shares convert to Class A Shares after
eight years. 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 A Shares $577 $793 $1,027 $1,697
Class B Shares $673 $936 $1,123 $1,834
Class C Shares $273 $536 $923 $2,009
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Class B Shares $173 $536 $923 $1,834
Class C Shares $173 $536 $923 $2,009
35 PROSPECTUS
<PAGE> 38
FIXED INCOME FUNDS
ARMADA GNMA FUND
================================================================================
FUND SUMMARY
INVESTMENT GOAL
Current income as well as preservation
of capital
INVESTMENT FOCUS
Mortgage-backed securities
SHARE PRICE VOLATILITY
(RELATIVE TO MUTUAL FUNDS GENERALLY)
Low
PRINCIPAL INVESTMENT STRATEGY
Investing in mortgage-backed
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 mortgage-backed
securities
PRINCIPAL INVESTMENT STRATEGIES
The Armada GNMA Fund's investment objective is to provide current income as well
as preservation of capital by investing primarily in mortgage-backed securities
guaranteed by GNMA. GNMA securities are backed by the full faith and credit of
the U.S. Government. 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-backed 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-backed securities, the Fund invests in
other types of investment grade fixed income securities such as U.S. Treasury
obligations, U.S. Government agency obligations, asset-backed securities and
commercial paper.
In buying and selling securities for the Fund, the Adviser assesses current and
projected market conditions by considering a number of factors including yield
to maturity, maturity, quality and the outlook for particular issuers and market
sectors.
The Fund's dollar-weighted average portfolio maturity will be between three 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, and will lower Fund performance.
PRINCIPAL RISKS OF INVESTING
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. Also, longer-term securities are generally more
volatile, so the average maturity or duration of these securities affects risk.
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.
Debt extension risk is the risk that an issuer will exercise its right to pay
principal on an obligation held by the Fund (such as an asset-backed security)
later than expected. This may happen during a period of rising interest rates.
Under these circumstances, the value of the obligation will decrease and the
Fund will suffer from the inability to invest in higher yielding securities.
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.
For additional information about risks, see "More Information About Risk."
36 PROSPECTUS
<PAGE> 39
FIXED INCOME FUNDS
ARMADA GNMA FUND (CONTINUED)
================================================================================
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.
There is no performance information for Class B or Class C Shares because
neither has completed a full calendar year of operations.
The performance of Class A, Class B and Class C Shares will differ due to
differences in expenses.
This bar chart shows changes in the performance of the Fund's Class A Shares
from year to year.
The bar chart does not reflect sales charges. If sales charges had been
reflected, the returns for Class A Shares of the Fund would be less than those
shown below.
CALENDAR YEAR TOTAL RETURN
1997 1998
9.03% 6.34%
Best Quarter 4.05% (6/30/97)
Worst Quarter -0.07% (3/31/97)
The Fund's performance from January 1, 1999 to September 30, 1999 was 0.53%.
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 1.33% 6.22%(1)
Lehman GNMA Index(2) 6.91% 8.66%(3)
- --------------------------------------------------------------------------------
(1)Since September 11, 1996.
(2)The Lehman GNMA Index tracks GNMA issues, including single family, mobile
home, midgets and graduated payments components.
(3)Since September 30, 1996.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you buy and hold
shares of the Fund.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)(1) 4.75% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales
Charge (Load) (as a percentage
of net asset value) None 5.00%(2) 1.00%(3)
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
and other Distributions (as a
percentage of offering price) None None None
- --------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
Investment Advisory Fees 0.55% 0.55% 0.55%
- --------------------------------------------------------------------------------
Distribution and Service
(12b-1) Fees 0.10% 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 0.43% 0.43% 0.43%
- --------------------------------------------------------------------------------
Total Annual Fund
Operating Expenses 1.08%(4) 1.73% 1.73%
- --------------------------------------------------------------------------------
(1) This sales charge varies depending upon how much you invest. See
"Purchasing Fund Shares."
(2) This amount applies to redemptions during the first and second years. The
deferred sales charge decreases to 4.0%, 3.0% and 2.0% for redemptions made
during the third through fifth years, respectively. No deferred sales charge is
charged after the fifth year. For more information see "Selling Fund Shares."
(3) A contingent deferred sales charge is charged only with respect to Class C
Shares redeemed prior to eighteen months from the date of purchase.
(4) The Fund's total actual annual operating expenses for Class A Shares for the
most recent fiscal year were less than the amounts shown above because the
Distributor waived a portion of the fees in order to keep total operating
expenses for Class A Shares at a specified level. With these fee waivers, the
Fund's actual total operating expenses for Class A Shares were 1.02%. The
Distributor expects to continue these waivers so that total operating expenses
for the current fiscal year will be 1.02%, however, the Distributor may
discontinue all or part of these waivers at any time.
For more information about these fees, see "Investment Adviser, Sub-Adviser and
Investment Team" and "Distribution of Fund Shares."
37 PROSPECTUS
<PAGE> 40
FIXED INCOME FUNDS
ARMADA GNMA FUND (CONTINUED)
================================================================================
- --------------------------------------------------------------------------------
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, Fund
expenses remain the same and your Class B Shares convert to Class A Shares after
eight years. 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 A Shares $580 $802 $1,042 $1,730
Class B Shares $676 $945 $1,139 $1,867
Class C Shares $276 $545 $939 $2,041
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Class B Shares $176 $545 $939 $1,867
Class C Shares $176 $545 $939 $2,041
38 PROSPECTUS
<PAGE> 41
FIXED INCOME FUNDS
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
(RELATIVE TO MUTUAL FUNDS GENERALLY)
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
PRINCIPAL INVESTMENT STRATEGIES
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 high and medium-grade debt securities of all
types, including obligations of corporate and U.S. Government issuers,
mortgage-backed and asset-backed securities. Corporate obligations may include
bonds, notes and debentures. U.S. Government securities may include U.S.
Treasury obligations and obligations of certain U.S. Government agencies or
instrumentalities such as Ginnie Maes and Fannie Maes. High- and medium-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. If a security is downgraded, the Adviser will re-evaluate
whether continuing to hold the security is in the best interest of shareholders.
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, and will lower Fund performance.
PRINCIPAL RISKS OF INVESTING
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. 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.
Debt extension risk is the risk that an issuer will exercise its right to pay
principal on an obligation held by the Fund (such as an asset-backed security)
later than expected. This may happen during a period of rising interest rates.
Under these circumstances, the value of the obligation will decrease and the
Fund will suffer from the inability to invest in higher yielding 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. For additional information about risks, see
"More Information About Risk."
39 PROSPECTUS
<PAGE> 42
FIXED INCOME FUNDS
ARMADA ENHANCED INCOME FUND (CONTINUED)
================================================================================
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.
There is no performance information for Class B or Class C Shares because
neither has completed a full calendar year of operations.
The performance of Class A, Class B and Class C Shares will differ due to
differences in expenses.
This bar chart shows changes in the performance of the Fund's Class A Shares
from year to year.
The bar chart does not reflect sales charges. If sales charges had been
reflected, the returns for Class A Shares of the Fund would be less than those
shown below.
CALENDAR YEAR TOTAL RETURN
1995 1996 1997 1998
7.60% 5.18% 6.33% 6.58%
Best Quarter 3.12% (9/30/98)
Worst Quarter 0.53% (3/31/97)
The Fund's performance from January 1, 1999 to September 30, 1999 was 2.34%.
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
Government/Corporate Index.
CLASS A SHARES 1 YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
Armada Enhanced
Income Fund 3.70% 5.53%(1)
Merrill Lynch 1-3 Year
Government/
Corporate Index(2) 7.01% 6.98%(3)
- --------------------------------------------------------------------------------
(1) Since September 9, 1994.
(2) This is a market capitalization weighted index including U.S. Treasury and
Agency bonds and U.S. fixed coupon investment grade corporate bonds (U.S.
domestic and Yankee/global bonds). U.S. Treasury bonds must have at least $1
billion face value outstanding and agency and corporate bonds must have at least
$150 million face value outstanding to be included in the index. Both total
return and price returns are calculated daily. Prices are taken as of
approximately 3 p.m. ET. Quality range is BBB3-AAA based on composite Moody and
S&P ratings. Maturities for all bonds are greater than or equal to one year and
less than three years. Floaters, Equipment Trust Certificates, and Title 11
securities are excluded.
(3) Since September 30, 1994.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you buy and hold
shares of the Fund.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)(1) 2.75% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales
Charge (Load) (as a percentage
of net asset value) None 5.00%(2) 1.00%(3)
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
and other Distributions (as a
percentage of offering price) None None None
- --------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
CLASS A CLASS B CLASS C
Investment Advisory Fees 0.45% 0.45% 0.45%
- --------------------------------------------------------------------------------
Distribution and Service
(12b-1) Fees 0.10% 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 0.28% 0.28% 0.43%
- --------------------------------------------------------------------------------
Total Annual Fund
Operating Expenses(4) 0.83% 1.48% 1.63%
- --------------------------------------------------------------------------------
(1)This sales charge varies depending upon how much you invest. See
"Purchasing Fund Shares."
(2)This amount applies to redemptions during the first and second years. The
deferred sales charge decreases to 4.0%, 3.0% and 2.0% for redemptions made
during the third through fifth years, respectively. No deferred sales charge is
charged after the fifth year. For more information see "Selling Fund Shares."
(3)A contingent deferred sales charge is charged only with respect to Class C
Shares redeemed prior to eighteen months from the date of purchase.
(4)The Fund's total actual annual operating expenses for the Class A and Class B
Shares for the most recent fiscal year were less than the amounts shown above
because the Adviser and Distributor each waived a portion of the fees in order
to keep total operating expenses at a specified level. With these fee waivers,
the Fund's actual total operating expenses were 0.63% and 1.38%, respectively,
for Class A and Class B Shares. Based on the foregoing, total operating expenses
for Class A, Class B and Class C Shares are expected to be 0.63%, 1.38% and
1.53% (estimated), respectively. The Adviser and Distributor expect to continue
these waivers, however, they may discontinue all or part of these waivers at any
time.
For more information about these fees, see "Investment Adviser, Sub-Adviser and
Investment Team" and "Distribution of Fund Shares."
40 PROSPECTUS
<PAGE> 43
FIXED INCOME FUNDS
ARMADA ENHANCED INCOME FUND (CONTINUED)
================================================================================
- --------------------------------------------------------------------------------
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, Fund
expenses remain the same and your Class B Shares convert to Class A Shares after
eight years. 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 A Shares $357 $533 $723 $1,272
Class B Shares $651 $868 $1,008 $1,591
Class C Shares $266 $514 $887 $1,933
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class B Shares $151 $468 $808 $1,591
Class C Shares $166 $514 $887 $1,933
41 PROSPECTUS
<PAGE> 44
TAX EXEMPT FUNDS
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
(RELATIVE TO MUTUAL FUNDS GENERALLY)
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 total return and who are willing to accept some risks of price
volatility
PRINCIPAL INVESTMENT STRATEGIES
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. The Fund
normally invests at least 80% 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). However, some Fund dividends
will be taxable, such as dividends that are derived from occasional taxable
investments and distributions of short and long-term capital gains. Also, Fund
dividends will generally be subject to state and local income taxes for any
shareholders who are not Ohio residents. 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 primarily 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. If a security is
downgraded, the Adviser will re-evaluate whether continuing to hold the security
is in the best interest of shareholders. The Fund ordinarily will maintain an
average weighted portfolio maturity of between three 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,
and will lower Fund performance.
PRINCIPAL RISKS OF INVESTING
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. 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.
The Fund's focus of investing in securities of issuers located in Ohio 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 than a
diversified fund 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. For additional
information about risks, see "More Information About Risk."
42 PROSPECTUS
<PAGE> 45
TAX EXEMPT FUNDS
ARMADA OHIO TAX EXEMPT BOND FUND (CONTINUED)
================================================================================
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.
There is no performance information for Class B or Class C Shares because
neither has completed a full calendar year of operations.
The performance of Class A, Class B and Class C Shares will differ due to
differences in expenses.
This bar chart shows changes in the performance of the Fund's Class A Shares
from year to year.
The bar chart does not reflect sales charges. If sales charges had been
reflected, returns would be less than those shown below.
CALENDAR YEAR TOTAL RETURN
1992 1993 1994 1995 1996 1997 1998
6.82% 10.14% -4.19% 13.37% 3.92% 7.35% 5.25%
Best Quarter 5.04% (3/31/95)
Worst Quarter -4.89% (3/31/94)
The Fund's performance from January 1, 1999 to September 30, 1999 was -0.90%.
This table compares the Fund's average annual total returns for the periods
ended December 31, 1998 to those of the Lehman 7 Year Municipal Bond Index.
CLASS A SHARES 1 YEAR 5 YEARS SINCE INCEPTION
- --------------------------------------------------------------------------------
Armada Ohio Tax
Exempt Bond Fund 2.13% 4.35% 5.76%(1)
Lehman 7 Year
Municipal Bond
Index(2) 6.23% 5.80% 7.19%(3)
- --------------------------------------------------------------------------------
(1)Since April 15, 1991.
(2)The Lehman 7 Year Municipal Bond Index is a broad based total return index.
The bonds are all investment grade, fixed rate with maturities of 7-8 years and
are selected from issues larger than $50 million dated since January 1984.
(3)Since April 30, 1991.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)(1) 3.00% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales
Charge (Load) (as a percentage
of net asset value) None 5.00%(2) 1.00%(3)
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
and other Distributions (as a
percentage of offering price) None None None
- --------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
CLASS A CLASS B CLASS C
Investment Advisory Fees 0.55% 0.55% 0.55%
- --------------------------------------------------------------------------------
Distribution and Service
(12b-1) Fees 0.10% 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 0.25% 0.25% 0.40%
- --------------------------------------------------------------------------------
Total Annual Fund
Operating Expenses(4) 0.90% 1.55% 1.70%
- --------------------------------------------------------------------------------
(1) This sales charge varies depending upon how much you invest. See "Purchasing
Fund Shares."
(2) This amount applies to redemptions during the first and second years. The
deferred sales charge decreases to 4.0%, 3.0% and 2.0% for redemptions made
during the third through fifth years, respectively. No deferred sales charge is
charged after the fifth year. For more information see "Selling Fund Shares."
(3) A contingent deferred sales charge is charged only with respect to Class C
Shares redeemed prior to eighteen months from the date of purchase.
(4) The Fund's total actual annual operating expenses for the Class A and Class
B Shares for the most recent fiscal year were less than the amounts shown above
because the Adviser and Distributor each waived a portion of the fees in order
to keep total operating expenses at a specified level. With these fee waivers,
the Fund's actual total operating expenses were 0.69% and 1.40%, respectively,
for Class A and Class B Shares. Based on the foregoing, total operating expenses
for Class A, Class B and Class C Shares are expected to be 0.69%, 1.40% and
1.55% (estimated), respectively. The Adviser and Distributor expect to continue
these waivers, however, they may discontinue all or part of these waivers at any
time.
For more information about these fees, see "Investment Adviser, Sub-Adviser and
Investment Team" and "Distribution of Fund Shares."
43 PROSPECTUS
<PAGE> 46
TAX EXEMPT FUNDS
ARMADA OHIO TAX EXEMPT BOND FUND (CONTINUED)
================================================================================
- --------------------------------------------------------------------------------
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, Fund
expenses remain the same and your Class B Shares convert to Class A Shares after
eight years. 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 A Shares $389 $578 $784 $1,375
Class B Shares $658 $890 $1,045 $1,669
Class C Shares $273 $536 $923 $2,009
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class B Shares $158 $490 $845 $1,669
Class C Shares $173 $536 $923 $2,009
44 PROSPECTUS
<PAGE> 47
TAX EXEMPT FUNDS
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 consistent with conservation of
capital
INVESTMENT FOCUS
Pennsylvania municipal securities
SHARE PRICE VOLATILITY
(RELATIVE TO MUTUAL FUNDS GENERALLY)
Medium
PRINCIPAL INVESTMENT STRATEGY
Investing in municipal obligations that pay interest that is exempt from federal
income and Pennsylvania personal income taxes
INVESTOR PROFILE
Investors seeking tax exempt current income, and who are willing to accept
moderate share price volatility
PRINCIPAL INVESTMENT STRATEGIES
The Armada Pennsylvania Municipal Bond Fund's investment objective is to provide
current income exempt from regular 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 normally invests at least 80% of its net assets 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). However, some Fund dividends will be taxable, such as
dividends that are derived from occasional taxable investments and distributions
of short and long-term capital gains. Also, Fund dividends will generally be
subject to state and local income taxes for any shareholders who are not
Pennsylvania residents. 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 primarily 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. If a security is
downgraded, the Adviser will re-evaluate whether continuing to hold the security
is in the best interest of shareholders. The Fund ordinarily will maintain an
average weighted portfolio maturity of between three 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,
and will lower Fund performance.
PRINCIPAL RISKS OF INVESTING
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. 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.
The Fund's focus of investments in securities of issuers located in Pennsylvania
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 than a
diversified fund 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. For additional
information about risks, see "More Information About Risk."
45 PROSPECTUS
<PAGE> 48
TAX EXEMPT FUNDS
ARMADA PENNSYLVANIA MUNICIPAL BOND FUND (CONTINUED)
================================================================================
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.
There is no performance information for Class B or Class C Shares because
neither has completed a full calendar year of operations.
The performance of Class A, Class B and Class C Shares will differ due to
differences in expenses.
This bar chart shows changes in the performance of the Fund's Class A Shares
from year to year.
The bar chart does not reflect sales charges. If sales charges had been
reflected, returns would be less than those shown below.
CALENDAR YEAR TOTAL RETURN
1997 1998
6.83% 5.62%
Best Quarter 2.88% (9/30/98)
Worst Quarter -0.14% (3/31/97)
The Fund's performance from January 1, 1999 to September 30, 1999 was -0.96%.
This table compares the Fund's average annual total returns for the periods
ended December 31, 1998 to those of the Lehman 7 Year Municipal Bond Index.
CLASS A SHARES 1 YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
Armada Pennsylvania
Municipal Bond Fund 2.49% 5.26%(1)
Lehman 7 Year
Municipal Bond Index(2) 6.23% 7.31%(3)
- --------------------------------------------------------------------------------
(1)Since September 11, 1996.
(2)The Lehman 7 Year Municipal Bond Index is a broad based total return index.
The bonds are all investment grade, fixed rate with maturities of 7-8 years and
are selected from issues larger than $50 million dated since January 1984.
(3)Since September 30, 1996.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you buy and hold
shares of the Fund.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)(1) 3.00% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales
Charge (Load) (as a percentage
of net asset value) None 5.00%(2) 1.00%(3)
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
and other Distributions (as a
percentage of offering price) None None None
- --------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
Investment Advisory Fees 0.55% 0.55% 0.55%
- --------------------------------------------------------------------------------
Distribution and Service
(12b-1) Fees 0.10% 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 0.29% 0.29% 0.44%
- --------------------------------------------------------------------------------
Total Annual Fund
Operating Expenses(4) 0.94% 1.59% 1.74%
- --------------------------------------------------------------------------------
(1) This sales charge varies depending upon how much you invest. See "Purchasing
Fund Shares."
(2) This amount applies to redemptions during the first and second years. The
deferred sales charge decreases to 4.0%, 3.0% and 2.0% for redemptions made
during the third through fifth years, respectively. No deferred sales charge is
charged after the fifth year. For more information see "Selling Fund Shares."
(3) A contingent deferred sales charge is charged only with respect to Class C
Shares redeemed prior to eighteen months from the date of purchase.
(4) The Fund's total actual annual operating expenses for the Class A and Class
B Shares for the most recent fiscal year were less than the amounts shown above
because the Adviser and Distributor each waived a portion of the fees in order
to keep total operating expenses at a specified level. With these fee waivers,
the Fund's actual total operating expenses were 0.69% and 1.44%, respectively,
for Class A and Class B Shares. Based on the foregoing, total operating expenses
for Class A, Class B and Class C Shares are expected to be 0.69%, 1.44% and
1.59% (estimated), respectively. The Adviser and Distributor expect to continue
these waivers, however, they may discontinue all or part of these waivers at any
time.
For more information about these fees, see "Investment Adviser, Sub-Adviser and
Investment Team" and "Distribution of Fund Shares."
46 PROSPECTUS
<PAGE> 49
TAX EXEMPT FUNDS
ARMADA PENNSYLVANIA MUNICIPAL BOND FUND (CONTINUED)
================================================================================
- --------------------------------------------------------------------------------
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, Fund
expenses remain the same and your Class B Shares convert to Class A Shares after
eight years. 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 A Shares $393 $591 $804 $1,420
Class B Shares $662 $902 $1,066 $1,713
Class C Shares $277 $548 $944 $2,052
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Class B Shares $162 $502 $866 $1,713
Class C Shares $177 $548 $944 $2,052
47 PROSPECTUS
<PAGE> 50
TAX EXEMPT FUNDS
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
(RELATIVE TO MUTUAL FUNDS GENERALLY)
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
PRINCIPAL INVESTMENT STRATEGIES
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 normally invests at least 80% of its net assets in debt securities that
generate income exempt from federal income tax. However, Fund dividends will
generally be taxable for state and local income tax purposes. Also, some Fund
dividends will be taxable for federal income tax purposes, such as those derived
from occasional taxable investments and distributions of short and long-term
capital gains. 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 primarily 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. If a security is downgraded,
the Adviser will re-evaluate whether continuing to hold the security is in the
best interest of shareholders. The Fund ordinarily will maintain a
dollar-weighted average portfolio maturity of between three 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,
and will lower Fund performance.
PRINCIPAL RISKS OF INVESTING
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. 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.
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.
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. For additional information about risks, see "More
Information About Risk."
48 PROSPECTUS
<PAGE> 51
TAX EXEMPT FUNDS
ARMADA NATIONAL TAX EXEMPT BOND FUND (CONTINUED)
================================================================================
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.
There is no performance information for Class B or Class C Shares because
neither has completed a full calendar year of operations.
The performance of Class A, Class B and Class C Shares will differ due to
differences in expenses.
This bar chart shows changes in the performance of the Fund's Class A Shares
from year to year.
The bar chart does not reflect sales charges. If sales charges had been
reflected, returns would be less than those shown below.
CALENDAR YEAR TOTAL RETURN
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
9.79% 4.65% 8.45% 9.74% 11.76% -4.58% 14.05% -1.07% 6.57% 5.85%
Best Quarter 6.19% (6/30/89)
Worst Quarter -4.13% (3/31/94)
The Fund's performance from January 1, 1999 to September 30, 1999 was -0.96%.
This table compares the Fund's average annual total returns for the periods
ended December 31, 1998 to those of the Lehman 10 Year Municipal Bond Index.
- --------------------------------------------------------------------------------
CLASS A SHARES 1 YEAR 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Armada National
Tax Exempt
Bond Fund 0.83% 2.95% 5.86%
Lehman 10 Year
Municipal Bond
Index(1) 6.76% 6.35% 8.32%
- --------------------------------------------------------------------------------
(1)The Lehman 10 Year Municipal Bond Index is a broad based return index. The
bonds are all investment grade, fixed rate with maturities of 9-12 years and are
selected from issues larger than $50 million dated since January 1984.
The performance of the National Tax Exempt Bond Fund for the period prior to
June 22, 1998 is represented by the performance of a common trust fund ("common
trust fund") which operated prior to the effectiveness of the registration
statement of the National Tax Exempt Bond Fund. The common trust fund was
advised by National City Bank, an affiliate of the Adviser. At the time of the
National Tax Exempt Bond Fund's inception, the common trust fund was operated
using materially equivalent investment objectives, policies, guidelines and
restrictions as the Fund. In connection with the National Tax Exempt Bond Fund's
commencement of operations, on June 22, 1998, the common trust fund transferred
its assets to the Fund. At the time of the transfer, the Adviser did not manage
any other collective investment or common trust funds using materially
equivalent investment objectives, policies, guidelines and restrictions to those
of the National Tax Exempt Bond Fund.
The common trust fund was not open to the public generally, nor registered under
the Investment Company Act of 1940 (the "1940 Act") or subject to certain
restrictions that are imposed by the 1940 Act and the Internal Revenue Code. If
the common trust fund had been registered under the 1940 Act, performance may
have been adversely affected. Performance quotations of the common trust fund
represent past performance of the Adviser managed common trust fund, which are
separate and distinct from the National Tax Exempt Bond Fund; do not represent
past performance of the Fund; and should not be considered as representative of
future results of the Fund.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you buy and hold
shares of the Fund.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)(1) 4.75% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales
Charge (Load) (as a percentage
of net asset value) None 5.00%(2) 1.00%(3)
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
and other Distributions (as a
percentage of offering price) None None None
- --------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
49 PROSPECTUS
<PAGE> 52
TAX EXEMPT FUNDS
ARMADA NATIONAL TAX EXEMPT BOND FUND (CONTINUED)
================================================================================
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
Investment Advisory Fees 0.55% 0.55% 0.55%
- --------------------------------------------------------------------------------
Distribution and Service
(12b-1) Fees 0.10% 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 0.25% 0.25% 0.40%
Total Annual Fund
- --------------------------------------------------------------------------------
Operating Expenses(4) 0.90% 1.55% 1.70%
- --------------------------------------------------------------------------------
(1) This sales charge varies depending upon how much you invest. See "Purchasing
Fund Shares."
(2) This amount applies to redemptions during the first and second years. The
deferred sales charge decreases to 4.0%, 3.0% and 2.0% for redemptions made
during the third through fifth years, respectively. No deferred sales charge is
charged after the fifth year. For more information see "Selling Fund Shares."
(3) A contingent deferred sales charge is charged only with respect to Class C
Shares redeemed prior to eighteen months from the date of purchase.
(4) The Fund's total actual annual operating expenses for the Class A and Class
B Shares for the most recent fiscal year were less than the amounts shown above
because the Adviser and Distributor each waived a portion of the fees in order
to keep total operating expenses at a specified level. With these fee waivers,
the Fund's actual total operating expenses were 0.69% and 1.40%, respectively,
for Class A and Class B Shares. Based on the foregoing, total operating expenses
for Class A, Class B and Class C Shares are expected to be 0.69%, 1.40% and
1.55% (estimated), respectively. The Adviser and Distributor expect to continue
these waivers, however, they may discontinue all or part of these waivers at any
time.
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, Fund
expenses remain the same and your Class B Shares convert to Class A Shares after
eight years. 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 A Shares $562 $748 $950 $1,530
Class B Shares $658 $890 $1,045 $1,669
Class C Shares $273 $536 $923 $2,009
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Class B Shares $158 $490 $845 $1,669
Class C Shares $173 $536 $923 $2,009
50 PROSPECTUS
<PAGE> 53
MONEY MARKET FUNDS
ARMADA OHIO MUNICIPAL MONEY MARKET FUND
================================================================================
FUND SUMMARY
INVESTMENT GOAL
Current income exempt from regular federal income tax and Ohio personal income
tax, consistent with stability of principal
INVESTMENT FOCUS
Ohio municipal money market instruments
SHARE PRICE VOLATILITY
(RELATIVE TO MUTUAL FUNDS GENERALLY)
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 taxable investors in higher tax brackets seeking current income
exempt from federal and Ohio income taxes
PRINCIPAL INVESTMENT STRATEGIES
The Armada Ohio Municipal Money Market Fund's investment objective is to provide
current income exempt from regular federal income tax and Ohio personal income
tax, consistent with stability of principal. The investment objective may be
changed without a shareholder vote. The Fund invests exclusively in high quality
money market instruments issued by or on behalf of the State of Ohio, political
subdivisions thereof or agencies or instrumentalities of Ohio or its political
subdivisions, the income from which is exempt from regular federal income tax
and Ohio personal income tax (Ohio money market instruments). However, some Fund
dividends may be taxable if the Fund, as it is permitted to do, invests some of
its assets in taxable instruments. Also, Fund dividends will generally be
subject to state and local income taxes for any shareholders who are not Ohio
residents. 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 two highest rating categories for such securities, and certain securities
that are not so rated but are of comparable quality as determined by the
Adviser.
The Fund may invest 100% of its assets in private activity bonds, the interest
from which is a preference item for the federal alternative minimum tax. Under
normal market conditions, at least 80% of the value of the Fund's total assets
will be invested in Ohio money market instruments. 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.
In managing the Fund, the Adviser assesses current and projected market
conditions, particularly interest rates. Based on this assessment and a separate
credit analysis, the Adviser uses gradual shifts in portfolio maturity to
respond to expected changes and selects securities that it believes offer the
most attractive risk/return trade off.
As a money market fund, the Fund invests only in 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
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, Ohio municipal
money market securities, may underperform other fixed income market segments or
the fixed income market as a whole.
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.
The Fund's focus of investments in securities of issuers located in Ohio
subjects the Fund to economic and government policies of that state. For
additional information about risks, see "More Information About Risk."
51 PROSPECTUS
<PAGE> 54
MONEY MARKET FUNDS
ARMADA OHIO MUNICIPAL MONEY MARKET FUND (CONTINUED)
================================================================================
PERFORMANCE INFORMATION
There is no bar chart or performance information for the Class A Shares 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 buy and hold
shares of the Fund.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
CLASS A
Investment Advisory Fees 0.35%
- --------------------------------------------------------------------------------
Distribution and Service (12b-1) Fees 0.10%
- --------------------------------------------------------------------------------
Other Expenses 0.32%
- --------------------------------------------------------------------------------
Total Annual Fund
Operating Expenses(1) 0.77%
- --------------------------------------------------------------------------------
(1) The Fund's total actual annual operating expenses for the most recent fiscal
year were less than the amounts shown above because the Adviser and Distributor
each waived a portion of the fees in order to keep total operating expenses at a
specified level. With these fee waivers, the Fund's actual total operating
expenses were 0.51%. The Adviser and Distributor expect to continue these
waivers so that total operating expenses for the current fiscal year will be
0.51%, however, they may discontinue all or part of these waivers at any time.
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.
The Example also assumes that each year your investment has a 5% return, Fund
expenses remain the same and your Class B Shares convert to Class A Shares after
eight years. 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 A Shares $79 $246 $428 $954
52 PROSPECTUS
<PAGE> 55
MONEY MARKET FUNDS
ARMADA PENNSYLVANIA TAX EXEMPT MONEY MARKET FUND
================================================================================
FUND SUMMARY
INVESTMENT GOAL
High current income exempt from regular federal income tax and Pennsylvania
personal income tax, consistent with stability of principal
INVESTMENT FOCUS
Pennsylvania municipal money market instruments
SHARE PRICE VOLATILITY
(RELATIVE TO MUTUAL FUNDS GENERALLY)
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 taxable investors in higher tax brackets seeking current income
exempt from federal and Pennsylvania income taxes
PRINCIPAL INVESTMENT STRATEGIES
The Armada Pennsylvania Tax Exempt Money Market Fund's investment objective is
to provide current income exempt from regular federal income tax and
Pennsylvania personal income tax, consistent with stability of principal. The
investment objective may be changed without a shareholder vote. The Fund invests
exclusively in high quality money market instruments 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 is exempt from regular
federal income tax and Pennsylvania income tax (Pennsylvania municipal money
market instruments). However, some Fund dividends may be taxable if the Fund, as
it is permitted to do, invests some of its assets in taxable instruments. Also,
Fund dividends will generally be subject to state and local income taxes for any
shareholders who are not Pennsylvania residents. 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 two highest rating categories for such
securities, and certain securities that are not so rated but are of comparable
quality as determined by the Adviser. 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
tax, but it is not considered a preference item for purposes of the federal
alternative minimum tax.
In managing the Fund, the Adviser assesses current and projected market
conditions, particularly interest rates. Based on this assessment and a separate
credit analysis, the Adviser uses gradual shifts in portfolio maturity to
respond to expected changes and selects securities that it believes offer the
most attractive risk/return trade off.
As a money market fund, the Fund invests only in 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
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, tax exempt money
market securities, may underperform other fixed income market segments or the
fixed income market as a whole.
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.
The Fund's focus of investments in securities of issuers located in Pennsylvania
subjects the Fund to economic and government policies of that state. For
additional information about risks, see "More Information About Risk."
53 PROSPECTUS
<PAGE> 56
MONEY MARKET FUNDS
ARMADA PENNSYLVANIA TAX EXEMPT MONEY MARKET FUND (CONTINUED)
================================================================================
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.
This bar chart shows changes in the performance of the Fund's Class A Shares
from year to year.
The bar chart does not reflect sales charges. If sales charges had been
reflected, returns would be less than those shown below.
CALENDAR YEAR TOTAL RETURN
1997 1998
3.33% 2.98%
Best Quarter 0.87% (6/30/97)
Worst Quarter 0.68% (9/30/98)
The Fund's performance from January 1, 1999 to September 30, 1999 was 2.01%.
This table shows the Fund's average annual total returns for the periods ended
December 31, 1998.
- --------------------------------------------------------------------------------
CLASS A SHARES 1 YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
Armada Pennsylvania
Tax Exempt Money
Market Fund 2.98% 3.17%(1)
- --------------------------------------------------------------------------------
(1) Since September 11, 1996.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you buy and hold
shares of the Fund.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS A
Investment Advisory Fees 0.40%
- --------------------------------------------------------------------------------
Distribution and Service (12b-1) Fees 0.10%
- --------------------------------------------------------------------------------
Other Expenses 0.31%
- --------------------------------------------------------------------------------
Total Annual Fund
Operating Expenses(1) 0.81%
- --------------------------------------------------------------------------------
(1) The Fund's total actual annual operating expenses for the most recent fiscal
year were less than the amount shown above because the Adviser and Distributor
each waived a portion of the fees in order to keep total operating expenses at a
specified level. With these fee waivers, the Fund's actual total operating
expenses were 0.50%. The Adviser and Distributor expect to continue these
waivers so that total operating expenses for the current fiscal year will be
0.50%, however, they may discontinue all or part of these waivers at any time.
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.
The Example also assumes that each year your investment has a 5% return, Fund
expenses remain the same and your Class B Shares convert to Class A Shares after
eight years. 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 A Shares $83 $259 $450 $1,002
54 PROSPECTUS
<PAGE> 57
MONEY MARKET FUNDS
ARMADA TAX EXEMPT MONEY MARKET FUND
================================================================================
FUND SUMMARY
INVESTMENT GOAL
High current interest income exempt from federal income tax consistent with
stability of principal while maintaining liquidity
INVESTMENT FOCUS
Municipal money market instruments
SHARE PRICE VOLATILITY
(RELATIVE TO MUTUAL FUNDS GENERALLY)
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 taxable investors in higher tax brackets seeking current income
exempt from federal income taxes
PRINCIPAL INVESTMENT STRATEGIES
The Armada Tax Exempt Money Market Fund's investment objective is to provide as
high a level of current interest income exempt from federal income tax as is
consistent with liquidity and stability of principal. The investment objective
may be changed without a shareholder vote. The Fund invests primarily in high
quality money market instruments 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 that pay
interest exempt from federal taxes (municipal money market instruments).
However, Fund dividends will generally be taxable for state and local income tax
purposes. Also, some Fund dividends may be taxable for federal income tax
purposes if the Fund, as it is permitted to do, invests some of its assets in
taxable instruments. 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 rated but are of comparable quality as determined by the Adviser.
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, but is not considered a preference item for purposes of the federal
alternative minimum tax.
In managing the Fund, the Adviser assesses current and projected market
conditions, particularly interest rates. Based on this assessment and a separate
credit analysis, the Adviser uses gradual shifts in portfolio maturity to
respond to expected changes and selects securities that it believes offer the
most attractive risk/return trade off.
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
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.
The Fund is also subject to the risk that its market segment, tax exempt money
market instruments, may underperform other fixed income market segments or the
fixed income market as a whole. For additional information about risks, see
"More Information About Risk."
55 PROSPECTUS
<PAGE> 58
MONEY MARKET FUNDS
ARMADA TAX EXEMPT MONEY MARKET FUND (CONTINUED)
================================================================================
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.
There is no performance information for Class B Shares because it has not
completed a full calendar year of operations.
The performance of Class A and Class B Shares will differ due to differences in
expenses.
This bar chart shows changes in the performance of the Fund's Class A Shares
from year to year.
The bar chart does not reflect sales charges. If sales charges had been
reflected, returns would be less than those shown below.
CALENDAR YEAR TOTAL RETURN
1992 1993 1994 1995 1996 1997 1998
2.41% 1.90% 2.41% 3.46% 3.11% 3.27% 3.08%
Best Quarter 0.91% (6/30/95)
Worst Quarter 0.43% (3/31/93)
The Fund's performance from January 1, 1999 to September 30, 1999 was 2.00%.
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 Tax Exempt
Money Market Fund 3.08% 3.06% 2.91%(1)
- --------------------------------------------------------------------------------
(1)Since April 1, 1991.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you buy and hold
shares of the Fund.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- --------------------------------------------------------------------------------
CLASS A CLASS B
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)(1) None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales
Charge (Load) (as a percentage
of net asset value)(2) None 5.00%
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
and other Distributions (as a
percentage of offering price) None None
- --------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None None
- --------------------------------------------------------------------------------
Exchange Fee None None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS A CLASS B
Investment Advisory Fees 0.35% 0.35%
- --------------------------------------------------------------------------------
Distribution and Service (12b-1) Fees 0.10% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 0.27% 0.27%
- --------------------------------------------------------------------------------
Total Annual Fund
Operating Expenses(3) 0.72% 1.37%
- --------------------------------------------------------------------------------
(1)This sales charge varies depending upon how much you invest. See "Purchasing
Fund Shares."
(2)This amount applies to redemptions during the first and second years. The
deferred sales charge decreases to 4.0%, 3.0% and 2.0% for redemptions made
during the third through fifth years, respectively. No deferred sales charge is
charged after the fifth year. For more information see "Selling Fund Shares."
(3)The Fund's total actual annual operating expenses for Class A and Class B
Shares for the most recent fiscal year were less than the amounts shown above
because the Adviser and Distributor each waived a portion of the fees in order
to keep total operating expenses at a specified level. With these fee waivers,
the Fund's actual total operating expenses for the Class A and Class B Shares
were 0.46% and 1.17%, respectively. Based on the foregoing, total operating
expenses for Class A and Class B Shares are expected to be 0.46% and 1.17%,
respectively. The Adviser and Distributor expect to continue these waivers,
however, they may discontinue all or part of these waivers at any time.
For more information about these fees, see "Investment Adviser, Sub-Adviser and
Investment Team" and "Distribution of Fund Shares."
56 PROSPECTUS
<PAGE> 59
MONEY MARKET FUNDS
ARMADA TAX EXEMPT MONEY MARKET FUND (CONTINUED)
================================================================================
- --------------------------------------------------------------------------------
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, Fund
expenses remain the same and your Class B Shares convert to Class A Shares after
eight years. 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 A Shares $74 $230 $401 $894
Class B Shares $639 $834 $950 $1,467
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Class B Shares $139 $434 $750 $1,467
57 PROSPECTUS
<PAGE> 60
MONEY MARKET FUNDS
ARMADA MONEY MARKET
================================================================================
FUND SUMMARY
INVESTMENT GOAL
High current income consistent with stability of principal while maintaining
liquidity
INVESTMENT FOCUS
Money market instruments
SHARE PRICE VOLATILITY
(RELATIVE TO MUTUAL FUNDS GENERALLY)
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
PRINCIPAL INVESTMENT STRATEGIES
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. Foreign government obligations are U.S.
dollar-denominated obligations (limited to commercial paper and other notes)
issued or guaranteed by a foreign government or other entity located or
organized in a foreign country that maintains a short-term foreign currency
rating in the highest short-term ratings category by the requisite number of
Nationally Recognized Statistical Rating Organizations (NRSROs). 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 rated but are of comparable quality as determined by the Adviser.
In selecting investments for the Fund, the Adviser actively buys throughout the
money market curve, laddering maturities to meet or exceed shareholder liquidity
needs while seeking the highest possible yield consistent with the Fund's risk
profile.
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
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. For additional information about risks, see "More
Information About Risk."
58 PROSPECTUS
<PAGE> 61
MONEY MARKET FUNDS
ARMADA MONEY MARKET FUND (CONTINUED)
================================================================================
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.
There is no performance information for Class B or Class C Shares because
neither has completed a full calendar year of operations.
This bar chart shows changes in the performance of the Fund's Class A Shares
from year to year.
The bar chart does not reflect sales charges. If sales charges had been
reflected, returns would be less than those shown below.
CALENDAR YEAR TOTAL RETURN
1992 1993 1994 1995 1996 1997 1998
3.22% 2.64% 3.88% 5.61% 5.09% 5.22% 5.11%
Best Quarter 1.40% (6/30/95)
Worst Quarter 0.64% (6/30/93)
The Fund's performance from January 1, 1999 to September 30, 1999 was 3.42%.
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 5.11% 4.98% 4.48%(1)
- --------------------------------------------------------------------------------
(1)Since April 1, 1991.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you buy and hold
shares of the Fund.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)(1) None None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales
Charge (Load) (as a percentage
of net asset value) None 5.00%(2) 1.00%(3)
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
and other Distributions (as a
percentage of offering price) None None None
- --------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
59 PROSPECTUS
<PAGE> 62
MONEY MARKET FUNDS
ARMADA MONEY MARKET FUND (CONTINUED)
================================================================================
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS A CLASS B(5) CLASS C(5)
Investment Advisory Fees 0.35% 0.35% 0.35%
- --------------------------------------------------------------------------------
Distribution and Service
(12b-1) Fees 0.10% 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 0.25% 0.25% 0.35%
- --------------------------------------------------------------------------------
Total Annual Fund
Operating Expenses(4) 0.70% 1.35% 1.45%
- --------------------------------------------------------------------------------
(1) This sales charge varies depending upon how much you invest. See "Purchasing
Fund Shares."
(2) This amount applies to redemptions during the first and second years. The
deferred sales charge decreases to 4.0%, 3.0% and 2.0% for redemptions made
during the third through fifth years, respectively. No deferred sales charge is
charged after the fifth year. For more information see "Selling Fund Shares."
(3) A contingent deferred sales charge is charged only with respect to Class C
Shares redeemed prior to eighteen months from the date of purchase.
(4) The Fund's total actual annual operating expenses for Class A and B Shares
for the most recent fiscal year were less than the amounts shown above because
the Adviser and Distributor each waived a portion of the fees in order to keep
total operating expenses at a specified level. With these fee waivers, the
Fund's actual total operating expenses were 0.54% and 1.25%, respectively, for
Class A and Class B Shares. Based on the foregoing, total operating expenses for
Class A, Class B and Class C Shares are expected to be 0.54%, 1.25% and 1.35%
(estimated), respectively. The Adviser and Distributor expect to continue these
waivers, however, they may discontinue all or part of these waivers at any time.
(5) These Shares are available only through exchanges from other Funds within
the respective class. Initial purchases of Class B Shares or Class C Shares of
the Fund are not possible.
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, Fund
expenses remain the same and your Class B Shares convert to Class A Shares after
eight years. 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 A Shares $72 $224 $390 $871
Class B Shares $637 $828 $939 $1,444
Class C Shares $248 $459 $792 $1,735
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Class B Shares $137 $428 $739 $1,444
Class C Shares $148 $459 $792 $1,735
60 PROSPECTUS
<PAGE> 63
ARMADA(R)
FUNDS
ARM-M-001-03000
<PAGE> 64
NEW ACCOUNT APPLICATION
A, B, and C Shares
MAIL TO: Armada Funds
P.O. Box 8421, Boston, MA 02266-8421
FOR INFORMATION, CALL:
1-800-622-FUND (3863)
Please Print Clearly
[1] SHAREHOLDER REGISTRATION
________________________________________________________________________________
NAME IN WHICH SHARES WILL BE REGISTERED
(YOUR FULL NAME, OR NAME OF CORPORATION, OR TRUSTEE)
________________________________________________________________________________
ADDRESS
________________________________________________________________________________
CITY STATE ZIP
( ) ( )
________________________________________________________________________________
DAYTIME PHONE EVENING PHONE
________________________________________________________________________________
SOCIAL SECURITY OR TAX I.D. NUMBER EMAIL ADDRESS
[ ] U.S. CITIZEN [ ] OTHER ______________________________________
SPECIFY
[ ] Check if eligible for waiver and indicate investor category
(See current prospectus for eligibility requirements).
If you check this block, only choose A Shares when selecting a fund.
Investor Category: ____________________
[2] TYPE OF ACCOUNT
[ ] INDIVIDUAL [ ] JOINT ___________________________________________________
JOINT ACCOUNT OWNER
________________________________________________________________________________
SOCIAL SECURITY OR TAX I.D. NUMBER
[ ] TRUST_______________________________________________________________________
NAME OF TRUST DATE OF TRUST AGREEMENT
[ ] TRUSTEE NAME ______________________________________________________________
[ ] CORPORATION, PARTNERSHIP OR OTHER ENTITY
Remember, your Social Security/Taxpayer I.D. number must be provided to
avoid back-up withholding.
________________________________________________________________________________
NAME SOCIAL SECURITY OR TAX I.D. NUMBER
[ ] GIFT TO MINOR ______________________________________________________________
CUSTODIAN'S NAME
AS CUSTODIAN FOR__________________________________________________ UNDER THE
NAME OF MINOR
__________________________________________ UNIFORM GIFT/TRANSFER TO MINORS ACT
STATE
MINOR'S SOCIAL SECURITY NO. ___________________________________________________
[3] ARMADA FUNDS SELECTION
CHECK THE FUND(S) AND INDICATE THE AMOUNT OF INVESTMENT FOR EACH FUND. MINIMUM
INVESTMENT: $500 PER FUND OR $50 IF YOU CHOOSE THE PLANNED INVESTMENT PROGRAM
(PIP). ENCLOSE ONE CHECK FOR THE TOTAL AMOUNT OF YOUR INVESTMENT. "CLASS A"
SHARES ARE SOLD SUBJECT TO A FRONT-END SALES CHARGE. "CLASS B" SHARES ARE SOLD
WITH A CONTINGENT DEFERRED SALES CHARGE (CDSC) (BACK-END CHARGE) IMPOSED ON A
SLIDING SCHEDULE WHEN SHARES ARE REDEEMED. "CLASS C" SHARES ARE SOLD WITH A CDSC
OF 1.00% IF REDEEMED WITHIN 18 MONTHS OF PURCHASE.
<TABLE>
<CAPTION>
FUND AMOUNTS
EQUITY SERIES A SHARES B SHARES C SHARES
- ------------- -------- -------- --------
<S> <C> <C> <C>
International Equity Fund $__________(678) $__________(311) $__________(1199)
Small Cap Value Fund $__________(627) $__________(913) $__________(1195)
Small Cap Growth Fund $__________(679) $__________(473) $__________(1200)
Equity Growth Fund $__________(621) $__________(458) $__________(1166)
Tax Managed Equity Fund $__________(360) $__________(446) $__________(1161)
Core Equity Fund $__________(682) $__________(310) $__________(1184)
Equity Index Fund $__________(026) $__________(1232) $__________(1159)
Equity Income Fund $__________(625) $__________(472) $__________(1193)
INCOME SERIES
- -------------
Total Return
Advantage Fund $__________(626) $__________(1178) $__________(1194)
Bond Fund $__________(669) $__________(359) $__________(1197)
Intermediate Bond Fund $__________(622) $__________(357) $__________(1167)
GNMA Fund $__________(672) $__________(1176) $__________(1198)
Enhanced Income Fund $__________(624) $__________(1177) $__________(1169)
TAX EXEMPT SERIES
- -----------------
Ohio Tax Exempt Bond Fund $__________(623) $__________(1168)
Pennsylvania Municipal
Bond Fund $__________(668) $__________(1196)
National Tax Exempt
Bond Fund $__________(388) $__________(356) $__________(1163)
MONEY MARKET SERIES
- -------------------
Ohio Municipal
Money Market Fund $__________(427)
Pennsylvania Tax Exempt $__________(667)
Money Market Fund
Tax Exempt Money
Market Fund $__________(620)
Money Market Fund $__________(618) $__________(286) $__________(1164)
Government Money
Market Fund $__________(619)
Treasury Money
Market Fund $__________(617)
ALLOCATION SERIES
- -----------------
Balanced Allocation Fund $__________(214) $__________(302) $__________(1160)
Other:____________________ $__________(000) $__________(000) $__________(0000)
NAME OF ARMADA FUND
</TABLE>
TOTAL INVESTMENT $__________________________
For initial purchases in the Money Market Fund B or C Shares, you will need to
complete the information for a Systematic Exchange in Section 9B.
METHOD OF PAYMENT:
[ ] Enclosed is my check for the total amount of my investment made payable to
Armada Funds (Fund Name).
[ ] Bank wire sent_____________________________________________________________
CONTROL NUMBER DATE
NOTE: To purchase shares by federal funds or bank wire,
call 1-800-622-FUND (3863).
<PAGE> 65
[4] DIVIDEND INCOME
& CAPITAL GAINS
CHECK YOUR CHOICE OF DIVIDEND/CAPITAL GAIN DISTRIBUTION AND CHOOSE YOUR PAYMENT
METHOD, IF APPLICABLE.
Check one only; if none is checked, all dividend income and
capital gains, if any, will be reinvested automatically.
[ ] Reinvest all dividend income and capital gains.
[ ] Pay dividends in cash and reinvest capital gains.
[ ] Pay capital gains in cash and reinvest dividends.
[ ] Pay all dividend income and capital gains in cash.
METHOD OF PAYMENT: If dividend income or capital gains are to be distributed in
cash, select one of the following:
[ ] Send check to the address of record
[ ] Cash via Automated Transfer (See Section 5)
[ ] Special Dividend Service (See Section 7)
[5] BANK, WIRE AND ELECTRONIC
FUNDS TRANSFER INSTRUCTIONS
If you wish to buy or sell shares via wire or electronic funds transfer, or make
use of the Planned Investment Program or Systematic Withdrawal Plan, you must
attach a voided check for the bank account you wish to use, OR provide full bank
account information as shown below. Any change in these instructions must be
made in writing to Armada Funds.
________________________________________________________________________________
BANK NAME BRANCH OFFICE (IF APPLICABLE)
________________________________________________________________________________
BANK ADDRESS (DO NOT USE P.O. BOX)
________________________________________________________________________________
CITY STATE ZIP
________________________________________________________________________________
NAME(S) ON YOUR BANK ACCOUNT
________________________________________________________________________________
BANK ACCOUNT NUMBER BANK ABA NUMBER
Account Type (check one): [ ] Checking [ ] Savings
[6] WAIVER OF TELEPHONE AND
INTERNET TRANSACTIONS
The Fund(s) currently offer telephone and internet transaction privileges to its
shareholders, whereby a shareholder can make wire transfers or exchanges over
the telephone or via the internet.
Neither the Transfer Agent nor the Fund(s) will be responsible for the
authenticity of redemption instructions received by telephone or internet if it
reasonably believes those instructions to be genuine. The Fund(s) and its
transfer agent will each employ reasonable procedures to confirm that telephone
or internet instructions are genuine, and may be liable for losses resulting
from unauthorized or fraudulent telephone or internet instructions if it does
not employ these procedures. Such procedures may include taping of telephone
conversations.
[ ] I choose to waive the telephone and internet transaction features.
[7] SPECIAL DIVIDEND SERVICE (OPTIONAL)
SPECIAL DIVIDEND SERVICE ALLOWS YOU TO INVEST INCOME AND CAPITAL GAINS FROM ONE
ARMADA FUND INTO ANOTHER ARMADA FUND ACCOUNT.
[ ] Check box if you want this service.
I hereby authorize the Fund Distributor, SEI Investments Distribution Co., to
invest dividends and capital gains as indicated below:
[ ] Invest Both Dividends and Capital Gains.
FROM: (Fund Name and Account Number) TO: (Fund Name and Account Number)
_____________________________________ ________________________________________
_____________________________________ ________________________________________
[ ] Invest Only the Dividends.
FROM: (Fund Name and Account Number) TO: (Fund Name and Account Number)
_____________________________________ ________________________________________
_____________________________________ ________________________________________
[8] CHECK WRITING PRIVILEGE (Optional)
AVAILABLE ON ALL MONEY MARKET FUNDS (A SHARES ONLY).
[ ] Check box if you want this service.
If you elect this service, you must complete the signature card. (See Section
15.) Allow 14 business days for delivery of your checkbook after our receipt of
the signed signature card. Checks may be written against your money market
investment for a minimum of $100 each check.
[9] SYSTEMATIC EXCHANGE PLAN (OPTIONAL)
[A] FOR SYSTEMATIC EXCHANGES FROM ARMADA MONEY MARKET CLASS A FUNDS TO ALL
OTHER CLASS A FUNDS.*
Exchanges will take place on the 20th of each Month
or Quarterly.
Total Investment Amount to be exchanged: $ _________________________________
From: Money Market Account No. (if known) ___________________________________
To: Fund Name and Account Number (if known) Monthly $ Amount ($50 min.)
(Circle One)
___________________ $_________/month/quarter
___________________ $_________/month/quarter
___________________ $_________/month/quarter
*Please note that if you anticipate additional investment over the next 13
months, see Section 12 for Letter of Intent pricing. Each fund initial
investment amount must total at least $500.00 with no minimum subsequent
investments. The systematic exchange each month must equal at least $50.00 per
Fund.
Continued on next page
<PAGE> 66
[B] FOR SYSTEMATIC EXCHANGES FROM THE ARMADA MONEY MARKET FUND CLASS B SHARES
TO ALL OTHER CLASS B SHARES OR FROM THE ARMADA MONEY MARKET FUND CLASS C
SHARES TO ALL OTHER CLASS C SHARES.
Entire investment must be exchanged within:
(MUST choose one)
[ ] Six months from date of purchase
[ ] Twelve months from date of purchase
Exchanges will take place on the 20th of each Month.
**Total Investment Amount: $__________________________________________________
Please indicate share class in which exchanges will occur (B or C):____________
From: Money Market Account No. (if known) _____________________________________
To: Fund Name and Account Number (if known) Amount Total per Fund***
__________________________________________ $_______/month
__________________________________________ $_______/month
__________________________________________ $_______/month
(Must equal initial total investment above) **Total $___________________________
**Each fund investment amount must total at least $500.00. The monthly
investment amount will be calculated automatically by dividing the total amount
per fund by the time period chosen above. The systematic exchange each month
must equal at least $50.00 per fund.
[10] PLANNED INVESTMENT PROGRAM (OPTIONAL)
IF YOU CHOOSE THIS OPTION, YOU MUST ATTACH A VOIDED CHECK OR DEPOSIT SLIP OF THE
BANK ACCOUNT YOU WISH TO USE OR PROVIDE FULL BANK INFORMATION IN SECTION 5.
The minimum initial investment of $500 is waived if the Fund(s) is opened as a
Planned Investment Program (PIP).
[ ] Check box if you want this service.
Attached is an initial check for at least the minimum of $50.
I authorize the Fund Distributor, SEI Investments Distribution Co., to draw on
my bank account on a periodic basis as indicated below, for investments in my
Armada Funds account. I understand that if there are insufficient funds in my
account, finance charges may apply.
[ ] I have attached a voided check OR deposit slip
[ ] Periodic investment amount $________________________________________________
($50 minimum)
Name of Fund ___________________________________________________________________
To specify additional PIP investments, please attach a separate sheet.
PREFERRED INVESTMENT SCHEDULE:
[ ] Semi-monthly, on the 5th and 20th of each month beginning___________________
(MONTH)
[ ] Monthly on the 5th day of each month beginning _____________________________
(MONTH)
[ ] Monthly on the 20th day of each month beginning ____________________________
(MONTH)
[ ] Quarterly on the first 5th of each quarter beginning________________________
(MONTH)
[11] SYSTEMATIC WITHDRAWAL PLAN (OPTIONAL)
IF YOU CHOOSE AUTOMATED PAYMENT, YOU MUST ATTACH A VOIDED CHECK OR PROVIDE FULL
BANK INFORMATION IN SECTION 5. PLEASE NOTE, AMOUNTS EQUALING MORE THAN 10% OF
YOUR BALANCE FOR CLASS B OR CLASS C SHARES WILL BE SUBJECT TO THE CDSC SALES
CHARGE.
[ ] Check box if you want this service.
To establish a Systematic Withdrawal Plan (SWP), an investor must own or
purchase shares of Armada Funds having a current net asset value of at least
$1,000.
Name of Fund ___________________________________________________________________
To specify additional SWP investments, please attach a separate sheet.
AMOUNT AND FREQUENCY OF PAYMENTS:
Beginning in_____________________ __________ please make
(MONTH) (YEAR)
payments of _______________________________________________
($100 MINIMUM)
(Indicate minimum amount or percentage to withdraw in space provided.)
[ ] Monthly [ ] Quarterly [ ] Semi-annually [ ] Annually
[ ] The amount withdrawn is 10% or less of account value and qualifies for
CDSC exemption.
METHOD OF PAYMENT (check one):
[ ] I wish to have payments under the SWP made via Automated Transfer to my bank
account. (Please attach a voided check from the bank account you wish to
use, or complete Section 5)
[ ] I wish to have payments under the SWP made to me by check and sent to the
address of record.
[ ] I wish to have payments under the SWP made directly
to my Armada Funds' money market fund:_____________________________
ACCOUNT NUMBER
[ ] I wish to have payments under the SWP made to me by check at the following
address:
________________________________________________________________________________
ADDRESS
________________________________________________________________________________
CITY STATE ZIP
[12] LETTER OF INTENT (OPTIONAL)
LETTER OF INTENT ALLOWS YOU TO AGGREGATE ANTICIPATED PURCHASES OF A SHARES OVER
A 13-MONTH PERIOD TO OBTAIN A REDUCED SALES CHARGE.
[ ] Check box if you want this service.
Although I am not obligated to do so, I intend to purchase
A Shares of Armada Funds over the next 13-month period which will equal or
exceed:
INTERMEDIATE BOND, TOTAL RETURN ADVANTAGE, GNMA, BOND, BALANCED ALLOCATION
AND NATIONAL TAX EXEMPT BOND FUNDS:
[ ] $50,000 [ ] $250,000 [ ] $1 Million
[ ] $100,000 [ ] $500,000
SMALL CAP VALUE, EQUITY GROWTH, EQUITY INCOME, CORE EQUITY,
INTERNATIONAL EQUITY, SMALL CAP GROWTH AND TAX MANAGED EQUITY:
[ ] $25,000 [ ] $100,000 [ ] $500,000
[ ] $50,000 [ ] $250,000 [ ] $1 Million
EQUITY INDEX, ENHANCED INCOME, OHIO TAX EXEMPT BOND AND
PENNSYLVANIA MUNICIPAL BOND:
[ ] $100,000 [ ] $500,000
[ ] $250,000 [ ] $1 Million
If I do not fulfill this Letter of Intent, or if I redeem this amount within one
year from the time I fulfill my Letter of Intent, I understand that I will be
charged the highest sales charge applicable to the Fund. The Letter of Intent
may include all purchases up to 90 days preceding the date the letter was
signed. Each purchase will be made at the then reduced offering price applicable
to the amount checked above, as described in the prospectus. By completing this
Letter of Intent and signing this Application, I agree to the terms and
conditions of the Letter of Intent. I hereby irrevocably constitute and appoint
SEI Investments Distribution Co., my attorney, with full power of substitution,
to surrender for redemption any or all shares of Armada Funds held as security
as described in the prospectus.
<PAGE> 67
[13] SIGNATURE & CERTIFICATION
I affirm that I have received and read the current prospectus of the Fund(s)
selected on the first page and agree to its terms. I agree that SEI Investments
Distribution Co., the Transfer Agent, Armada Funds or any affiliate or their
officers, directors or employees will not be liable for any loss, expense or
cost for acting upon any instructions or inquiries believed genuine.
I understand that National City Investment Management Co. serves as investment
adviser to the Armada Funds for which it receives compensation for such advisory
services. I understand that these investment products are not FDIC insured, are
not deposits of, obligations of, or guaranteed by any bank, and involve
investment risks, including possible loss of the principal invested.
By signing this application, I hereby certify under penalties of perjury that
the information on this application is complete and correct and that as required
by federal law: (Please check applicable boxes)
[ ] U.S. Citizen/Taxpayer:
[ ] I certify that (1) the number shown above on this form is the
correct Social Security Number or Tax ID Number and (2) I am not
subject to any backup withholding either because (a) I am exempt from
backup withholding, or (b) I have not been notified by the Internal
Revenue Service ("IRS") that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (c) the
IRS has notified me that I am no longer subject to backup withholding.
[ ] If no Tax ID Number or Social Security Number has been provided
above, I have applied, or intend to apply, to the IRS or the Social
Security Administration for a Tax ID Number or a Social Security
Number, and I understand that if I do not provide either number to the
Transfer Agent within 60 days of the date of this application or if I
fail to furnish my correct Social Security Number or Tax ID Number, I
may be subject to a penalty and a 31% backup withholding on
distributions and redemption proceeds. (Please provide either number
on IRS Form W-9. You may request such form by calling the Transfer
Agent at 1-800-622-FUND(3863)).
[ ] Non-U.S. Citizen/Taxpayer:
Indicate country of residence for tax purposes:
___________________________________________________________________________
Under penalties of perjury, I certify that I am not a U.S. citizen or
resident and I am an exempt foreign person as defined by the Internal
Revenue Service.
The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholding.
X
- --------------------------------------------------------------------------------
SIGNATURE (INDIVIDUAL OR CUSTODIAN) DATE
X
- --------------------------------------------------------------------------------
SIGNATURE (JOINT REGISTRANT, IF ANY) DATE
X
- -------------------------------------------------------------------------------
SIGNATURE & TITLE (CORPORATE OFFICER, PARTNER, TRUSTEE, ETC.) DATE
[14] PRIVACY PROTECTION (OPTIONAL)
We want to offer you the array of financial-related products and services you
need to accomplish your financial goals. In order to do so, Armada Funds may
provide National City and its affiliates with certain shareholder information.
We believe your privacy should not be compromised. You can expect that we will
protect the privacy and use of your non-public personal and financial
information. We will not sell information about you to any other company or
share your information with any company that offers products that are not
related to your financial needs.
[ ] I prefer not to receive promotional information about financial-related
products and services offered by National City. (Please allow 8 to 10 weeks
for your request to take effect. Once your request has been processed, it
will remain in effect until you request a change).
[15] HOW TO ESTABLISH CHECK WRITING PRIVILEGE (OPTIONAL)
TO ESTABLISH THE CHECK WRITING PRIVILEGE FOR A SINGLE FUND, ALL REGISTERED
OWNERS MUST SIGN BELOW WITH A BLACK BALLPOINT PEN. IF YOU SHOULD HAVE ANY
QUESTIONS, PLEASE CALL ARMADA FUNDS AT 1-800-622-FUND (3863).
METHOD OF PAYMENT:
Corporations, Trusts, Partnerships, and Associations must also complete a
corporate resolution or certification form.
[ ] Check here if more than one signature is required. If this box is not
marked, only one signature will be required on checks. (See notes on
reverse.)
This check writing privilege applies only to the Armada Money Market Series
(A Shares Only).
________________________________________________________________________________
NAME OF MONEY MARKET FUND
________________________________________________________________________________
OWNER'S NAME SOCIAL SECURITY NUMBER
________________________________________________________________________________
OWNER'S SIGNATURE DATE
________________________________________________________________________________
SIGNATURE(S) OF CO-OWNERS (IF ANY) DATE
________________________________________________________________________________
[16] DEALER INFORMATION
DEALER MUST HAVE APPROVED AGREEMENT WITH FUND DISTRIBUTOR,
SEI INVESTMENTS DISTRIBUTION CO.
________________________________________________________________________________
FIRM
________________________________________________________________________________
ADDRESS
________________________________________________________________________________
CITY STATE ZIP
________________________________________________________________________________
PHONE OFFICE NUMBER
________________________________________________________________________________
NAME OF REPRESENTATIVE NUMBER
________________________________________________________________________________
SIGNATURE OF REPRESENTATIVE
________________________________________________________________________________
SIGNATURE OF DEALER/SALES MANAGER
<PAGE> 68
CHECK WRITING SIGNATURE CARD
(NOT AVAILABLE FOR RETIREMENT ACCOUNT)
Please provide information requested on reverse side.
The payment of funds on the conditions set forth below is authorized by the
signature(s) appearing on the reverse side.
CONDITIONS: All checks will require all signatures administered exactly as they
appear on the reverse side unless authority has been given to honor checks
having an abbreviated first name or lacking or adding a middle initial
providing that the signature is otherwise acceptable. Each signatory will
guarantee the signature of those listed on the account.
The Bank is authorized by the person(s) signing this card ("Depositors") to
honor any check for not less than the amount printed on the face of the check
against the checking account and is directed to forward said check to the "Fund"
as authority to reimburse the Bank by redeeming a sufficient number of shares
for which certificates have not been issued in the Depositor's shareholder
account.
Depositors will be subject to the Bank's rules and regulations governing such
checking accounts including the right of the Bank not to honor checks in amounts
exceeding the value of the Depositor's shareholder account with the "Fund" at
the time the check is presented for payment. The undersigned understands that
there may be Bank service charges in connection with the program (i.e. for
insufficient funds or for checks written under $100) which will be deducted from
the undersigned's investor account.
Depositors hereby authorize the "Fund" or its redemption agent to honor
redemption requests presented in the above manner by the Bank. It is further
agreed as follows:
(1) All items must be a minimum amount, if so printed on the face of the check,
or they will be returned to the Depositor marked "Non-Sufficient Funds".
Deposits into the account may be made only by the "Fund".
(2) Cancelled checks will be returned to the Depositor(s) once monthly.
(3) The account may not be used for any purpose other than the presentment,
forwarding and payment of checks relating to a mutual fund share account in
the "Fund".
(4) The Bank reserves the right to change, modify or terminate this agreement
at any time upon notification mailed to the address noted on your check.
<PAGE> 69
MONEY MARKET FUNDS
ARMADA GOVERNMENT MONEY MARKET FUND
================================================================================
FUND SUMMARY
INVESTMENT GOAL
High current income consistent with stability of principal while maintaining
liquidity
INVESTMENT FOCUS
Money market instruments issued or guaranteed by the U.S. Government, its
agencies and instrumentalities and repurchase agreements
SHARE PRICE VOLATILITY
(RELATIVE TO MUTUAL FUNDS GENERALLY)
Very Low
PRINCIPAL INVESTMENT STRATEGY
Investing in a portfolio of high quality short-term debt securities issued by
the U.S. Government, its agencies and instrumentalities and repurchase
agreements related to such 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
PRINCIPAL INVESTMENT STRATEGIES
The Armada Government 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 exclusively in obligations issued or guaranteed as to payment
of principal and interest by the U.S. Government, its agencies and
instrumentalities and repurchase agreements. U.S. Government securities include
direct obligations of the U.S. Treasury, and obligations of certain agencies
such as Ginnie Maes and Fannie Maes.
In managing the Fund, the Adviser actively buys throughout the money market
curve, laddering maturities to meet or exceed shareholder liquidity needs while
seeking the highest possible yield consistent with the Fund's risk profile.
As a money market fund, the Fund invests only in money market instruments with
remaining maturities of 397 days or less and maintains an average weighted
maturity of 90 days or less.
PRINCIPAL RISKS OF INVESTING
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, money market
instruments issued or guaranteed by the U.S. Government, may underperform other
fixed income market segments or the fixed income market as a whole. For
additional information about risks, see "More Information About Risk."
61 PROSPECTUS
<PAGE> 70
MONEY MARKET FUNDS
ARMADA GOVERNMENT MONEY MARKET FUND (CONTINUED)
================================================================================
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.
This bar chart shows changes in the performance of the Fund's Class A Shares
from year to year.
The bar chart does not reflect sales charges. If sales charges had been
reflected, returns would be less than those shown below.
CALENDAR YEAR TOTAL RETURN
<TABLE>
<CAPTION>
<S> <C>
1992 3.25%
1993 2.63%
1994 3.81%
1995 5.53%
1996 5.04%
1997 5.14%
1998 4.98%
</TABLE>
Best Quarter 1.39% (6/30/95)
Worst Quarter 0.64% (3/31/93)
The Fund's performance from January 1, 1999 to September 30, 1999 was 3.36%.
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 Government
Money Market Fund 4.98% 4.90% 4.40%(1)
- --------------------------------------------------------------------------------
(1)Since April 1, 1991.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you buy and hold
shares of the Fund.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS A
Investment Advisory Fees 0.35%
- --------------------------------------------------------------------------------
Distribution and Service (12b-1) Fees 0.10%
- --------------------------------------------------------------------------------
Other Expenses 0.25%
- --------------------------------------------------------------------------------
Total Annual Fund
Operating Expenses(1) 0.70%
- --------------------------------------------------------------------------------
(1) The Fund's total actual annual operating expenses for the most recent fiscal
year were less than the amounts shown above because the Adviser and Distributor
each waived a portion of the fees in order to keep total operating expenses at a
specified level. With these fee waivers, the Fund's actual total operating
expenses were 0.54%. The Adviser and Distributor expect to continue these
waivers so that total operating expenses for the fiscal year will be 0.54%,
however, they may discontinue all or part of these waivers at any time.
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.
The Example also assumes that each year your investment has a 5% return, Fund
expenses remain the same and your Class B Shares convert to Class A Shares after
eight years. 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 A Shares $72 $224 $390 $871
62 PROSPECTUS
<PAGE> 71
MONEY MARKET FUNDS
ARMADA TREASURY MONEY MARKET FUND
================================================================================
FUND SUMMARY
INVESTMENT GOAL
High current income consistent with stability of principal while maintaining
liquidity
INVESTMENT FOCUS
U.S. Treasury securities
SHARE PRICE VOLATILITY
(RELATIVE TO MUTUAL FUNDS GENERALLY)
Very low
PRINCIPAL INVESTMENT STRATEGY
Investing in a portfolio of high quality short-term obligations of the U.S.
Treasury 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
PRINCIPAL INVESTMENT STRATEGIES
The Armada Treasury 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 exclusively in direct obligations of the U.S. Treasury, such as
Treasury bills and notes, and in other money market funds that invest
exclusively in such obligations.
In managing the Fund, the Adviser actively buys throughout the money market
curve, laddering maturities to meet or exceed shareholder liquidity needs while
seeking the highest possible yield consistent with the Fund's risk profile.
As a money market fund, the Fund invests only in money market instruments with
remaining maturities of 397 days or less and maintains an average weighted
maturity of 90 days or less.
PRINCIPAL RISKS OF INVESTING
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, U.S. Treasury
securities, may underperform other fixed income market segments or the fixed
income market as a whole. For additional information about risks, see "More
Information About Risk."
63 PROSPECTUS
<PAGE> 72
MONEY MARKET FUNDS
ARMADA TREASURY MONEY MARKET FUND (CONTINUED)
================================================================================
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.
This bar chart shows changes in the performance of the Fund's Class A Shares
from year to year.
The bar chart does not reflect sales charges. If sales charges had been
reflected, returns would be less than those shown below.
CALENDAR YEAR TOTAL RETURN
<TABLE>
<S> <C>
1995 5.27%
1996 4.75%
1997 4.81%
1998 4.54%
</TABLE>
Best Quarter 1.34% (6/30/95)
Worst Quarter 1.00% (12/31/98)
The Fund's performance from January 1, 1999 to September 30, 1999 was 3.05%.
This table shows the Fund's average annual total returns for the periods ended
December 31, 1998.
CLASS A SHARES 1 YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
Armada Treasury
Money Market Fund 4.54% 4.84%(1)
- --------------------------------------------------------------------------------
(1)Since December 22, 1994.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you buy and hold
shares of the Fund.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS A
Investment Advisory Fees 0.30%
- --------------------------------------------------------------------------------
Distribution and Service (12b-1) Fees 0.10%
- --------------------------------------------------------------------------------
Other Expenses 0.28%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses(1) 0.68%
- --------------------------------------------------------------------------------
(1) The Fund's total actual annual operating expenses for the most recent fiscal
year were less than the amounts shown above because the Adviser and Distributor
each waived a portion of the fees in order to keep total operating expenses at a
specified level. With these fee waivers, the Fund's actual total operating
expenses were 0.57%. The Adviser and Distributor expect to continue these
waivers so that total operating expenses for the fiscal year will be 0.57%,
however, they may discontinue all or part of these waivers at any time.
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.
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 A Shares $69 $218 $ 379 $847
64 PROSPECTUS
<PAGE> 73
ARMADA MID CAP GROWTH FUND
================================================================================
FUND SUMMARY
INVESTMENT GOAL
Capital appreciation
INVESTMENT FOCUS
Mid-cap equity securities
SHARE PRICE VOLATILITY
(RELATIVE TO MUTUAL FUNDS GENERALLY)
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
PRINCIPAL INVESTMENT STRATEGIES
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 the
common stock of companies with mid cap stock market capitalizations. The Fund
may invest up to 20% of its total assets at the time of purchase in foreign
equity 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 or "mid cap" company to be one that has
a comparable market capitalization as the companies in the Russell Midcap Growth
Index. The Russell Midcap Growth Index is an unmanaged index which reflects a
medium-sized universe of growth-oriented 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, and will lower Fund performance.
PRINCIPAL RISKS OF INVESTING
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.
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. For additional information about risks, see "More Information About
Risk."
65 PROSPECTUS
<PAGE> 74
ARMADA MID CAP GROWTH FUND (CONTINUED)
================================================================================
PERFORMANCE INFORMATION
There is no bar chart or performance table for the Class A, Class B or Class C
Shares because none has completed a full calendar year of operations.
The performance of Class A, Class B and Class C Shares will differ due to
differences in expenses.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you buy and hold
shares of the Fund.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)(1) 5.50% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales
Charge (Load) (as a percentage
of net asset value) None 5.00%(2) 1.00%(3)
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
and other Distributions (as a
percentage of offering price) None None None
- --------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
Investment Advisory Fees 1.00% 1.00% 1.00%
- --------------------------------------------------------------------------------
Distribution and Service
(12b-1) Fees 0.10% 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses(4) 0.47% 0.47% 0.47%
- --------------------------------------------------------------------------------
Total Annual Fund
Operating Expenses(5) 1.57% 2.22% 2.22%
- --------------------------------------------------------------------------------
(1)This sales charge varies depending upon how much you invest. See "Purchasing
Fund Shares."
(2)This amount applies to redemptions during the first and second years. The
deferred sales charge decreases to 4.0%, 3.0% and 2.0% for redemptions made
during the third through fifth years, respectively. No deferred sales charge is
charged after the fifth year. For more information see "Selling Fund Shares."
(3)A contingent deferred sales charge is charged only with respect to Class C
Shares redeemed prior to eighteen months from the date of purchase.
(4)"Other Expenses" are based on estimated amounts for the current fiscal year.
(5)The Distributor plans to waive a portion of its fees for the current fiscal
year. The Distributor may revise or cancel this expense limitation at any time
and will notify you of any material change.
- --------------------------------------------------------------------------------
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 A Shares $701 $1,018
Class B Shares $725 $1,094
Class C Shares $325 $694
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS
- --------------------------------------------------------------------------------
Class B Shares $225 $694
Class C Shares $225 $694
66 PROSPECTUS
<PAGE> 75
ARMADA LARGE CAP ULTRA FUND
================================================================================
FUND SUMMARY
INVESTMENT GOAL
Capital appreciation
INVESTMENT FOCUS
Large cap equity securities
SHARE PRICE VOLATILITY
(RELATIVE TO MUTUAL FUNDS GENERALLY)
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
PRINCIPAL INVESTMENT STRATEGIES
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 the
common stocks of companies with large 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 Adviser will consider selling a security when there is a
deterioration of fundamentals leading to a deceleration in earnings growth.
The Fund considers a large capitalization or "large cap" company to be one that
has a comparable market capitalization as the companies in the S&P 500/Barra
Growth Index. The S&P 500/Barra Growth Index is an unmanaged index comprised of
common stocks which are capitalization-weighted and have higher price-to-book
ratios.
PRINCIPAL RISKS OF INVESTING
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. For additional information about risks, see "More Information About
Risk."
67 PROSPECTUS
<PAGE> 76
ARMADA LARGE CAP ULTRA FUND (CONTINUED)
================================================================================
PERFORMANCE INFORMATION
There is no bar chart or performance table for the Class A, Class B or Class C
Shares because none has completed a full calendar year of operations.
The performance of Class A, Class B and Class C Shares will differ due to
differences in expenses.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you buy and hold
shares of the Fund.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)(1) 5.50% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales
Charge (Load) (as a percentage
of net asset value) None 5.00%(2) 1.00%(3)
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
and other Distributions (as a
percentage of offering price) None None None
- --------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
Investment Advisory Fees 0.75% 0.75% 0.75%
- --------------------------------------------------------------------------------
Distribution and Service (12b-1) Fees 0.10% 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses(4) 0.43% 0.43% 0.43%
- --------------------------------------------------------------------------------
Total Annual Fund
Operating Expenses(5) 1.28% 1.93% 1.93%
- --------------------------------------------------------------------------------
(1)This sales charge varies depending upon how much you invest. See "Purchasing
Fund Shares."
(2)This amount applies to redemptions during the first and second years. The
deferred sales charge decreases to 4.0%, 3.0% and 2.0% for redemptions made
during the third through fifth years, respectively. No deferred sales charge is
charged after the fifth year. For more information see "Selling Fund Shares."
(3)A contingent deferred sales charge is charged only with respect to Class C
Shares redeemed prior to eighteen months from the date of purchase.
(4)"Other Expenses" are based on estimated amounts for the current fiscal year.
(5)The Distributor plans to waive a portion of its fees for the current fiscal
year. The Distributor may revise or cancel this expense limitation at any time
and will notify you of any material change.
- --------------------------------------------------------------------------------
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 A Shares $673 $934
Class B Shares $696 $1,006
Class C Shares $296 $606
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS
- --------------------------------------------------------------------------------
Class B Shares $196 $606
Class C Shares $196 $606
68 PROSPECTUS
<PAGE> 77
ARMADA U.S. GOVERNMENT INCOME FUND
================================================================================
FUND SUMMARY
INVESTMENT GOAL
Current income as well as preservation of capital
INVESTMENT FOCUS
Mortgage-backed securities
SHARE PRICE VOLATILITY
(RELATIVE TO MUTUAL FUNDS GENERALLY)
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
PRINCIPAL INVESTMENT STRATEGIES
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 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 types of U.S. Government securities include
mortgage-related securities, and Treasury bills, notes and bonds. The Fund may
invest up to 20% of the value of its total assets in mortgage-related debt
securities and preferred stock of non-governmental issuers and the same
proportion of its total assets in non-governmental asset backed securities. 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 a
dollar-weighted average maturity of between three 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, and will lower Fund performance.
PRINCIPAL RISKS OF INVESTING
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. 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, 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.
Debt extension risk is the risk that an issuer will exercise its right to pay
principal on an obligation held by the Fund (such as an asset-backed security)
later than expected. This may happen during a period of rising interest rates.
Under these circumstances, the value of the obligation will decrease and the
Fund will suffer from the inability to invest in higher yielding 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. For additional information about risks, see "More
Information About Risk."
69 PROSPECTUS
<PAGE> 78
ARMADA U.S. GOVERNMENT INCOME FUND (CONTINUED)
================================================================================
PERFORMANCE INFORMATION
There is no bar chart or performance table for the Class A, Class B or Class C
Shares because none has completed a full calendar year of operations.
The performance of Class A, Class B and Class C Shares will differ due to
differences in expenses.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you buy and hold
shares of the Fund.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)(1) 4.75% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales
Charge (Load) (as a percentage
of net asset value) None 5.00%(2) 1.00%(3)
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
and other Distributions (as a
percentage of offering price) None None None
- --------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
Investment Advisory Fees 0.55% 0.55% 0.55%
- --------------------------------------------------------------------------------
Distribution and Service
(12b-1) Fees 0.10% 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses(4) 0.43% 0.43% 0.43%
- --------------------------------------------------------------------------------
Total Annual Fund
Operating Expenses(5) 1.08% 1.73% 1.73%
- --------------------------------------------------------------------------------
(1)This sales charge varies depending upon how much you invest. See "Purchasing
Fund Shares."
(2)This amount applies to redemptions during the first and second years. The
deferred sales charge decreases to 4.0%, 3.0% and 2.0% for redemptions made
during the third through fifth years, respectively. No deferred sales charge is
charged after the fifth year. For more information see "Selling Fund Shares."
(3)A contingent deferred sales charge is charged only with respect to Class C
Shares redeemed prior to eighteen months from the date of purchase.
(4)"Other Expenses" are based on estimated amounts for the current fiscal year.
(5)The Distributor plans to waive a portion of its fees for the current fiscal
year. The Distributor may revise or cancel this expense limitation at any time
and will notify you of any material change.
- --------------------------------------------------------------------------------
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 A Shares $580 $802
Class B Shares $676 $945
Class C Shares $276 $545
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS
- --------------------------------------------------------------------------------
Class B Shares $176 $545
Class C Shares $176 $545
70 PROSPECTUS
<PAGE> 79
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 tax exempt securities
SHARE PRICE VOLATILITY
(RELATIVE TO MUTUAL FUNDS GENERALLY)
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
PRINCIPAL INVESTMENT STRATEGIES
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, 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. The Fund will normally invest at least 80% of the value of its total
assets in Michigan municipal securities. However, some Fund dividends will be
taxable, such as dividends that are derived from occasional taxable investments
and distributions of short and long-term capital gains. Also, Fund dividends
will generally be subject to state and local income taxes for any shareholders
who are not Michigan residents. 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 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. If a security is downgraded, the
Adviser will re-evaluate whether continuing to hold the security is in the best
interest of its shareholders. The Fund ordinarily will maintain a
dollar-weighted average portfolio maturity of between three 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, and will lower Fund performance.
PRINCIPAL RISKS OF INVESTING
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. 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.
(continued)
71 PROSPECTUS
<PAGE> 80
ARMADA MICHIGAN MUNICIPAL BOND FUND (CONTINUED)
================================================================================
PRINCIPAL RISKS OF INVESTING (continued)
The Fund's focus of investments in securities of issuers located in Michigan
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 than a
diversified fund 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. For additional
information about risks, see "More Information About Risk."
PERFORMANCE INFORMATION
There is no bar chart or performance table for the Class A, Class B or Class C
Shares because none has completed a full calendar year of operations.
The performance of Class A, Class B and Class C Shares will differ due to
differences in expenses.
FUND FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you buy and hold
shares of the Fund.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)(1) 4.75% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales
Charge (Load) (as a percentage
of net asset value) None 5.00%(2) 1.00%(3)
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
and other Distributions (as a
percentage of offering price) None None None
- --------------------------------------------------------------------------------
Redemption Fee (as a percentage of
amount redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
Investment Advisory Fees 0.55% 0.55% 0.55%
- --------------------------------------------------------------------------------
Distribution and Service
(12b-1) Fees 0.10% 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses(4) 0.43% 0.43% 0.58%
- --------------------------------------------------------------------------------
Total Annual Fund
Operating Expenses(5) 1.08% 1.73% 1.88%
- --------------------------------------------------------------------------------
(1)This sales charge varies depending upon how much you invest. See "Purchasing
Fund Shares."
(2)This amount applies to redemptions during the first and second years. The
deferred sales charge decreases to 4.0%, 3.0% and 2.0% for redemptions made
during the third through fifth years, respectively. No deferred sales charge is
charged after the fifth year. For more information see "Selling Fund Shares."
(3)A contingent deferred sales charge is charged only with respect to Class C
Shares redeemed prior to eighteen months from the date of purchase.
(4)"Other Expenses" are based on estimated amounts for the current fiscal year.
(5)The Distributor plans to waive a portion of its fees for the current fiscal
year. The Administrator may revise or cancel this expense limitation at any time
and will notify you of any material change.
- --------------------------------------------------------------------------------
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:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C>
Class A Shares $580 $802
Class B Shares $676 $945
Class C Shares $291 $591
</TABLE>
If you do not sell your shares at the end of the period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C>
Class B Shares $176 $545
Class C Shares $191 $591
</TABLE>
72 PROSPECTUS
<PAGE> 81
ARMADA TREASURY PLUS MONEY MARKET FUND
================================================================================
FUND SUMMARY
INVESTMENT GOAL
Current income consistent with liquidity and stability of principal
INVESTMENT FOCUS
U.S. Treasury securities and repurchase agreements related to such securities
SHARE PRICE VOLATILITY
(RELATIVE TO MUTUAL FUNDS GENERALLY)
Very low
PRINCIPAL INVESTMENT STRATEGY
Investing in a portfolio of high quality short-term obligations of the U.S.
Treasury designed to allow the Fund to maintain a stable net asset value of
$1.00 per share
INVESTOR PROFILE
Investors seeking current income through a liquid and stable investment
PRINCIPAL INVESTMENT STRATEGIES
The Armada Treasury Plus Money Market Fund's investment objective is to provide
current income with liquidity and stability of principal. The investment
objective may be changed without a shareholder vote. The Fund invests
exclusively in obligations issued or guaranteed by the U.S. Treasury and
repurchase agreements related to such securities.
In managing the Fund, the Adviser assesses current and projected market
conditions. Based on this assessment, the Adviser uses gradual shifts in
portfolio maturity to respond to expected changes and selects securities that it
believes offer the most attractive trade off between risk and return.
As a money market fund, the Fund invests only in money market instruments with
remaining maturities of 397 days or less and maintains an average weighted
maturity of 90 days or less.
PRINCIPAL RISKS OF INVESTING
The prices of the Fund's fixed income securities respond to economic
developments, particularly interest rate changes. Generally, the Fund's fixed
income securities will decrease in value if interest rates rise and vice versa.
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. Treasury securities are considered to be among the
safest investments, they are not guaranteed against price movements due to
changing interest rates. Obligations issued by the U.S. Treasury are backed by
the U.S. Treasury.
The Fund is also subject to the risk that its market segment, U.S. treasury
securities, may underperform other fixed income segments or the fixed income
market as a whole. For additional information about risks, see "More Information
About Risk."
73 PROSPECTUS
<PAGE> 82
ARMADA TREASURY PLUS MONEY MARKET FUND (CONTINUED)
================================================================================
PERFORMANCE INFORMATION
There is no bar chart or performance table for the Class A Shares because they
have not yet completed a full calendar year of operations.
FUND FEES AND EXPENSES
This table describe the shareholder fees that you may pay if you buy and hold
shares of the Fund.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS A
Investment Advisory Fees 0.30%
- --------------------------------------------------------------------------------
Distribution and Service (12b-1) Fees(1) 0.10%
- --------------------------------------------------------------------------------
Other Expenses(2) 0.31%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 0.71%
- --------------------------------------------------------------------------------
(1) The Distributor plans to waive a portion of its fees for the current fiscal
year. The Distributor may revise or cancel this expense limitation at any time
and will notify you of any material change.
(2)"Other Expenses" are based on estimated amounts for the current fiscal year.
- --------------------------------------------------------------------------------
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 A Shares $73 $227
74 PROSPECTUS
<PAGE> 83
This Page Intentionally Left Blank
<PAGE> 84
MORE INFORMATION ABOUT RISK
================================================================================
<TABLE>
<CAPTION>
High- Single
Yield State
Fixed Lower Municipal Concen- Mortgage- Foreign
Equity Convertible Income Call Credit Event Rated Issuer tration Backed Security Currency Hedging
Risk Securities Risk Risk Risk Risk Securities Risk Risk Securities Risks Risk Risk
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Foreign
Real Tracking Year Year
Leveraging Derivatives Short Estate Regional Error 2000 2000
Risk Risk Futures Options Sales Investing Risk Risk Risk Risk
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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 - - -
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
76 PROSPECTUS
<PAGE> 85
================================================================================
EQUITY RISK --Equity securities include public and privately issued equity
securities, common and preferred stocks, warrants, rights to subscribe to common
stock and convertible securities, as well as instruments that attempt to track
the price movement of equity indices. Investments in equity securities and
equity derivatives in general are subject to market risks that may cause their
prices to fluctuate over time. The value of securities convertible into equity
securities, such as warrants or convertible debt, is also affected by prevailing
interest rates, the credit quality of the issuer and any call provision.
Fluctuations in the value of equity securities in which a mutual fund invests
will cause a fund's net asset value to 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 have characteristics of
both fixed income and equity securities. The value of the convertible
security tends to move with the market value of the underlying stock, but
may also be affected by interest rates, credit quality of the issuer and
any call provisions.
FIXED INCOME RISK --The market value of fixed income investments change in
response to interest rate changes and other factors. During periods of falling
interest rates, the values of outstanding fixed income securities generally
rise. Moreover, while securities with longer maturities tend to produce higher
yields, the prices of longer maturity securities are also subject to greater
market fluctuations as a result of changes in interest rates. In addition to
these fundamental risks, different types of fixed income securities may be
subject to the following additional risks:
CALL RISK -- During periods of falling interest rates, certain debt
obligations with high interest rates may be prepaid (or "called") by the
issuer prior to maturity. This may cause a Fund's average weighted maturity
to fluctuate, and may require a Fund to invest the resulting proceeds at
lower interest rates.
CREDIT RISK -- The possibility that an issuer will be unable to make timely
payments of either principal or interest.
EVENT RISK -- Securities may suffer declines in credit quality and market
value due to issuer restructurings or other factors. This risk should be
reduced because of the diversification provided by the Fund's multiple
holdings.
HIGH-YIELD, LOWER RATED SECURITIES (or "junk 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 political changes that impact
the ability of municipal issuers to repay principal and to make interest
payments on municipal securities. Changes to the financial condition or credit
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.
In addition, the Fund's concentration of investments in issuers located in a
single state makes the Fund more susceptible to adverse political or economic
developments affecting that state. The Fund also may be riskier than mutual
funds that buy securities of issuers in numerous states.
77 PROSPECTUS
<PAGE> 86
================================================================================
MORTGAGE-BACKED SECURITIES -- 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 a portfolio of mortgage-backed securities and, therefore, to
assess the volatility risk of that portfolio.
FOREIGN SECURITY RISKS -- Investments in securities of foreign companies or
governments can be more volatile than investments in U.S. companies or
governments. Diplomatic, political, or economic developments, including
nationalization or appropriation, could affect investments in foreign countries.
Foreign securities markets generally have less trading volume and less liquidity
than U.S. markets. In addition, the value of securities denominated in foreign
currencies, and of dividends from such securities, can change significantly when
foreign currencies strengthen or weaken relative to the U.S. dollar. Foreign
companies or governments generally are not subject to uniform accounting,
auditing, and financial reporting standards comparable to those applicable to
domestic U.S. companies or governments. Transaction costs are generally higher
than those in the U.S. and expenses for custodial arrangements of foreign
securities may be somewhat greater than typical expenses for custodial
arrangements of similar U.S. securities. Investment in sovereign debt
obligations by certain Funds involves risks not present in debt obligations of
corporate issuers. The issuer of the debt or the governmental authorities that
control the repayment of the debt may be unable or unwilling to repay principal
or interest when due in accordance with the terms of such debt, and a Fund may
have limited recourse to compel payment in the event of a default. Periods of
economic uncertainty may result in volatility of market prices of sovereign
debt, and in turn a Fund's NAV, to a greater extent than the volatility inherent
in debt obligations of U.S. issuers. Some foreign governments levy withholding
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 denominated in foreign
currencies involve additional risks, including:
- The value of a Fund's assets measured in U.S. dollars may be affected
by changes in currency rates and in exchange control regulations.
- A Fund may incur substantial costs in connection with conversions
between various currencies.
- A Fund may be unable to hedge against possible variations in foreign
exchange rates or to hedge a specific security transaction or portfolio
position.
- 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 investment risks.
Hedging activities include, among other things, the use of forwards,
options and futures. There are risks associated with hedging activities,
including:
- The success of a hedging strategy may depend on an ability to predict
movements in the prices of individual securities, fluctuations in
markets, and movements in interest and currency exchange rates.
- There may be an imperfect or no correlation between the changes in
market value of the securities held by the Fund or the currencies in
which those securities are denominated and the prices of forward
contracts, futures and options on futures.
- There may not be a liquid secondary market for a futures contract or
option.
- Trading restrictions or limitations may be imposed by an exchange, and
government regulations may restrict trading in currencies, futures
contracts and options.
78 PROSPECTUS
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================================================================================
LEVERAGING RISK -- Leveraging activities include, among other things,
borrowing and the use of short sales, options and futures. There are risks
associated with leveraging activities, including:
- A fund experiencing losses over certain ranges in the market that
exceed losses experienced by a non-leveraged Fund.
- There may be an imperfect or no correlation between the changes in
market value of the securities held by a fund and the prices of futures
and options on futures.
- Although the funds will only purchase exchange-traded futures and
options, due to market conditions there may not be a liquid secondary
market for a futures contract or option. As a result, the funds may be
unable to close out their futures or options contracts at a time which
is 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 attempt to achieve their
investment objectives, while at the same time maintaining liquidity. To
collateralize (or cover) these derivatives transactions, the Funds hold
cash or U.S. Government securities.
FUTURES -- Futures contracts and options on futures contracts provide for
the future sale by one party and purchase by another party of a specified
amount of a specific security at a specified future time and at a specified
price. An option on a futures contract gives the purchaser the right, in
exchange for a premium, to assume a position in a futures contract at a
specified exercise price during the term of the option. Index futures are
futures contracts for various indices that are traded on registered
securities exchanges.
The Funds may use futures contracts and related options for bona fide
hedging purposes to offset 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 to buy (a call option)
or sell (a put option) a certain quantity of a security (the underlying
security) or instrument at a certain price up to a specified point in time.
The seller or writer of an option is obligated to sell (a call option) or
buy (a put option) the underlying security. When writing (selling) call
options on securities, the Funds may cover its position by owning the
underlying security on which the option is written or by owning a call
option on the underlying security. Alternatively, the Funds may cover its
position by maintaining in a segregated account cash or liquid securities
equal in value to the exercise price of the call option written by the
Funds.
Because option premiums paid or received by the Funds are small in relation
to the market 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 a Fund sells a
security it does not own. To complete a short sale, a Fund must borrow the
security to deliver to the buyer. The Fund is then 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 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 are focused in a
specific geographic region, the Fund may be subject to the political and other
developments affecting that region. Regional economies 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.
79 PROSPECTUS
<PAGE> 88
================================================================================
TRACKING ERROR RISK -- Factors such as Fund expenses, imperfect correlation
between the Fund's investments and those of their benchmarks, rounding of share
prices, changes to the benchmark, regulatory policies, and leverage, may affect
their ability to achieve perfect correlation. The magnitude of any tracking
error may be 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 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 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 as the U.S. for the year
2000 transition. As a result, computer difficulties in foreign markets and with
foreign institutions as a result of the year 2000 may add to the possibility of
losses to the Funds and their shareholders.
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 money market funds) 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 on page 81).
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 June 30, 1999, IMC had approximately $25.4 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.
80 PROSPECTUS
<PAGE> 89
================================================================================
The table below shows the IMC management teams responsible for each fund as well
as the advisory fees IMC received for each fund for the fiscal period ended May
31, 1999.
<TABLE>
<CAPTION>
ADVISORY FEES PAID AS A
PERCENTAGE OF AVERAGE
MANAGEMENT TEAM/ NET ASSETS FOR THE FISCAL YEAR
FUND NAME INVESTMENT ADVISER ENDED MAY 31, 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
International Equity Fund International Equity Team 1.04%(1)
Small Cap Value Fund Equity Value Team 0.92%(1)
Small Cap Growth Fund Equity Growth Team 0.93%(1)
Equity Growth Fund Equity Growth Team 0.75%
Tax Managed Equity Fund Equity Growth Team 0.57%(1)
Core Equity Fund National Asset Management
Corporation (sub-adviser) 0.75%
Equity Index Fund Equity Team 0.00%
Equity Income Fund Equity Value Team 0.75%
Balanced Allocation Fund Equity and Fixed Income Teams 0.75%(2)
Total Return Advantage Fund National Asset Management
Corporation (sub-adviser) 0.35%
Bond Fund Taxable Fixed Income Team 0.55%
Intermediate Bond Fund Taxable Fixed Income Team 0.40%
GNMA Fund Taxable Fixed Income Team 0.55%
Enhanced Income Fund Taxable Fixed Income Team 0.22%(1)
Ohio Tax Exempt Bond Fund Tax Exempt Fixed Income Team 0.05%(1)
Pennsylvania Municipal Bond Fund Tax Exempt Fixed Income Team 0.20%
National Tax Exempt Bond Fund Tax Exempt Fixed Income Team 0.04%(1)
Ohio Municipal Money Market Fund Tax Exempt Money Market Team 0.13%(1,2)
Pennsylvania Tax Exempt
Money Market Fund Tax Exempt Money Market Team 0.15%
Tax Exempt Money Market Fund Tax Exempt Money Market Team 0.15%
Money Market Fund Taxable Money Market Team 0.25%
Government Money Market Fund Taxable Money Market Team 0.25%
Treasury Money Market Fund Taxable Money Market Team 0.25%
Mid Cap Growth Fund Equity Growth Team 1.00%(3)
Large Cap Ultra Fund Equity Growth Team 0.75%(3)
U.S. Government Income Fund Taxable Fixed Income Team 0.55%(3)
Michigan Municipal Bond Fund Tax Exempt Fixed Income Team 0.55%(3)
Treasury Plus Money Market Fund Taxable Fixed Income Team 0.30%(3)
</TABLE>
(1) Adviser fee or waiver changed during the period
(2) Annualized
(3) The Fund has not yet commenced operations
81 PROSPECTUS
<PAGE> 90
================================================================================
PURCHASING, SELLING AND EXCHANGING FUND SHARES
This section tells you how to buy, sell (sometimes called "redeem") or exchange
Class A, Class B and Class C Shares of the Funds.
The classes have different expenses and other characteristics.
CLASS A SHARES
- Front-end sales charge
- 12b-1 fees
- $500 minimum initial investment -
no subsequent minimum
CLASS B SHARES
- Contingent deferred sales charge
- Higher 12b-1 fees
- $500 minimum initial investment -
no subsequent minimum
CLASS C SHARES
- Contingent deferred sales charge
- Higher 12b-1 fees
- $500 minimum initial investment -
no subsequent minimum
For investors purchasing shares through a Planned Investment Program, the
minimum initial investment is $50.
You may not purchase Class B Shares or Class C Shares of the Armada Money Market
Fund as part of your initial investment. Class B Shares or Class C Shares of the
Armada Money Market Fund are available only via an exchange from Class B Shares
or Class C Shares, respectively, of another Fund of the Trust.
Class A and Class B Shares are for individual and corporate investors and
retirement plans. Class C Shares are for individual investors and retirement
plans.
HOW TO PURCHASE FUND SHARES
You may purchase shares directly by:
- - Mail
- - Telephone
- - Internet
- - Wire or
- - Automated Clearing House (ACH).
To purchase shares directly from us, please call 1-800-622-FUND (3863), log on
to our website at www.armadafunds.com, or complete and send in the enclosed
application. Unless you arrange to pay by wire or ACH, 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.
To purchase shares by wire, call 1-800-622-FUND (3863) to set up your account to
accommodate wire transactions. To initiate your wire transaction, call your
depository institution. Federal funds (monies transferred from one bank to
another through the Federal Reserve system with same-day availability) should be
wired to:
State Street Bank and Trust Company
ABA#011000028
Account
(Account Registration)
(Account Number)
(Wire Control Number) "See Below"
Prior to sending wires, please be sure to call 1-800-622-FUND (3863) to receive
a wire control number to be included in the body of the wire (see above).
Note: Your bank may charge you a fee for this service.
BUYING OR SELLING SHARES THROUGH A FINANCIAL INTERMEDIARY
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.
82 PROSPECTUS
<PAGE> 91
================================================================================
Your investment representative is responsible for transmitting all subscription
and redemption requests, investment information, documentation and money to the
Fund on time. Certain investment representatives have agreements with the Funds
that allow them to enter confirmed purchase or redemption orders on behalf of
clients and customers. Under this arrangement, the investment representative
must send your payment to the Funds by the time they price their shares on the
following day. If your investment representative fails to do so, it may be
responsible for any resulting fees or losses.
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 plus, in the
case of Class A Shares, the applicable front-end sales charge. The following
table shows when the daily NAV is calculated for each of the funds and the
deadline for submitting a purchase order to the Transfer Agent in order to
receive the current Business Day's NAV:
<TABLE>
<CAPTION>
Deadline for submitting
purchase orders to the
Time of NAV Transfer Agent to receive
Calculation the current day's NAV
- ------------------------------------------------------------------------------------
<S> <C> <C>
All Equity funds Each Business Day 4:00 p.m.
All Bond funds at 4:00 p.m. Eastern Time, Eastern Time
the regularly-scheduled
close of normal trading
on the New York
Stock Exchange
Money Market Fund Twice daily 2:30 p.m.
Government Money 3:00 p.m. Eastern Time Eastern Time
Market Fund and 4:00 p.m. Eastern Time
(close of trading on
the New York Stock
Exchange)
Treasury Money Market Fund Twice daily 12:30 p.m.
Tax Exempt Money Market Fund 1:00 p.m. Eastern Time Eastern Time
PA Tax Exempt Money Market Fund and 4:00 p.m. Eastern Time
OH Municipal Money Market Fund (close of trading on
Treasury Plus Money Market Fund the New York Stock
Exchange)
</TABLE>
So, for you to be eligible to receive dividends declared on the day you submit
your purchase order, generally a Fund must receive your order by the above
listed deadlines and federal funds (readily available funds) before 2:00 pm
(Eastern Time) the following 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.
EQUITY AND BOND FUNDS
In calculating NAV, an equity or bond fund generally values its investment
portfolio at market price. In the event that a sale of a particular fixed income
security is not reported for that day, fixed income securities are priced at the
mean between the most recent quoted bid and asked prices. Unlisted securities
and securities traded on a national securities market for which market
quotations are readily available are valued at the mean between the most recent
bid and asked prices. In the event that a sale of a particular equity security
is not reported for that day, shares are priced at the last bid quotation. 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.
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 buy and hold shares of the Fund.
MONEY MARKET FUNDS
In calculating NAV for the money market funds, we generally value a 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.
PLANNED INVESTMENT PROGRAM
If you have a checking or savings account with a bank, you may purchase Class A,
Class B or 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 semi-monthly, monthly or quarterly basis.
83 PROSPECTUS
<PAGE> 92
================================================================================
SALES CHARGES
FRONT-END SALES CHARGES -- CLASS A SHARES
The offering price of Class A Shares is the NAV next calculated after a Fund
receives your request, plus the front-end sales load.
The amount of any front-end sales charge included in your offering price varies,
depending on the amount of your investment:
INTERNATIONAL EQUITY, SMALL CAP VALUE, SMALL CAP GROWTH,
EQUITY GROWTH, TAX MANAGED EQUITY, CORE EQUITY, EQUITY
INCOME, LARGE CAP ULTRA AND MID CAP GROWTH FUNDS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Dealers'
Sales Charge as As a % of Net Reallowance
If your a % of Offering Asset Value as a % of Offering
Investment is: Price Per Share Per Share Price Per Share
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $25,000 5.50 5.80 5.25
- --------------------------------------------------------------------------------
$25,000 but less
than $50,000 5.25 5.50 5.00
- --------------------------------------------------------------------------------
$50,000 but less
than $100,000 4.75 5.00 4.50
- --------------------------------------------------------------------------------
$100,000 but less
than $250,000 3.75 3.90 3.50
- --------------------------------------------------------------------------------
$250,000 but less
than $500,000 3.00 3.10 2.75
- --------------------------------------------------------------------------------
$500,000 but less
than $1,000,000 2.00 2.00 1.75
- --------------------------------------------------------------------------------
$1,000,000 or more 0.00 0.00 0.00
- --------------------------------------------------------------------------------
</TABLE>
BALANCED ALLOCATION, TOTAL RETURN ADVANTAGE, BOND,
INTERMEDIATE BOND, GNMA, NATIONAL TAX EXEMPT BOND, U.S.
GOVERNMENT INCOME AND MICHIGAN MUNICIPAL BOND FUNDS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Dealers'
Sales Charge as As a % of Net Reallowance
If your a % of Offering Asset Value as a % of Offering
Investment is: Price Per Share Per Share Price Per Share
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 4.75 5.00 4.50
- --------------------------------------------------------------------------------
$50,000 but less
than $100,000 4.00 4.20 3.75
- --------------------------------------------------------------------------------
$100,000 but less
than $250,000 3.75 3.90 3.50
- --------------------------------------------------------------------------------
$250,000 but less
than $500,000 2.50 2.80 2.25
- --------------------------------------------------------------------------------
$500,000 but less
than $1,000,000 2.00 2.00 1.75
- --------------------------------------------------------------------------------
$1,000,000 or more 0.00 0.00 0.00
- --------------------------------------------------------------------------------
</TABLE>
ENHANCED INCOME FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Dealers'
Sales Charge as As a % of Net Reallowance
If your a % of Offering Asset Value as a % of Offering
Investment is: Price Per Share Per Share Price Per Share
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 2.75 2.83 2.50
- --------------------------------------------------------------------------------
$100,000 but less
than $250,000 1.75 1.78 1.50
- --------------------------------------------------------------------------------
$250,000 but less
than $500,000 1.00 1.01 0.75
- --------------------------------------------------------------------------------
$500,000 but less
than $1,000,000 0.50 0.50 0.25
- --------------------------------------------------------------------------------
$1,000,000 or more 0.00 0.00 0.00
- --------------------------------------------------------------------------------
</TABLE>
EQUITY INDEX FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Dealers'
Sales Charge as As a % of Net Reallowance
If your a % of Offering Asset Value as a % of Offering
Investment is: Price Per Share Per Share Price Per Share
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 3.75 3.90 3.50
- --------------------------------------------------------------------------------
$100,000 but less
than $250,000 2.75 2.83 2.50
- --------------------------------------------------------------------------------
$250,000 but less
than $500,000 2.00 2.04 1.75
- --------------------------------------------------------------------------------
$500,000 but less
than $1,000,000 1.25 1.27 1.00
- --------------------------------------------------------------------------------
$1,000,000 or more 0.00 0.00 0.00
- --------------------------------------------------------------------------------
</TABLE>
OHIO TAX EXEMPT BOND AND PENNSYLVANIA MUNICIPAL BOND FUNDS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Dealers'
Sales Charge as As a % of Net Reallowance
If your a % of Offering Asset Value as a % of Offering
Investment is: Price Per Share Per Share Price Per Share
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 3.00 3.09 2.75
- --------------------------------------------------------------------------------
$100,000 but less
than $250,000 2.00 2.04 1.75
- --------------------------------------------------------------------------------
$250,000 but less
than $500,000 1.50 1.52 1.25
- --------------------------------------------------------------------------------
$500,000 but less
than $1,000,000 1.00 1.01 0.75
- --------------------------------------------------------------------------------
$1,000,000 or more 0.00 0.00 0.00
- --------------------------------------------------------------------------------
</TABLE>
With respect to purchases of $1,000,000 or more of the Fund, the Adviser may pay
from its own funds a fee of 1% (or .25% in the case of the Enhanced Income Fund)
of the amount invested to the financial institution placing the purchase order.
A1% (or .25% in the case of the Enhanced Income Fund) sales charge will be
assessed against a shareholder's fund account if its value falls below
$1,000,000 due to a redemption by the shareholder within the first year
following the initial investment of $1,000,000 or more.
84 PROSPECTUS
<PAGE> 93
================================================================================
WAIVER OF FRONT-END SALES CHARGE -- CLASS A SHARES
The front-end sales charge will be waived on Class A Shares purchased:
- - by Trustees and Officers of the Trust and their immediate families (spouse,
parents, siblings, children and grandchildren);
- - by directors and retired directors of National City Corporation (NCC) or any
of its affiliates and their immediate families, employees and retired
employees of NCC or any of its affiliates and their immediate families and
participants in employee benefit/retirement plans of NCC or any of its
affiliates and their immediate families;
- - by direct transfer of rollover from a qualified plan for which affiliates of
NCC serve as trustee or agent (or certain institutions having relationships
with affiliates of NCC);
- - by investors purchasing through payroll deduction, investors in Armada Plus
account through NCC's Retirement Plan Services or investors investing through
"one stop" networks;
- - by orders placed by qualified broker-dealers, investment advisers or
financial planners who charge a management fee for their services and place
trades for their own account or accounts of clients; and
- - by exchanges from Parkstone B Shares to the Trust's Class A Shares or by
exchanges from Parkstone A Shares to the Trust's Class A Shares. If sales
charge for new shares would be greater than sales charge paid on the previous
shares, the shareholder is responsible for paying the difference.
REPURCHASE OF CLASS A SHARES
You may repurchase any amount of Class A Shares of any Fund at NAV without the
normal front-end sales charge, up to the limit of the value of any amount of
Class A Shares (other than those which were purchased with reinvested dividends
and distributions) that you redeemed within the past 180 days. In effect, this
allows you to reacquire shares that you may have had to redeem, without
re-paying the front-end sales charge. To exercise this privilege, the Fund must
receive your purchase order within 180 days of your redemption. In addition, you
must notify the Fund when you send in your purchase order that you are
repurchasing shares and would like to exercise this option.
REDUCED SALES CHARGES -- CLASS A SHARES
RIGHTS OF ACCUMULATION. In calculating the appropriate sales charge rate, this
right allows you to add the value of the Class A Shares you already own to the
amount that you are currently purchasing. The Fund will combine the value of
your current purchases with the current value of any Class A Shares you
purchased previously for:
(i) your account
(ii) your spouse's account
(iii) a joint account with your spouse or
(iv) your minor children's trust or custodial accounts.
A fiduciary purchasing shares for the same fiduciary account,
trust or estate may also use this right of accumulation. The Fund will only
consider the value of Class A Shares purchased previously that were sold subject
to a sales charge. To be entitled to a reduced sales charge based on shares
already owned, you must ask us for the reduction at the time of purchase.You
must provide the Fund with your account number(s) and, if applicable, the
account numbers for your spouse and/or children (and provide the children's
ages). The Fund may amend or terminate this right of accumulation at any time.
LETTER OF INTENT. You may purchase Class A Shares at the sales charge rate
applicable to the total amount of the purchases you intend to make over a
13-month period. In other words, a Letter of Intent allows you to purchase Class
A Shares of a Fund over a 13-month period and receive the same sales charge as
if you had purchased all the shares at the same time. The Fund will only
consider the value of Class A Shares sold subject to a sales charge. As a
result, shares of the Class A Shares purchased with dividends or distributions
will not be included in the calculation. To be entitled to a reduced sales
charge based on shares you intend to purchase over the 13-month period, you must
send the Fund a Letter of Intent. In calculating the total amount of purchases
you may include in your letter purchases made up to 90 days before the date of
the Letter. The 13-month period begins on the date of the first purchase,
including those purchases made in the 90-day period before the date of the
Letter. Please note that the purchase price of these prior purchases will not be
adjusted.
If you do not purchase the amount of shares indicated in the Letter, the Letter
authorizes the Fund to hold in escrow 4% of the total amount you intend to
purchase. If you do not complete the total intended purchase at the end of the
13-month period or you redeem the entire amount within one year from the time of
fulfillment, the Fund's transfer agent will redeem the necessary portion of the
escrowed shares to make up the difference between the reduced rate
85 PROSPECTUS
<PAGE> 94
================================================================================
sales charge (based on the amount you intended to purchase) and the sales charge
that would normally apply (based on the actual amount you purchased).
COMBINED PURCHASE/QUANTITY DISCOUNT PRIVILEGE. When calculating the appropriate
sales charge rate, the Fund will combine same day purchases of Class A Shares
(that are subject to a sales charge) made by you, your spouse and your minor
children (under age 21). This combination also applies to Class A Shares you
purchase with a Letter of Intent. You must notify the Fund of the purchases that
qualify for this discount.
CONTINGENT DEFERRED SALES CHARGES --
CLASS B SHARES AND CLASS C SHARES
You do not pay a sales charge when you purchase Class B or Class C Shares. The
offering price of Class B and Class C Shares is simply the next calculated NAV.
But if you sell your Class B Shares within five years after your purchase or
your Class C Shares within eighteen months of purchase, you will pay a
contingent deferred sales charge as described in the table below for Class B
Shares or 1.00% for Class C Shares 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 in good order, 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 B Shares of one Fund for Class B Shares of another Fund or to
exchanges of Class C Shares of one Fund for Class C Shares of another Fund.
After eight years, your Class B Shares are converted to Class A Shares. There is
no conversion feature for Class C Shares.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Class B Shares
Contingent Deferred Sales Charge as a Percentage of
Years Since Purchase Dollar Amount Subject to Charge
- --------------------------------------------------------------------------------
<S> <C>
First 5.0%
Second 5.0%
Third 4.0%
Fourth 3.0%
Fifth 2.0%
Sixth None
Seventh None
Eighth None
</TABLE>
When an investor redeems his or her Class B Shares, the redemption order is
processed to minimize the amount of the contingent deferred sales charge that
will be charged. Class B Shares are redeemed first from those Class B Shares
that are not subject to the deferred sales load (i.e. Class B Shares that were
acquired through reinvestment of dividends or capital gain distributions) and
thereafter, unless otherwise designated by the shareholder, from the Class B
Shares that have been held the longest. The contingent deferred sales charge
will be waived if you sell your Class B or 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;
- - exchanges of Class B or Class C Shares between Class B or Class C Shares of
the Funds, respectively of the Trust; and
- - distributions of less than 10% of the annual account value under a Systematic
Withdrawal Plan.
GENERAL INFORMATION ABOUT SALES CHARGES
Your securities dealer is paid a commission when you buy your shares and is paid
a servicing fee after 12 months and then as long as you hold your shares. Your
securities dealer or servicing agent may receive different levels of
compensation depending on which Class of shares you buy.
From time to time, some financial institutions may be reallowed up to the entire
sales charge. Firms that receive a reallowance of the entire sales charge may be
considered underwriters for the purpose of federal securities law.
86 PROSPECTUS
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================================================================================
HOW TO SELL YOUR FUND SHARES
Holders of Class A, Class B or 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 $100,000 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, in the case of Class B and Class
C Shares, any applicable deferred sales charge. Good order means that your
request includes complete information and legal requirements on your purchase,
exchange or redemption and that the Fund has received the appropriate assets.
When an Investor redeems his or her Class B Shares, the redemption order is
processed to minimize the amount of the contingent deferred sales charge that
will be charged. Class B Shares are redeemed first from those Class B Shares
that are not subject to the deferred sales load (i.e., Class B Shares that were
acquired through reinvestment of dividends or capital gain distributions) and
thereafter, unless otherwise designated by the shareholder, from the Class B
Shares that have been held the longest.
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. There
will be no deferred sales charge on systematic withdrawals made on Class B or
Class C Shares, as long as the amounts withdrawn do not exceed 10% annually of
the account balance.
CHECK WRITING AVAILABLE TO CLASS A SHARES
To apply for check writing privileges on your investment in A shares of any
Armada money market fund, complete the appropriate section and the signature
card in the account application. Upon receipt of your signature card, you will
be sent checks for your account. The minimum amount for a check written from
your account is $100. However, your account cannot be closed by writing a check.
You will receive daily dividends declared on the shares to be redeemed up to the
day that a check is presented for payment. The Trust will give you at least 30
days written notice before modifying or terminating your check writing
privilege.
RECEIVING YOUR MONEY
Normally, we will send your sale proceeds within seven days after we receive
your request. Your proceeds can be wired to your bank account or sent to you by
check. Armada Funds does not charge a fee to wire your funds; however, your
institution may charge a fee. IF YOU RECENTLY PURCHASED YOUR SHARES BY CHECK OR
THROUGH ACH, 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. The Armada Tax Managed Equity Fund
may fund redemptions of $1 million or more with appreciated securities rather
than cash.
INVOLUNTARY SALE 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.
87 PROSPECTUS
<PAGE> 96
================================================================================
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, 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.
The exchange privilege is a convenient way to respond to changes in
investment goals or in market conditions. This privilege is not designed for
market-timing - switching money into investments in anticipation of rising
prices or taking money out in anticipation of the market falling. As money is
shifted in and out, a Fund incurs expenses for buying and selling securities.
These costs are borne by all Fund shareholders, including the long-term
investors who do not generate the costs. Therefore, the Fund discourages
short-term trading by, among other things, limiting the number of exchanges to
one exchange every two months during a given 12-month period beginning upon the
date of the first exchange transaction. Management of the Trust reserves the
right to limit, amend or impose charges upon, terminate or otherwise modify the
exchange privilege. You will be provided 60 days' notice before any material
action is taken.
IF YOU RECENTLY PURCHASED SHARES BY CHECK OR THROUGH ACH, 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 A SHARES
You may exchange Class A Shares of any Fund for Class A Shares of any other
Fund. If you exchange shares that you purchased without a sales charge or with a
lower sales charge into a Fund with a sales charge or with a higher sales
charge, the exchange is subject to an incremental sales charge (e.g., the
difference between the lower and higher applicable sales charges). If you
exchange shares into a Fund with the same, lower or no sales charge there is no
incremental sales charge for the exchange in this manner.
CLASS B SHARES
You may exchange Class B Shares of any Fund for Class B Shares of any other
Fund. No contingent deferred sales charge is imposed on redemptions of shares
you acquire in an exchange, provided you hold your shares for at least five
years from your initial purchase.
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 in this manner.
TELEPHONE AND INTERNET TRANSACTIONS
Purchasing, selling and exchanging Fund shares over the telephone or via the
Internet is extremely convenient, but not without risk. Although the Trust has
certain safeguards and procedures to confirm the authenticity of instructions,
the Trust is not responsible for any losses or costs incurred by following
telephone or Internet instructions we reasonably believe to be genuine. If you
or your financial institution transact with the Fund over the telephone or via
the Internet, you will generally bear the risk of any loss.
SYSTEMATIC EXCHANGE PROGRAM AVAILABLE TO CLASS A, B AND C SHARES
The Systematic Exchange Program allows you to exchange your existing
shares of an Armada money market fund for any other Armada fund of the same
class automatically, at monthly or quarterly intervals. Exchanging in this
manner will reduce the average cost per share of a non-money market fund.
Because purchases of A shares of non-money market funds may be subject to an
initial sales charge, it may be beneficial for you to execute a Letter of Intent
indicating an intent to purchase A shares in connection with this program.
If you would like to enter a systematic exchange program concerning B or C
shares you must exchange them within six or twelve months from the date of
purchase. You may apply for participation in this program by calling 1-800-
622-FUND (3863) or completing an account application.
88 PROSPECTUS
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================================================================================
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:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Armada International Equity Fund 0.04% 0.75% 0.75%
Armada Small Cap Value Fund 0.04% 0.75% 0.75%
Armada Small Cap Growth Fund 0.04% 0.75% 0.75%
Armada Equity Growth Fund 0.04% 0.75% 0.75%
Armada Tax Managed Equity Fund 0.04% 0.75% 0.75%
Armada Core Equity Fund 0.04% 0.75% 0.75%
Armada Equity Index Fund 0.00% 0.75% 0.75%
Armada Equity Income Fund 0.04% 0.75% 0.75%
Armada Balanced Allocation Fund 0.04% 0.75% 0.75%
Armada Total Return Advantage Fund 0.00% 0.75% 0.75%
Armada Bond Fund 0.04% 0.75% 0.75%
Armada Intermediate Bond Fund 0.04% 0.75% 0.75%
Armada GNMA Fund 0.04% 0.75% 0.75%
Armada Enhanced Income Fund 0.00% 0.75% 0.75%
Armada Ohio Tax Exempt
Bond Fund 0.04% 0.75% 0.75%
Armada Pennsylvania
Municipal Bond Fund 0.00% 0.75% 0.75%
Armada National Tax Exempt
Bond Fund 0.04% 0.75% 0.75%
Armada Ohio Municipal
Money Market Fund 0.04% N/A N/A
Armada Pennsylvania
Tax Exempt Money Market Fund 0.04% N/A N/A
Armada Tax Exempt
Money Market Fund 0.04% N/A N/A
Armada Money Market Fund 0.04% 0.75% 0.75%
Armada Government
Money Market Fund 0.04% N/A N/A
Armada Treasury
Money Market Fund 0.04% N/A N/A
Armada Mid Cap Growth Fund* 0.04% 0.75% 0.75%
Armada Large Cap Ultra Fund* 0.04% 0.75% 0.75%
Armada U.S. Government
Income Fund* 0.04% 0.75% 0.75%
Armada Michigan
Municipal Bond Fund* 0.04% 0.75% 0.75%
Armada Treasury Plus Money
Market Fund* 0.04% N/A N/A
</TABLE>
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.
*As of the printing of this prospectus, these Funds have not yet commenced
operations.
DIVIDENDS AND TAXES
Each Fund distributes its income as follows:
<TABLE>
<S> <C>
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
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 Ohio Municipal Money
Market Fund Monthly
Armada Pennsylvania Tax Exempt
Money Market Fund Monthly
Armada Tax Exempt Money Market Fund Monthly
Armada Money Market Fund Monthly
</TABLE>
89 PROSPECTUS
<PAGE> 98
================================================================================
<TABLE>
<S> <C>
Armada Government Money
Market Fund Monthly
Armada Treasury Money Market Fund Monthly
Armada Mid Cap Growth Fund* Quarterly
Armada Large Cap Ultra Fund* Quarterly
Armada U.S. Government Income Fund* Monthly
Armada Michigan Municipal Bond Fund* Monthly
Armada Treasury Plus Money
Market Fund* Monthly
</TABLE>
* As of the printing of this prospectus, these Funds have not yet commenced
operations.
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.
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 (or an in-kind
redemption), 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.
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 Tax Exempt Money Market Fund, Armada Pennsylvania Tax
Exempt Money Market Fund, Armada Ohio Municipal Money Market Fund, 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.
90 PROSPECTUS
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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 Tax Exempt Money Market Fund and
Armada Pennsylvania Municipal Bond Fund intend to distribute income that is
exempt from Pennsylvania personal income taxes. The Armada Ohio Tax Exempt Bond
Fund and Armada Ohio Municipal Money Market Fund intend 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.
MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION.
91 PROSPECTUS
<PAGE> 100
FINANCIAL HIGHLIGHTS
================================================================================
The tables that follow present performance information about Class A and Class B
Shares of each Fund. As of the printing of this prospectus, Class C Shares have
not yet commenced operations. This information is intended to help you
understand each Fund's financial performance for the past five years, or, if
shorter, the period of the Fund's operations. Some of this information reflects
financial information for a single Fund share. The total returns in the table
represent the rate that you would have earned (or lost) on an investment in a
Fund, assuming you reinvested all of your dividends and distributions. This
information, except from the Financial Highlights of the Bond Fund, GNMA Fund,
Pennsylvania Municipal Fund and Pennsylvania Tax Exempt Money Market Fund for
each Fund's respective commencement of operations date through May 31, 1996, has
been audited by Ernst & Young LLP, independent auditors. Their report, along
with each Fund's financial statements, appears in the annual report that
accompanies our Statement of Additional Information. The financial highlights of
the Bond Fund, GNMA Fund, Pennsylvania Municipal Fund and Pennsylvania Tax
Exempt Money Market Fund from each Fund's respective commencement of operations
date through May 31, 1996, were audited by PricewaterhouseCoopers, LLP, each
Fund's predecessor independent accountants. You can obtain the annual report,
which contains more performance information, at no charge by calling
1-800-622-FUND (3863).
ARMADA INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
For a Portfolio Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31, 1999 FOR THE PERIOD ENDED MAY 31, 1998
------------------------------- ---------------------------------
CLASS A CLASS B CLASS A(2) CLASS B(3)
-------------------------- -----------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $10.82 $10.83 $10.00 $ 9.30
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income/(loss) (0.01) (0.07) 0.04 0.05
Net gain on securities (realized and unrealized) 0.10 0.08 0.79 1.48
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.09 0.01 0.83 1.53
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from net investment income (0.04) (0.01) (0.01) (0.00)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.04) (0.01) (0.01) (0.00)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.87 $10.83 $10.82 $10.83
====================================================================================================================================
TOTAL RETURN 0.84%(1) 0.10%(1) 8.28%(1,4) 16.45%(1,4)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $1,127 $ 42 $ 276 $ 1
Ratio of expenses to average net assets 1.68% 2.43% 1.39%(5) 2.08%(5)
Ratio of net investment income/(loss) to
average net assets (0.04)% (0.80)% 1.49%(5) 0.59%(5)
Ratio of expenses to average net assets
before fee waivers 1.68% 2.43% 1.47%(5) 2.14%(5)
Ratio of net investment income/(loss) to average
net assets before fee waivers (0.04)% (0.80)% 1.41%(5) 0.53%(5)
Portfolio turnover rate 78% 78% 28% 28%
</TABLE>
(1) Total return excludes sales charge.
(2) Class A commenced operations on August 1, 1997.
(3) Class B commenced operations on January 6, 1998.
(4) Returns are for the period indicated and have not been annualized.
(5) Annualized.
92 PROSPECTUS
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FINANCIAL HIGHLIGHTS
================================================================================
ARMADA SMALL CAP VALUE FUND
- --------------------------------------------------------------------------------
For a Portfolio Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31, FOR THE PERIOD ENDED MAY 31,
--------------------------------------------- --------------------------------
1999 1998 1997 1996 1995
--------------------------------------------- --------------------------------
CLASS A CLASS B CLASS A CLASS B(4) CLASS A CLASS A CLASS A(1)
--------------------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 15.47 $15.42 $ 14.95 $15.28 $12.94 $11.26 $10.16
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income/(loss) 0.06 (0.03) 0.01 0.00 0.08 0.06 0.07
Net gain/(loss) on securities
(realized and unrealized) (0.85) (0.87) 2.84 0.14 2.83 2.37 1.11
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.79) (0.90) 2.85 0.14 2.91 2.43 1.18
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from net investment income (0.04) (0.00) (0.04) (0.00) (0.05) (0.06) (0.04)
Dividends in excess of net investment income (0.00) (0.00) (0.00) (0.00) (0.00) (0.02) (0.00)
Distributions from net realized capital gains (1.33) (1.33) (2.29) (0.00) (0.85) (0.67) (0.04)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.37) (1.33) (2.33) (0.00) (0.90) (0.75) (0.08)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.31 $13.19 $ 15.47 $15.42 $14.95 $12.94 $11.26
====================================================================================================================================
TOTAL RETURN (4.38)%(3) (5.13)%(3) 19.51%(3) 19.12%(2,3) 23.26%(3) 22.28%(3) 14.80%(3,5)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $11,542 $ 515 $10,634 $ 61 $4,929 $4,702 $3,567
Ratio of expenses to average net assets 1.38% 2.08% 1.23% 1.92%(2) 1.22% 1.30% 1.34%(2)
Ratio of net investment income/(loss) to
average net assets 0.44% (0.26)% 0.19% (0.48)%(2) 0.57% 0.58% 1.09%(2)
Ratio of expenses to average net assets
before fee waivers 1.38% 2.08% 1.23% 1.92%(2) 1.22% 1.32% 1.38%(2)
Ratio of net investment income/(loss) to
average net assets before fee waivers 0.44% (0.26)% 0.19% (0.48)%(2) 0.51% 0.56% 1.05%(2)
Portfolio turnover rate 79% 79% 89% 89% 64% 106% 69%
</TABLE>
(1) Class A commenced operations on August 15, 1994.
(2) Annualized.
(3) Total return excludes sales charge.
(4) Class B commenced operations on January 6, 1998.
(5) Returns are for the period indicated and have not been annualized.
93 PROSPECTUS
<PAGE> 102
FINANCIAL HIGHLIGHTS
================================================================================
ARMADA SMALL CAP GROWTH FUND
- --------------------------------------------------------------------------------
For a Portfolio Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31, 1999 FOR THE PERIOD ENDED MAY 31, 1998
------------------------------- --------------------------------
CLASS A CLASS B CLASS A(3) CLASS B(4)
------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.68 $ 11.66 $10.00 $10.64
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income/(loss) (0.05)(6) (0.10)(6) 0.01 (0.01)
Net gain/(loss) on securities (realized and unrealized) (1.41) (1.44) 1.71 1.03
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (1.46) (1.54) 1.72 1.02
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from net investment income (0.00) (0.00) (0.01) (0.00)
Distributions from net realized capital gains (0.11) (0.11) (0.03) (0.00)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.11) (0.11) (0.04) (0.00)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.11 $ 10.01 $11.68 $11.66
====================================================================================================================================
TOTAL RETURN (12.54)%(1) (13.26)%(1) 17.18%(1,2) 9.59%(1,2)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $ 1,089 $ 139 $ 331 $ 1
Ratio of expenses to average net assets 1.51% 2.23% 1.23%(5) 1.92%(5)
Ratio of net investment income/(loss) to average net assets (0.51)% (1.23)% (0.32)%(5) (0.87)%(5)
Ratio of expenses to average net assets before fee waivers 1.51% 2.23% 1.34%(5) 3.06%(5)
Ratio of net investment income/(loss) to average
net assets before fee waivers (0.51)% (1.23)% (0.43)%(5) (2.01)%(5)
Portfolio turnover rate 159% 159% 31% 31%
</TABLE>
(1) Total return excludes sales charge.
(2) Returns are for the period indicated and have not been annualized.
(3) Class A commenced operations on August 1, 1997.
(4) Class B commenced operations on January 6, 1998.
(5) Annualized.
(6) Calculated based upon average shares outstanding.
94 PROSPECTUS
<PAGE> 103
FINANCIAL HIGHLIGHTS
================================================================================
ARMADA EQUITY GROWTH FUND
- --------------------------------------------------------------------------------
For a Portfolio Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
-----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------------------------------------------- --------------------------------
CLASS A CLASS B CLASS A CLASS B(3) CLASS A CLASS A CLASS A
----------------------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 21.35 $21.28 $ 18.67 $19.44 $18.05 $14.79 $13.68
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income/(loss) (0.09)(4) (0.27)(4) (0.04) (0.24) 0.05 0.10 0.18
Net gain on securities
(realized and unrealized) 4.28 4.31 4.99 2.08 4.66 3.47 1.21
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.19 4.04 4.95 1.84 4.71 3.57 1.39
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from net investment income (0.00) (0.00) (0.00) (0.00) (0.05) (0.10) (0.17)
Dividends in excess of net investment income (0.00) (0.00) (0.00) (0.00) (0.01) (0.02) (0.00)
Distributions from net realized capital gains (0.99) (0.99) (2.27) (0.00) (4.03) (0.19) (0.00)
Distributions in excess of net
realized capital gains (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.11)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.99) (0.99) (2.27) (0.00) (4.09) (0.31) (0.28)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 24.55 $24.33 $ 21.35 $21.28 $18.67 $18.05 $14.79
====================================================================================================================================
TOTAL RETURN 19.88%(1) 19.22%(1) 28.32%(1) 27.90%(1,2) 29.24%(1) 24.34%(1) 10.35%(1)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $156,356 $1,400 $12,380 $ 24 $6,931 $6,013 $5,974
Ratio of expenses to average net assets 1.17% 1.88% 1.23% 1.92%(2) 1.22% 1.26% 1.27%
Ratio of net investment income/(loss)
to average net assets (0.36)% (1.07)% (0.26)% (0.92)%(2) 0.25% 0.60% 1.23%
Ratio of expenses to average net assets
before fee waivers 1.17% 1.88% 1.23% 1.92%(2) 1.22% 1.28% 1.28%
Ratio of net investment income/(loss) to
average net assets before fee waivers (0.36)% (1.07)% (0.26)% (0.92)%(2) 0.25% 0.58% 1.22%
Portfolio turnover rate 57% 57% 260% 260% 197% 74% 17%
</TABLE>
(1) Total return excludes sales charge.
(2) Annualized.
(3) Class B commenced operations on January 6, 1998.
(4) Calculated based upon average shares outstanding.
95 PROSPECTUS
<PAGE> 104
FINANCIAL HIGHLIGHTS
================================================================================
ARMADA TAX MANAGED EQUITY FUND
- --------------------------------------------------------------------------------
For a Portfolio Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31, 1999 FOR THE PERIOD ENDED MAY 31, 1998
------------------------------- ---------------------------------
CLASS A CLASS B CLASS A(2) CLASS B(3)
------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.93 $ 9.93 $ 10.10 $ 10.21
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.04 (0.02) (0.00) (0.00)
Net gain/(loss) on securities (realized and unrealized) 2.24 2.23 (0.17) (0.28)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.28 2.21 (0.17) (0.28)
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from net investment income (0.04) (0.01) (0.00) (0.00)
Distributions from net realized capital gains (0.01) (0.01) (0.00) (0.00)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.05) (0.02) (0.00) (0.00)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.16 $12.12 $ 9.93 $ 9.93
====================================================================================================================================
TOTAL RETURN 23.03%(1) 22.31%(1) (23.63%)(1,4) (32.24%)(1,4)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $7,353 $5,377 $ 10 $ 85
Ratio of expenses to average net assets 1.09% 1.79% 0.54%(4) 1.23%(4)
Ratio of net investment income/(loss) to average net assets 0.11% (0.59%) 0.63%(4) 0.43%(4)
Ratio of expenses to average net assets before fee waivers 1.27% 1.97% 1.24%(4) 1.98%(4)
Ratio of net investment income/(loss) to average net
assets before fee waivers (0.07%) (0.77%) (0.07%)(4) 1.18%(4)
Portfolio turnover rate 5% 5% 0% 0%
</TABLE>
(1) Total return excludes sales charge.
(2) Class A commenced operations on May 11, 1998.
(3) Class B commenced operations on May 4, 1998.
(4) Annualized.
96 PROSPECTUS
<PAGE> 105
FINANCIAL HIGHLIGHTS
================================================================================
ARMADA CORE EQUITY FUND
- --------------------------------------------------------------------------------
For a Portfolio Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31, 1999 FOR THE PERIOD ENDED MAY 31, 1998
------------------------------- ---------------------------------
CLASS A CLASS B CLASS A(3) CLASS B(4)
------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $11.34 $11.33 $10.00 $10.25
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income/(loss) (0.05)(6) (0.16)(6) 0.04 0.00
Net gain on securities (realized and unrealized) 2.93 2.97 1.34 1.08
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.88 2.81 1.38 1.08
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from net investment income (0.00) (0.00) (0.04) (0.00)
Distributions from net realized capital gains (0.51) (0.51) (0.00) (0.00)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.51) (0.51) (0.04) (0.00)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.71 $13.63 $11.34 $11.33
====================================================================================================================================
TOTAL RETURN 25.78%(1) 25.17%(1) 13.85%(1,2) 10.54%(1,2)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $1,731 $1,106 $ 408 $ 2
Ratio of expenses to average net assets 1.23% 1.94% 1.14%(5) 1.83%(5)
Ratio of net investment income/(loss) to average net assets (0.40)% (1.11%) 0.14%(5) (0.51)%(5)
Ratio of expenses to average net assets before fee waivers 1.23% 1.94% 1.30%(5) 2.00%(5)
Ratio of net investment income/(loss) to average
net assets before fee waivers (0.40)% (1.11%) 0.04%(5) (0.50)%(5)
Portfolio turnover rate 43% 43% 60% 60%
</TABLE>
(1) Total return excludes sales charge.
(2) Returns are for the period indicated and have not been annualized.
(3) Class A commenced operations on August 1, 1997.
(4) Class B commenced operations on January 6, 1998.
(5) Annualized.
(6) Calculated based upon average shares outstanding.
97 PROSPECTUS
<PAGE> 106
FINANCIAL HIGHLIGHTS
================================================================================
ARMADA EQUITY INDEX FUND
- --------------------------------------------------------------------------------
For a Portfolio Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED MAY 31, 1999
---------------------------------
CLASS A(1)
---------------------------------
<S> <C>
Net asset value, beginning of period $9.09
- -------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.07
Net gain on securities (realized and unrealized) 2.18
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.25
- -------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from net investment income (0.05)
- -------------------------------------------------------------------------------------------------------------------
Total distributions (0.05)
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.29
===================================================================================================================
TOTAL RETURN 24.83%(2,3)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $3,892
Ratio of expenses to average net assets 0.36%(4)
Ratio of net investment income to average net assets 1.22%(4)
Ratio of expenses to average net assets before fee waivers 0.71%(4)
Ratio of net investment income to average net assets before fee waivers 0.87%(4)
Portfolio turnover rate 9%
</TABLE>
(1)Class A commenced operations on October 15, 1998.
(2)Total return excludes sales charge.
(3)Returns are for the period indicated and have not been annualized.
(4)Annualized.
98 PROSPECTUS
<PAGE> 107
FINANCIAL HIGHLIGHTS
================================================================================
ARMADA EQUITY INCOME FUND
- --------------------------------------------------------------------------------
For a Portfolio Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
For the Period
FOR THE YEAR ENDED MAY 31, ENDED MAY 31,
---------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B(4) CLASS A CLASS A CLASS A(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 17.51 $17.54 $14.86 $16.28 $12.65 $11.01 $10.26
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.21 0.17 0.26 0.46 0.31 0.33 0.26
Net gain on securities (realized and unrealized) 1.55 1.39 3.41 0.86 2.68 1.77 0.75
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.76 1.56 3.67 1.32 2.99 2.10 1.01
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from net investment income (0.23) (0.16) (0.29) (0.06) (0.27) (0.32) (0.26)
Distributions from net realized capital gains (0.25) (0.25) (0.73) (0.00) (0.51) (0.14) (0.00)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.48) (0.41) (1.02) (0.06) (0.78) (0.46) (0.26)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 18.79 $18.69 $17.51 $17.54 $14.86 $12.65 $11.01
====================================================================================================================================
Total Return 10.40%(3) 9.14%(3) 25.41%(3) 25.58%(2,3) 24.33%(3) 19.37%(3) 13.18%(2,3)
Ratios/Supplemental Data
Net assets, end of period (in 000's) $11,075 $ 997 $2,151 $ 3 $ 410 $ 263 $ 125
Ratio of expenses to average net assets 1.18% 1.89% 1.17% 1.86%(2) 1.26% 1.31% 1.41%(2)
Ratio of net investment income to
average net assets 1.82% 1.11% 1.62% 0.68%(2) 2.17% 2.75% 3.45%(2)
Ratio of expenses to average net assets
before fee waivers 1.18% 1.89% 1.17% 1.86%(2) 1.26% 1.32% 1.45%(2)
Ratio of net investment income to average
net assets before fee waivers 1.82% 1.11% 1.62% 0.68%(2) 2.17% 2.74% 3.40%(2)
Portfolio turnover rate 19% 19% 18% 18% 35% 53% 12%
</TABLE>
(1) Class A commenced operations on August 22, 1994.
(2) Annualized.
(3) Total return excludes sales charge.
(4) Class B commenced operations on January 6, 1998.
99 PROSPECTUS
<PAGE> 108
FINANCIAL HIGHLIGHTS
================================================================================
ARMADA BALANCED ALLOCATION FUND
- --------------------------------------------------------------------------------
For a Portfolio Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31, 1999
-------------------------------
CLASS A(3) CLASS B(4)
-------------------------------
<S> <C> <C>
Net asset value, beginning of period $ 9.74 $ 9.82
- -----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.14 0.10
Net gain on securities (realized and unrealized) 0.57 0.51
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations 0.71 0.61
- -----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from net investment income (0.14) (0.10)
- -----------------------------------------------------------------------------------------------------------------
Total distributions (0.14) (0.10)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.31 $10.33
=================================================================================================================
TOTAL RETURN 7.26%(1,2) 6.07%(1,2)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $1,466 $ 385
Ratio of expenses to average net assets 1.31%(5) 2.02%(5)
Ratio of net investment income to average net assets 2.50%(5) 1.29%(5)
Ratio of expenses to average net assets before fee waivers 1.31%(5) 2.02%(5)
Ratio of investment income to average net assets before fee waivers 2.50%(5) 1.29%(5)
Portfolio turnover rate 116% 116%
</TABLE>
(1) Total return excludes sales charge.
(2) Returns are for the period indicated and have not been annualized.
(3) Class A commenced operations on July 31, 1998.
(4) Class B commenced operations on November 11, 1998.
(5) Annualized.
100 PROSPECTUS
<PAGE> 109
FINANCIAL HIGHLIGHTS
================================================================================
ARMADA TOTAL RETURN ADVANTAGE FUND
- --------------------------------------------------------------------------------
For a Portfolio Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
---------------------------------------------------- FOR THE PERIOD
1999 1998 1997 1996 ENDED MAY 31, 1995
---------------------------------------------------- ------------------
CLASS A CLASS A CLASS A CLASS A CLASS A(1)
---------------------------------------------------- ------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.25 $ 9.89 $ 9.87 $10.54 $10.16
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.56 0.61 0.64 0.62(5) 0.49(5)
Net gain/(loss) on securities (realized and unrealized) (0.23) 0.36 0.16 (0.22) 0.40
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.33 0.97 0.80 0.40 0.89
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from net investment income (0.56) (0.61) (0.64) (0.62) (0.49)
Dividends in excess of net investment income (0.00) (0.00) (0.00) (0.14) (0.02)
Distributions from net realized capital gains (0.04) (0.00) (0.00) (0.31) (0.00)
Distributions in excess of net realized capital gains (0.00) (0.00) (0.14) (0.00) (0.00)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.60) (0.61) (0.78) (1.07) (0.51)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.98 $10.25 $ 9.89 $ 9.87 $10.54
====================================================================================================================================
TOTAL RETURN 3.18%(3) 10.08%(3) 8.35%(3) 3.74%(3) 12.65%(3,4)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $4,686 $ 640 $2,186 $2,040 $ 106
Ratio of expenses to average net assets 0.69% 0.54% 0.41% 0.36% 0.31%(2)
Ratio of net investment income to average net assets 5.48% 6.14% 6.46% 6.12% 6.92%(2)
Ratio of expenses to average net assets
before fee waivers 0.89% 0.97% 0.96% 0.89% 0.87%(2)
Ratio of net investment income to average
net assets before fee waivers 5.28% 5.71% 5.91% 5.59% 6.36%(2)
Portfolio turnover rate 142% 170% 169% 268% 166%
</TABLE>
(1) Class A commenced operations on September 6, 1994.
(2) Annualized.
(3) Total return excludes sales charge.
(4) Total returns have been annualized based upon the period from each
Class' commencement date through May 31, 1995. Gross total returns of Class
A for the period were 9.14%.
(5) Calculated based upon average shares outstanding.
101 PROSPECTUS
<PAGE> 110
FINANCIAL HIGHLIGHTS
================================================================================
ARMADA BOND FUND
- --------------------------------------------------------------------------------
For a Portfolio Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
--------------------------------------------------------
1999 1998 1997
---------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B(6) CLASS A(4)
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.27 $10.26 $10.02 $10.35 $ 9.97
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.54 0.47 0.56 0.47 0.41
Net gain/(loss) on securities
(realized and unrealized) (0.15) (0.15) 0.25 (0.09) 0.13
- -----------------------------------------------------------------------------------------------------------
Total from investment operations 0.39 0.32 0.81 0.38 0.54
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from net investment income (0.54) (0.47) (0.56) (0.47) (0.41)
Distributions from net realized capital gains (0.14) (0.14) (0.00) (0.00) (0.00)
Distributions in excess of net realized
capital gains (0.00) (0.00) (0.00) (0.00) (0.08)
- -----------------------------------------------------------------------------------------------------------
Total distributions (0.68) (0.61) (0.56) (0.47) (0.49)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.98 $ 9.97 $10.27 $10.26 $10.02
===========================================================================================================
TOTAL RETURN 3.77%(5) 3.06%(5) 8.29%(5) 8.36%(1,5) 7.22%(1,5)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $2,804 $ 725 $ 161 $ 1 $ 23
Ratio of expenses to average net assets 0.96% 1.66% 1.05% 1.74%(1) 1.07%(1)
Ratio of net investment income to
average net assets 5.18% 4.48% 5.52% 2.71%(1) 5.64%(1)
Ratio of expenses to average net
assets before fee waivers 0.96% 1.66% 1.05% 1.74%(1) 1.07%(1)
Ratio of net investment income to
average net assets before fee waivers 5.18% 4.48% 5.52% 2.71%(1) 5.64%(1)
Portfolio turnover rate 270% 270% 220% 220% 96%
<CAPTION>
FOR THE FOR THE FOR THE
PERIOD ENDED YEAR ENDED PERIOD ENDED
MAY 31, 1996(3) APRIL 30, 1996(3) APRIL 30, 1995(3)
-----------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.04 $ 10.02 $ 10.00
- -----------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.05 0.64 0.44
Net gain/(loss) on securities
(realized and unrealized) (0.07) 0.07 0.02
- -----------------------------------------------------------------------------------------------------
Total from investment operations (0.02) 0.71 0.46
- -----------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from net investment income (0.05) (0.64) (0.44)
Distributions from net realized capital gains (0.00) (0.05) (0.00)
Distributions in excess of net realized
capital gains (0.00) (0.00) (0.00)
- -----------------------------------------------------------------------------------------------------
Total distributions (0.05) (0.69) (0.44)
- -----------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.97 $ 10.04 $ 10.02
=====================================================================================================
TOTAL RETURN (0.19)%(2,5) 7.09%(5) 4.75%(2,5)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $88,829 $89,901 $53,316
Ratio of expenses to average net assets 0.85%(1) 0.85% 0.85%(1)
Ratio of net investment income to
average net assets 5.88%(1) 6.20% 6.17%(1)
Ratio of expenses to average net
assets before fee waivers 1.25%(1) 1.25% 1.33%(1)
Ratio of net investment income to
average net assets before fee waivers 5.48%(1) 5.80% 5.69%(1)
Portfolio turnover rate 2% 94% 172%
</TABLE>
(1) Annualized.
(2) Returns are for the period indicated and have not been annualized.
(3) Activity for the period presented includes that of a predecessor fund
through September 6, 1996. The predecessor fund commenced operations on
August 10, 1994. During 1996, the predecessor fund changed its fiscal
year-end from April 30 to May 31.
(4) Class A commenced operations on September 11, 1996.
(5) Total return excludes sales charge.
(6) Class B Shares commenced operations January 6, 1998.
102 PROSPECTUS
<PAGE> 111
FINANCIAL HIGHLIGHTS
================================================================================
ARMADA INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
For a Portfolio Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------------------------------------------- ----------------------------------
CLASS A CLASS B CLASS A CLASS B(3) CLASS A CLASS A CLASS A
----------------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.63 $10.63 $10.42 $10.70 $10.35 $10.60 $10.30
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.54 0.45 0.58 0.20 0.57 0.59 0.61
Net gain/ (loss) on securities
(realized and unrealized) (0.16) (0.15) 0.21 (0.07) 0.07 (0.23) 0.30
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.38 0.30 0.79 0.13 0.64 0.36 0.91
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from net investment income (0.54) (0.46) (0.58) (0.20) (0.57) (0.59) (0.61)
Distributions from net realized capital gains (0.06) (0.06) (0.00) (0.00) (0.00) (0.00) (0.00)
Distributions in excess of net realized
capital gains (0.00) (0.00) (0.00) (0.00) (0.00) (0.02) (0.00)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.60) (0.52) (0.58) (0.20) (0.57) (0.61) (0.61)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.41 $10.41 $10.63 $10.63 $10.42 $10.35 $10.60
====================================================================================================================================
TOTAL RETURN 3.54%(1) 2.83%(1) 7.71%(1) 7.39%(1,2) 6.36%(1) 3.44%(1) 9.26%(1)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000s) $5,129 $ 709 $3,288 $ 2 $3,720 $6,216 $5,527
Ratio of expenses to average net assets 0.86% 1.57% 0.91% 1.60%(2) 0.96% 1.04% 1.09%
Ratio of net investment income to
average net assets 4.96% 4.25% 5.48% 3.38%(2) 5.52% 5.50% 5.95%
Ratio of expenses to average net assets
before fee waivers 1.00% 1.71% 1.06% 1.49%(2) 1.05% 1.06% 1.10%
Ratio of net investment income to average
net assets before fee waivers 4.82% 4.11% 5.33% 3.49%(2) 5.44% 5.48% 5.94%
Portfolio turnover rate 256% 256% 160% 160% 217% 45% 42%
</TABLE>
(1) Total return excludes sales charge.
(2) Annualized.
(3) Class B Shares commenced operations January 6, 1998.
103 PROSPECTUS
<PAGE> 112
FINANCIAL HIGHLIGHTS
================================================================================
ARMADA GNMA FUND
- --------------------------------------------------------------------------------
For a Portfolio Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
------------------------------------------
1999 1998 1997
------------------------------------------
CLASS A CLASS A CLASS A(4)
<S> <C> <C> <C>
Net asset value, beginning of period $10.36 $10.15 $10.02
- ------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.59 0.58 0.45
Net gain/(loss) on securities
(realized and unrealized) (0.20) 0.31 0.23
- ------------------------------------------------------------------------------------------------
Total from investment operations 0.39 0.89 0.68
- ------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from net investment income (0.58) (0.58) (0.45)
Dividends from net realized capital gains (0.07) (0.10) (0.01)
Distributions in excess of net
realized capital gains (0.00) (0.00) (0.09)
- ------------------------------------------------------------------------------------------------
Total distributions (0.65) (0.68) (0.55)
- ------------------------------------------------------------------------------------------------
Net asset value, end of period $10.10 $10.36 $10.15
================================================================================================
TOTAL RETURN 3.77%(5) 8.90%(5) 8.83%(1,5)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $1,497 $ 549 $ 128
Ratio of expenses to average net assets 1.03% 1.09% 1.12%(1)
Ratio of net investment income to
average net assets 5.67% 5.54% 6.17%(1)
Ratio of expenses to average net assets
before fee waivers 1.03% 1.09% 1.12%(1)
Ratio of net investment income to average
net assets before fee waivers 5.67% 5.54% 6.17%(1)
Portfolio turnover rate 85% 291% 57%
<CAPTION>
FOR THE FOR THE FOR THE
PERIOD ENDED YEAR ENDED PERIOD ENDED
MAY 31, 1996(3) APRIL 30, 1996(3) APRIL 30, 1995(3)
--------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.12 $ 10.16 $ 10.00
- ---------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.05 0.66 0.48
Net gain/(loss) on securities
(realized and unrealized) (0.09) 0.14 0.16
- ---------------------------------------------------------------------------------------------------------
Total from investment operations (0.04) 0.80 0.64
- ---------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from net investment income (0.05) (0.66) (0.48)
Dividends from net realized capital gains (0.00) (0.18) (0.00)
Distributions in excess of net
realized capital gains (0.00) (0.00) (0.00)
- ---------------------------------------------------------------------------------------------------------
Total distributions (0.05) (0.84) (0.48)
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.03 $ 10.12 $ 10.16
=========================================================================================================
TOTAL RETURN (0.35)%(2,5) 7.97%(5) 6.61%(2,5)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $60,532 $62,161 $42,212
Ratio of expenses to average net assets 0.85%(1) 0.85% 0.85%(1)
Ratio of net investment income to
average net assets 6.33%(1) 6.30% 6.68%(1)
Ratio of expenses to average net assets
before fee waivers 1.28%(1) 1.29% 1.40%(1)
Ratio of net investment income to average
net assets before fee waivers 5.90%(1) 5.86% 6.13%(1)
Portfolio turnover rate 1% 149% 226%
</TABLE>
(1) Annualized.
(2) Returns are for the period indicated and have not been annualized.
(3) Activity for the period presented includes that of the predecessor fund
through September 6, 1996. The predecessor fund commenced operations on
August 10, 1994. During 1996, the predecessor fund changed its fiscal
year-end from April 30 to May 31.
(4) Class A commenced operations on September 11, 1996.
(5) Total return excludes sales charge.
104 PROSPECTUS
<PAGE> 113
FINANCIAL HIGHLIGHTS
================================================================================
ARMADA ENHANCED INCOME FUND
- --------------------------------------------------------------------------------
For a Portfolio Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
------------------------------------------------ FOR THE PERIOD
1999 1998 1997 1996 ENDED MAY 31, 1995
------------------------------------------------ ----------------
CLASS A CLASS A CLASS A CLASS A CLASS A(1)
------------------------------------------------ ----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.08 $10.00 $10.02 $10.18 $10.10
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.56 0.57 0.57 0.56 0.43(5)
Net gain/(loss) on securities (realized and unrealized) (0.05) 0.09 0.01 (0.05) 0.06
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.51 0.66 0.58 0.51 0.49
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from net investment income (0.55) (0.57) (0.57) (0.56) (0.41)
Dividends in excess of net investment income 0.00 (0.00) (0.00) (0.11) (0.00)
Distributions of net realized capital gains (0.05) (0.01) (0.03) (0.00) (0.00)
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.60) (0.58) (0.60) (0.67) (0.41)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.99 $10.08 $10.00 $10.02 $10.18
==================================================================================================================================
TOTAL RETURN 4.94%(3) 6.68%(3) 5.91%(3) 5.13%(3) 6.84%(2,3,4)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $ 550 $ 559 $2,051 $1,718 $2,547
Ratio of expenses to average net assets 0.53% 0.41% 0.31% 0.33% 0.32%(2)
Ratio of net investment income to average net assets 5.39% 5.65% 5.63% 5.55% 5.89%(2)
Ratio of expenses to average net assets
before fee waivers 0.75% 0.80% 0.75% 0.80% 0.79%(2)
Ratio of net investment income to average net
assets before fee waivers 5.17% 5.26% 5.18% 5.08% 5.42%(2)
Portfolio turnover rate 190% 135% 225% 98% 36%
</TABLE>
(1) Class A commenced operations on September 9, 1994.
(2) Annualized.
(3) Total return excludes sales charge.
(4) Total returns have been annualized based upon the period from the
commencement date through May 31, 1995. Gross total returns of Class A for
the period were 4.92%.
(5) Calculation based upon average shares outstanding.
105 PROSPECTUS
<PAGE> 114
FINANCIAL HIGHLIGHTS
================================================================================
ARMADA OHIO TAX EXEMPT BOND FUND
- --------------------------------------------------------------------------------
For a Portfolio Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------------------------------------------------------------------
CLASS A CLASS A CLASS A CLASS A CLASS A
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $11.09 $10.82 $10.66 $10.70 $10.53
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.52 0.51 0.51 0.50 0.50
Net gain/(loss) on securities (realized and unrealized) (0.08) 0.28 0.16 (0.04) 0.17
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.44 0.79 0.67 0.46 0.67
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from net investment income (0.52) (0.51) (0.51) (0.50) (0.50)
Distributions from net realized capital gains (0.01) (0.01) (0.00) (0.00) (0.00)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.53) (0.52) (0.51) (0.50) (0.50)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.00 $11.09 $10.82 $10.66 $10.70
====================================================================================================================================
TOTAL RETURN 3.93%(1) 7.39%(1) 6.38%(1) 4.35%(1) 6.64%(1)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $4,808 $4,037 $3,535 $2,869 $3,168
Ratio of expenses to average net assets 0.38% 0.25% 0.24% 0.26% 0.24%
Ratio of net investment income to average net assets 4.67% 4.59% 4.71% 4.68% 4.82%
Ratio of expenses to average net assets
before fee waivers 0.88% 0.80% 0.79% 0.83% 0.78%
Ratio of net investment income to average
net assets before fee waivers 4.17% 4.04% 4.16% 4.11% 4.27%
Portfolio turnover rate 19% 15% 23% 10% 3%
</TABLE>
(1)Total return excludes sales charge.
106 PROSPECTUS
<PAGE> 115
FINANCIAL HIGHLIGHTS
================================================================================
ARMADA PENNSYLVANIA MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
For a Portfolio Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
-----------------------------------------
1999 1998 1997
-----------------------------------------
CLASS A CLASS A CLASS A(4)
--------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $10.45 $10.22 $10.13
- ------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.48 0.45 0.31
Net gain/(loss) on securities
(realized and unrealized) (0.04) 0.24 0.12
- ------------------------------------------------------------------------------------------------
Total from investment operations 0.44 0.69 0.43
- ------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from net investment income (0.48) (0.45) (0.31)
Distributions from net realized capital gains (0.01) (0.00) (0.02)
Distributions in excess of net
realized capital gains (0.00) (0.01) (0.01)
- ------------------------------------------------------------------------------------------------
Total distributions (0.49) (0.46) (0.34)
- ------------------------------------------------------------------------------------------------
Net asset value, end of period $10.40 $10.45 $10.22
================================================================================================
TOTAL RETURN 4.21%(5) 6.84%(5) 6.13%(1,5)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $ 218 $ 125 $ 81
Ratio of expenses to average net assets 0.58% 0.77% 0.99%(1)
Ratio of net investment income to
average net assets 4.70% 4.32% 4.26%(1)
Ratio of expenses to average net assets
before fee waivers 0.93% 0.94% 1.00%(1)
Ratio of net investment income to average
net assets before fee waivers 4.35% 4.15% 4.25%(1)
Portfolio turnover rate 15% 20% 42%
<CAPTION>
FOR THE FOR THE FOR THE
PERIOD ENDED YEAR ENDED PERIOD ENDED
MAY 31, 1996(3) APRIL 30, 1996(3) APRIL 30, 1995(3)
---------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.12 $ 10.04 $ 10.00
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.04 0.43 0.29
Net gain/(loss) on securities
(realized and unrealized) (0.04) 0.08 0.04
- -----------------------------------------------------------------------------------------------------------
Total from investment operations 0.00 0.51 0.33
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from net investment income (0.04) (0.43) (0.29)
Distributions from net realized capital gains (0.00) (0.00) (0.00)
Distributions in excess of net
realized capital gains (0.00) (0.00) (0.00)
- -----------------------------------------------------------------------------------------------------------
Total distributions (0.04) (0.43) (0.29)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.08 $ 10.12 $ 10.04
===========================================================================================================
TOTAL RETURN (0.03)%(1,5) 5.06%(5) 3.38%(2,5)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $38,733 $38,809 $34,638
Ratio of expenses to average net assets 0.85%(1) 0.85% 0.85%(1)
Ratio of net investment income to
average net assets 4.32%(1) 4.16% 4.05%(1)
Ratio of expenses to average net assets
before fee waivers 1.31%(1) 1.24% 1.36%(1)
Ratio of net investment income to average
net assets before fee waivers 3.86%(1) 3.77% 3.54%(1)
Portfolio turnover rate 0% 22% 4%
</TABLE>
(1) Annualized.
(2) Returns are for the period indicated and have not been annualized.
(3) Activity for the period presented includes that of the predecessor fund
through September 6, 1996. The predecessor fund commenced operations on
August 10, 1994. During 1996, the predecessor fund changed its fiscal year
end from April 30 to May 31.
(4) Class A commenced operations on September 11, 1996.
(5) Total return excludes sales charge.
107 PROSPECTUS
<PAGE> 116
FINANCIAL HIGHLIGHTS
================================================================================
ARMADA NATIONAL TAX EXEMPT BOND FUND
- --------------------------------------------------------------------------------
For a Portfolio Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31, 1999
---------------------------------
CLASS A(2) CLASS B(5)
---------------------------------
<S> <C> <C>
Net asset value, beginning of period $ 10.04 $ 10.23
- -------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.41 0.13
Net gain/(loss) on securities (realized and unrealized) (0.04) (0.26)
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.37 (0.13)
- -------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from net investment income (0.41) (0.14)
Distribution from net realized capital gains (0.03) (0.00)
- -------------------------------------------------------------------------------------------------------------------------
Total distributions (0.44) (0.14)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.97 $ 9.96
=========================================================================================================================
TOTAL RETURN 3.67%(3,4) (1.22)%(3,4)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $ 4,205 $ 275
Ratio of expenses to average net assets 0.46%(1) 1.17%(1)
Ratio of net investment income to average net assets 4.29%(1) 3.58%(1)
Ratio of expenses to average net assets before fee waivers 0.97%(1) 1.68%(1)
Ratio of net investment income to average net assets before fee waivers 3.78%(1) 3.07%(1)
Portfolio turnover rate 23% 23%
</TABLE>
(1) Annualized.
(2) Class A commenced operations on June 19, 1998.
(3) Total return excludes sales charge.
(4) Returns are for the period indicated and have not been annualized.
(5) Class B commenced operations on January 29, 1999.
108 PROSPECTUS
<PAGE> 117
FINANCIAL HIGHLIGHTS
================================================================================
ARMADA OHIO MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
For a Portfolio Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED MAY 31, 1999
---------------------------------
CLASS A(1)
---------------------------------
<S> <C>
Net asset value, beginning of period $ 1.00
- -----------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.02
- -----------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from net investment income (0.02)
- -----------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00
=====================================================================================================
TOTAL RETURN 1.50%(2)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $11,019
Ratio of expenses to average net assets 0.50%(3)
Ratio of net investment income to average net assets 2.62%(3)
Ratio of expenses to average net assets before fee waivers 0.70%(3)
Ratio of net investment income to average net assets before fee waivers 2.42%(3)
</TABLE>
(1)Class A commenced operations on November 2, 1998.
(2)Returns are for the period indicated and have not been annualized.
(3)Annualized.
109 PROSPECTUS
<PAGE> 118
FINANCIAL HIGHLIGHTS
================================================================================
ARMADA PENNSYLVANIA TAX EXEMPT MONEY MARKET FUND
- --------------------------------------------------------------------------------
For a Portfolio Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
----------------------------------------------
1999 1998 1997
----------------------------------------------
CLASS A CLASS A CLASS A(4)
------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.03 0.02
- ------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from net investment income (0.03) (0.03) (0.02)
- ------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
================================================================================================
TOTAL RETURN 2.76% 3.29% 3.18%(1)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $53,822 $33,375 $20,830
Ratio of expenses to average net assets 0.49% 0.46% 0.46%(1)
Ratio of net investment income to
average net assets 2.67% 3.23% 3.27%(1)
Ratio of expenses to average net assets
before fee waivers 0.74% 0.71% 0.71%(1)
Ratio of net investment income to average
net assets before fee waivers 2.42% 2.98% 3.02%(1)
<CAPTION>
FOR THE FOR THE FOR THE
PERIOD ENDED YEAR ENDED PERIOD ENDED
MAY 31, 1996(3) APRIL 30, 1996(3) APRIL 30, 1995(3)
------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.00 0.03 0.02
- -----------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from net investment income (0.00) (0.03) (0.02)
- -----------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
=====================================================================================================
TOTAL RETURN 0.28%(2) 3.36% 2.32%(2)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $68,742 $70,422 $56,668
Ratio of expenses to average net assets 0.55%(1) 0.55% 0.55%(1)
Ratio of net investment income to
average net assets 3.24%(1) 3.29% 3.21%(1)
Ratio of expenses to average net assets
before fee waivers 0.97%(1) 0.96% 1.04%(1)
Ratio of net investment income to average
net assets before fee waivers 2.82%(1) 2.88% 2.72%(1)
</TABLE>
(1) Annualized.
(2) Returns are for the period indicated and have not been annualized.
(3) Activity for the period presented includes that of the predecessor fund
through September 6, 1996. The predecessor fund commenced operations on
August 10, 1994. During 1996, the predecessor fund changed its fiscal year
end from April 30 to May 31.
(4) Class A commenced operations on September 11, 1996.
110 PROSPECTUS
<PAGE> 119
FINANCIAL HIGHLIGHTS
================================================================================
ARMADA TAX EXEMPT MONEY MARKET FUND
- --------------------------------------------------------------------------------
For a Portfolio Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
-----------------------------------------------------------
1999 1998 1997 1996 1995
-----------------------------------------------------------
CLASS A CLASS A CLASS A CLASS A CLASS A
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.03 0.03 0.03 0.03
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from net investment income (0.03) (0.03) (0.03) (0.03) (0.03)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
==========================================================================================================================
TOTAL RETURN 2.85% 3.27% 3.12% 3.29% 3.04%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $190,469 $132,548 $71,917 $85,928 $51,916
Ratio of expenses to average net assets 0.44% 0.42% 0.39% 0.40% 0.46%
Ratio of net investment income to average net assets 2.78% 3.20% 3.08% 3.23% 3.17%
Ratio of expenses to average net assets before fee waivers 0.64% 0.62% 0.59% 0.61% 0.67%
Ratio of net investment income to average
net assets before fee waivers 2.58% 3.00% 2.88% 3.02% 2.96%
</TABLE>
111 PROSPECTUS
<PAGE> 120
FINANCIAL HIGHLIGHTS
================================================================================
ARMADA MONEY MARKET FUND
- --------------------------------------------------------------------------------
For a Portfolio Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
--------------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------------------------------------------- -------------------------------
CLASS A CLASS B CLASS A CLASS B(1) CLASS A CLASS A CLASS A
--------------------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.05 0.04 0.05 0.05 0.05 0.05 0.05
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from net investment income (0.05) (0.04) (0.05) (0.05) (0.05) (0.05) (0.05)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=================================================================================================================================
TOTAL RETURN 4.82% 4.21% 5.26% 5.04%(2) 5.09% 5.35% 5.01%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $1,360,644 $ 27 $696,893 $ 5 $346,172 $343,087 $175,192
Ratio of expenses to average net assets 0.56% 1.27% 0.51% 1.22%(2) 0.47% 0.47% 0.47%
Ratio of net investment income to
average net assets 4.68% 3.97% 5.14% 4.39%(2) 4.97% 5.18% 5.12%
Ratio of expenses to average net assets
before fee waivers 0.66% 1.37% 0.61% 1.27%(2) 0.57% 0.58% 0.58%
Ratio of net investment income to average
net assets before fee waivers 4.58% 3.87% 5.08% 4.31%(2) 4.87% 5.07% 5.01%
</TABLE>
(1) The Money Market Fund Class B commenced operations January 5, 1998.
(2) Annualized.
112 PROSPECTUS
<PAGE> 121
FINANCIAL HIGHLIGHTS
================================================================================
ARMADA GOVERNMENT MONEY MARKET FUND
- --------------------------------------------------------------------------------
For a Portfolio Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
--------------------------------------------------------------
CLASS A CLASS A CLASS A CLASS A CLASS A
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.05 0.05 0.05 0.05 0.05
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from net investment income (0.05) (0.05) (0.05) (0.05) (0.05)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=============================================================================================================================
TOTAL RETURN 4.70% 5.17% 5.04% 5.31% 4.87%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $565,095 $247,281 $159,129 $131,194 $19,174
Ratio of expenses to average net assets 0.57% 0.52% 0.47% 0.46% 0.51%
Ratio of net investment income to average net assets 4.61% 5.05% 4.93% 5.13% 5.01%
Ratio of expenses to average net assets before fee waivers 0.67% 0.62% 0.57% 0.57% 0.63%
Ratio of net investment income to average
net assets before fee waivers 4.51% 4.95% 4.83% 5.02% 4.90%
</TABLE>
113 PROSPECTUS
<PAGE> 122
FINANCIAL HIGHLIGHTS
================================================================================
ARMADA TREASURY MONEY MARKET FUND
- --------------------------------------------------------------------------------
For a Portfolio Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
----------------------------------------------------------------------
1999 1998 1997 1996 1995
----------------------------------------------------------------------
CLASS A CLASS A CLASS A CLASS A CLASS A(1)
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.04 0.05 0.05 0.05 0.02
- -----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from net investment income (0.04) (0.05) (0.05) (0.05) (0.02)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
===================================================================================================================================
TOTAL RETURN 4.23% 4.82% 4.79% 4.97% 5.41%(2)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $83,020 $7,222 $5,680 $4,355 $ 366
Ratio of expenses to average net assets 0.55% 0.51% 0.47% 0.52% 0.56%(2)
Ratio of net investment income to average net assets 4.21% 4.71% 4.68% 4.77% 5.35%(2)
Ratio of expenses to average net assets before fee waivers 0.60% 0.56% 0.52% 0.58% 0.63%(2)
Ratio of net investment income to average net assets
before fee waivers 4.16% 4.66% 4.63% 4.71% 5.28%(2)
</TABLE>
(1) Class A commenced operations on December 22, 1994.
(2) Annualized.
114 PROSPECTUS
<PAGE> 123
NOTES
================================================================================
115 PROSPECTUS
<PAGE> 124
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
18(th) and Cherry Streets
Philadelphia, PA 19103-6996
116 PROSPECTUS
<PAGE> 125
<TABLE>
<CAPTION>
BOARD OF TRUSTEES
<S> <C>
ROBERT D. NEARY ROBERT J. FARLING
Chairman Retired Chairman, President and Chief
Retired Co-Chairman, Ernst & Young Executive Officer, Centerior Energy
Director:
Cold Metal Products, Inc.
Strategic Distribution, Inc. RICHARD W. FURST, DEAN
Garvice D. Kincaid Professor of Finance
and Dean, Gatton College of Business
HERBERT R. MARTENS, JR. and Economics, University of Kentucky
President Director:
Executive Vice President, Foam Design, Inc.
National City Corporation The Seed Corporation
Chairman, President and Chief Executive Office Suites Plus, Inc.
Officer, NatCity Investments,Inc. ihigh.com, Inc.
LEIGH CARTER GERALD L. GHERLEIN
Retired President and Chief Operating Executive Vice President and General
Officer, B.F. Goodrich Company Counsel, Eaton Corporation
Director:
Kirtland Capital Corporation
Morrison Products J. WILLIAM PULLEN
TruSeal Technologies President and Chief Executive Officer,
Whayne Supply Company
JOHN F. DURKOTT
President and Chief Operating Officer,
Kittle's Home Furnishings Center, Inc.
</TABLE>
The Armada Trustees also serve as the Trustees of the Parkstone Funds.
[ARMADA FUNDS LOGO]
<PAGE> 126
[logo etc.]
More information about the Funds is available without charge through the
following:
STATEMENT OF
ADDITIONAL INFORMATION (SAI)
The SAI, as it may be amended or supplemented from time to time, includes more
detailed information about 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, 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:
P.O. Box 8421
Boston, MA 02266-8421
By Internet:
www.armadafunds.com
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 EDGAR Database on the SEC's
website (http://www.sec.gov). You may review and copy documents at the SEC
Public Reference Room in Washington, DC (information on the operation of the
Public Reference Room may be obtained by calling the SEC at 1-202-942-8090). You
may request documents by mail from the SEC, upon payment of a duplicating fee,
by electronic request at the following e-mail address: [email protected], or by
writing to:
Securities and Exchange Commission
Public Reference Section
Washington, DC 20549-0102
The Armada Funds' Investment Company Act
registration number is 811-4416.
ARM-F-004-02000 (12/99)
<PAGE> 127
ARMADA FUNDS
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 10, 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 Prospectus for the above Funds of Armada Funds
(the "Trust"), dated September 28, 1999 for Class I Shares of the Funds, and
dated December 10, 1999 for Class A, Class B and Class C Shares of the Funds, as
such Prospectuses may be amended or supplemented from time to time. 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> 128
TABLE OF CONTENTS
PAGE
STATEMENT OF ADDITIONAL INFORMATION....................................1
INVESTMENT OBJECTIVE AND POLICIES......................................2
INVESTMENT LIMITATIONS................................................66
NET ASSET VALUE.......................................................69
DIVIDENDS.............................................................70
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION........................70
DESCRIPTION OF SHARES.................................................80
ADDITIONAL INFORMATION CONCERNING TAXES...............................84
TRUSTEES AND OFFICERS.................................................90
ADVISORY, ADMINISTRATION, DISTRIBUTION, CUSTODIAN SERVICES
AND TRANSFER AGENCY AGREEMENTS...............................95
SHAREHOLDER SERVICES PLANS...........................................106
PORTFOLIO TRANSACTIONS...............................................107
AUDITORS.............................................................109
COUNSEL..............................................................110
YIELD AND PERFORMANCE INFORMATION....................................110
STANDARDIZED YIELD QUOTATIONS........................................119
MISCELLANEOUS........................................................124
FINANCIAL STATEMENTS.................................................155
APPENDIX A...........................................................A-1
APPENDIX B...........................................................B-1
i-
<PAGE> 129
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 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.
-1-
<PAGE> 130
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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<PAGE> 131
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.
-3-
<PAGE> 132
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 comparable to that of companies in the S&P 500. 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.
The Fund will normally invest at least 80% of its total assets
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 quality and
-4-
<PAGE> 133
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
comparable to that of companies in the S&P 500. 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). The Fund will normally 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 May
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<PAGE> 134
31, 1999, the stocks in the S&P 500 had an average market capitalization of 94.1
billion and the total market capitalization of all U.S. common stocks was 10.7
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.
The Fund will normally 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.
-6-
<PAGE> 135
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 1.7% of the index.
ARMADA EQUITY INCOME FUND
The Fund will normally invest at least 80% of the value of its
total assets 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. The Fund
normally invest in common stocks, fixed income securities, securities
convertible into common stocks (i.e., warrants, convertible preferred stock,
fixed rate preferred stock, convertible fixed income securities, options and
rights) and cash equivalent securities. The Fund intends to invest 50% to
-7-
<PAGE> 136
70% 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 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 its objective by normally investing
at least 80% of its total assets in investment grade fixed-income securities.
The Fund uses the Lehman Aggregate Bond Index ("Lehman Aggregate") as its
performance benchmark. The average maturity of the Fund will be from four to
twelve years.
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<PAGE> 137
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. The
Fund normally maintains an average dollar-weighted portfolio maturity of three
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 its objective by normally 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 3 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. The Fund normally 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 Government/Corporate Bond Index is composed of U.S. Treasury and Agency
bonds and U.S. fixed coupon investment grade corporate bonds 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).
The Fund normally will invest at least 80% of the value of its
Fund's total assets in Municipal Securities. This policy is fundamental and may
not be changed without the affirmative
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vote of the holders of a majority of the Fund's outstanding shares (as defined
under "Shareholder Vote" below). In addition, the Fund will normally invest at
least 80% of the value of its total assets in Municipal Securities issued by or
on behalf of the State of Ohio, political subdivisions thereof, or agencies or
instrumentalities of the State or its political subdivisions (Ohio Municipal
Securities). 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).
The Fund will normally 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 BOND FUND
The Fund will normally invest at least 80% of the value of its
total assets 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 three to ten years.
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
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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 Investment Company Act of 1940, as
amended (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
Bond Fund 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).
The Fund will normally invest at least 80% of the value of its
total assets 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 normally 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").
The Fund will normally invest at least 80% of the value of its
total assets 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.
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
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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
The Fund normally 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. The Fund normally 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 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
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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
The Large Cap Ultra Fund normally 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 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.
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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
The Fund will normally invest at least 80% of its total assets
in obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities, although up to 20% of the value of its total assets may be
invested in debt securities and preferred stocks of non-governmental issuers.
The Fund also may invest up to 20% 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 3 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
As a fundamental policy, the Fund will normally invest at
least 80% of its net assets in a portfolio of securities exempt from Michigan
state taxes. The Fund may invest up to 100% of its assets in private activity
bonds which may be treated as a special tax preference item under the federal
alternative minimum tax.
"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.
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The Fund normally will be invested in long-term Michigan
Municipal Securities and 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 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,
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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.
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
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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 shares of the Trust
or such fund present at a meeting if more than 50% of the outstanding shares of
the Trust or such fund are represented at the meeting in person or by proxy.
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 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
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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. The Adviser will consider the earning power, cash flows and other
liquidity ratios of the issuers and guarantors of such notes and will
continuously monitor their financial status to meet payment on demand. In
determining average weighted portfolio maturity, a variable or floating rate
instrument issued or guaranteed by the U.S. government or an agency or
instrumentality thereof will be deemed to have a maturity equal to the period
remaining until the obligation's next interest rate adjustment. Other variable
and floating rate obligations will be deemed to have a maturity equal to the
longer or shorter of the periods remaining to the next interest rate adjustment
or the demand notice period in accordance with applicable regulations or Trust
procedures.
Variable and floating rate obligations held by a Fund may have
maturities of more than 397 days, provided: (a) (i) the Fund is entitled to
payment of principal and accrued interest upon not more than 30 days' notice or
at specified intervals not exceeding one year (upon not more than 30 days'
notice) and (ii) the rate of interest on such instrument is adjusted
automatically at periodic intervals which normally will not exceed 31 days, but
may extend up to one year, or (b) if the obligation is an asset-backed security,
and if permitted under Trust procedures and applicable regulations, the security
has a feature permitting the holder unconditionally to receive principal and
interest within 13 months of making demand.
GUARANTEED INVESTMENT CONTRACTS
- -------------------------------
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
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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,
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, Treasury Plus 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
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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, Government Money
Market and Treasury Plus 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.
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, Ohio Municipal Money Market,
Pennsylvania Tax Exempt Money Market, Money Market, Government Money Market and
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
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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, Treasury Plus 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.
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.
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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.
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
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"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
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
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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 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.
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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.
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 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
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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 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
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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
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
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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.
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,
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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 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.
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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 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
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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 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
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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 of the
Fund being hedged, if any, may offset partially or completely losses on the
futures contract.
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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 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.
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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 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
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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 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.
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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.
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,
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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. The 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 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.
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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 Bond, 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.
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,
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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 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.
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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 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
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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 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%.
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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 better 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.
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
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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).
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
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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.
STAND-BY COMMITMENTS
- --------------------
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 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;
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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 33 1/3% 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 must
distinguish derivatives from other investment instruments (and which heavily
influence the market, volatility and leveraging, liquidity, and pricing risks
referred to above) can be described generally as "structural risk." Structural
risk refers to the contractual features of an investment that can cause its
total return to vary with changes in interest rates or other variables.
Structural risk is not unique to derivatives, but because derivatives often are
created through the intricate division of the cash flows of the underlying
security, they can (but do not necessarily) present a high degree of structural
risk. Structural risk can arise from variations in coupon levels, principal,
and/or average life.
The Adviser has adopted the following internal policies
concerning management of the structural risk inherent in derivative instruments
in the fixed income portion of the Fund's portfolio. The risk to the Fund due to
the use of such derivatives will be limited to the principal invested in such
instruments. When the Fund engages in short sales "against the box," risk of
loss will be limited to the value of the securities "in the box." The adviser
does NOT presently intend to invest in the following types of derivatives which
are structured instruments, such as range notes, dual index notes, leveraged or
deleveraged bonds, inverse floaters, index amortizing notes and other structured
instruments having similar cash flow characteristics.
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:
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- leveraged or deleveraged floaters (whose interest rate reset
provisions are based on a formula that magnifies the effect of changes in
interest rates);
- range floaters (which do not pay interest if market interest
rates move outside of a specified range);
- dual index floaters (whose interest rate reset provisions
are tied to more than one index so that a change in the relationship between
these indices may result in the value of the instrument falling below face
value);
- inverse floaters (which reset in the opposite direction of
their index); and
- any other structured instruments having cash flow
characteristics that can create potential market volatility similar to the
instruments listed above.
Additionally, the cash equivalent portion of the Fund's portfolio will not be
invested in instruments indexed to longer than one-year rates, or in instruments
whose interest rate reset provisions are tied to an index that materially lags
short-term interest rates, such as "COFI floaters."
At the present time, the only derivative investments that have
been determined to be suitable for the cash equivalent portion of the Fund's
portfolio are:
- securities based on short-term, fixed-rate contracts; and
- 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
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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:
- - exchange rate-related securities
- - forward currency exchange contracts
- - interest rate swaps
- - futures contracts and related options
- - 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.
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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:
- - exchange rate-related securities
- - forward currency exchange contracts
- - 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.)
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 Funds 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.
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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-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.
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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.
MUNICIPAL SECURITIES
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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. Municipal Bonds include
debt obligations issued by governmental entities to obtain funds for various
public purposes, including the construction of a wide range of public
facilities, the refunding of outstanding obligations, and the extension of loans
to public institutions and facilities.
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
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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.
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 in one of the four highest rating categories by an NRSRO for
bonds and in one of the two highest rating categories by an NRSRO for money
market securities.
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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
and the Ohio Municipal Money Market 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 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.
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
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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 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.
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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 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
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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.
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
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for purchase of tuition credits, for the benefit of State residents, guaranteed
to cover a specified amount when applied to the cost of higher education
tuition. (A 1965 constitutional provision that authorized student loan
guarantees payable from available State moneys has never been implemented, apart
from a "guarantee fund" approach funded essentially from program revenues.)
State and local agencies issue obligations that are payable
from revenues from or relating to certain facilities (but not from taxes). By
judicial interpretation, these obligations are not "debt" within constitutional
provisions. In general, payment obligations under lease-purchase agreements of
Ohio public agencies (in which certificates of participation may be issued) are
limited in duration to the agency's fiscal period, and are renewable only upon
appropriations being made available for the subsequent fiscal period.
Local school districts in Ohio receive a major portion
(state-wide aggregate approximately 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.
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At present the State itself does not levy ad valorem taxes on
real or tangible personal property. Those taxes are levied by political
subdivisions and other local taxing districts. The Constitution has since 1934
limited to 1% of true value in money the amount of the aggregate levy (including
a levy for unvoted general obligations) of property taxes by all overlapping
subdivisions, without a vote of the electors or a municipal charter provision,
and statutes limit the amount of that aggregate levy to 10 mills per $1 of
assessed valuation (commonly referred to as the "ten-mill limitation"). Voted
general obligations of subdivisions are payable from property taxes that are
unlimited as to amount or rate.
Special Risk Considerations Regarding Investment in Pennsylvania Securities
Potential shareholders should consider the fact that the
Pennsylvania Municipal 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
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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 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,
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(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 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.
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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.
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%).
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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 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
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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.
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, National Tax Exempt Bond, 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
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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 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;
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(d) personal credit and business credit businesses will be
considered separate industries.
2. Make loans, except that the Fund may purchase and hold debt
instruments and enter into repurchase agreements in accordance with its
investment objective and policies and may lend portfolio securities in an amount
not exceeding one-third of its total assets.
3. Borrow money, issue senior securities or mortgage, pledge
or hypothecate its assets except to the extent permitted under the 1940 Act.
4. 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.
5. 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.
6. 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.
With respect to investment limitation No. 1 above, 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.
With respect to investment limitation No. 1 above, 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.
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<PAGE> 196
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, 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 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.
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<PAGE> 197
With respect to each of the Ohio Tax Exempt and Pennsylvania
Municipal 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).
As per the 1940 Act, the Funds do not intend to acquire
securities issued by the Adviser, Sub-Adviser, Distributor and their affiliates.
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 such steps as it considers appropriate to eliminate or reduce, to
the extent reasonably practicable, any such dilution or unfair
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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 or directly to the Fund
at P.O. Box 8421, Boston, MA 02266-8421. 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 charge.
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Class A (formerly, Retail) Shares of the Fund 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, Class B and
Class C Shares. Class B Shares of the Money Market Fund and Tax Exempt Money
Market Fund 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 Fund and/or the Tax Exempt Money Market Fund. 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, Class B and Class C Shares.
Class C Shares of the Money Market Fund are available only to the holders of
Class C Shares of another Fund who wish to exchange their Class C Shares of
another Fund for Class C Shares of the Money Market Fund. Class C Shares of the
Funds are sold to public investors at net asset value but are subject to a 1.00%
contingent deferred sales charge which is payable upon redemption of such shares
within the first eighteen months after purchase, as described in the Prospectus
for Class A, Class B and 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 of
Class A Shares were as follows:
PORTFOLIO SALES LOADS FOR FISCAL YEAR ENDED 1999
Armada International Equity Fund $ 11,506
Armada Small Cap Value Fund $ 51,484
Armada Small Cap Growth Fund $ 30,753
Armada Equity Growth Fund $102,093
Armada Tax Managed Equity Fund $193,147
Armada Core Equity Fund $ 25,206
Armada Equity Index Fund* $ 44,677
Armada Equity Income Fund $ 87,943
Armada Balanced Allocation Fund $ 29,030
Armada Total Return Advantage Fund $ 50,583
Armada Bond Fund $ 21,248
Armada Intermediate Bond Fund $ 12,524
Armada GNMA Fund $ 19,732
Armada Enhanced Income Fund $ 965
Armada Ohio Tax Exempt Bond Fund $ 8,032
Armada Pennsylvania Municipal Bond Fund $ 3,797
Armada National Tax Exempt Bond Fund $ 3,898
Armada Money Market Fund $ 246
*The Class A Shares of the Equity Index Fund commenced
operations on October 15, 1998. 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, Michigan Municipal Bond and Treasury Plus Money Market Funds
have not commenced operations.
Automatic investment programs such as the Planned Investment
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"),
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the Trust may illustrate the effects of dollar cost averaging through use of or
comparison to an index such as the S&P 500 Index or Lehman Intermediate
Government Index.
OFFERING PRICE PER A SHARE OF THE FUND
- --------------------------------------
An illustration of the computation of the offering price per 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:
INTERNATIONAL EQUITY FUND
-------------------------
Net Assets of A Shares............................................. $1,127,079
Outstanding A Shares............................................... 103,716
Net Asset Value Per Share.......................................... $10.87
($10.87 / 94.5%)
Sales Charge, 5.50% of
offering price (5.80% of
net asset value per share)......................................... $.63
Offering to Public................................................. $11.50
SMALL CAP VALUE FUND
--------------------
Net Assets of A Shares............................................. $11,542,378
Outstanding A Shares............................................... 866,968
Net Asset Value Per Share
($13.31 / 94.5%)................................................... $13.31
Sales Charge, 5.50% of
offering price (5.79% of
net asset value per share)......................................... $.77
Offering to Public................................................. $14.08
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SMALL CAP GROWTH FUND
---------------------
Net Assets of A Shares............................................. $1,089,036
Outstanding A Shares............................................... $107,770
Net Asset Value Per Share
($10.11 / 94.5%)................................................... $10.11
Sales Charge, 5.50% of
offering price (5.84% of
net asset value per share)......................................... $.59
Offering to Public................................................. $10.70
EQUITY GROWTH FUND
------------------
Net Assets of A Shares............................................. $156,356,127
Outstanding A Shares............................................... 6,369,718
Net Asset Value Per Share
($24.55 / 94.5%)................................................... $24.55
Sales Charge, 5.50% of
offering price (5.82% of
net asset value per share)......................................... $1.43
Offering to Public................................................. $25.98
TAX MANAGED EQUITY FUND
-----------------------
Net Assets of A Shares............................................. $7,348,911
Outstanding A Shares............................................... 604,299
Net Asset Value Per Share
($12.16 / 94.5%)................................................... $12.16
Sales Charge, 5.50% of
offering price (5.84% of
net asset value per share)......................................... $.71
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Offering to Public................................................. $12.87
CORE EQUITY FUND
----------------
Net Assets of A Shares............................................. $1,731,499
Outstanding A Shares............................................... 126,332
Net Asset Value Per Share
($13.71 / 94.5%)................................................... $13.71
Sales Charge, 5.50% of
offering price (5.84% of
net asset value per share)......................................... $.80
Offering to Public................................................. $14.51
EQUITY INDEX FUND
-----------------
Net Assets of A Shares............................................. $3,892,113
Outstanding A Shares............................................... 344,718
Net Asset Value Per Share
($11.29 / 96.25%).................................................. $11.29
Sales Charge, 3.75% of
offering price (3.90% of
net asset value per share)......................................... $.44
Offering to Public................................................. $11.73
EQUITY INCOME FUND
------------------
Net Assets of A Shares............................................. $11,075,278
Outstanding A Shares............................................... 589,557
Net Asset Value Per Share
($18.79 / 94.5%)................................................... $18.79
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Sales Charge, 5.50% of
offering price (5.80% of
net asset value per share)......................................... $1.09
Offering to Public................................................. $19.88
BALANCED ALLOCATION FUND
------------------------
Net Assets of A Shares............................................. $1,465,755
Outstanding A Shares............................................... 142,171
Net Asset Value Per Share
($10.31 / 95.25%).................................................. $10.31
Sales Charge, 4.75% of
offering price (4.75% of
net asset value per share)......................................... $.51
Offering to Public................................................. $10.82
TOTAL RETURN ADVANTAGE FUND
---------------------------
Net Assets of A Shares............................................. $4,685,910
Outstanding A Shares............................................... 469,625
Net Asset Value Per Share
($9.98 / 95.25%)................................................... $9.98
Sales Charge, 4.75% of
offering price (5.01% of
net asset value per share)......................................... $.50
Offering to Public................................................. $10.48
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BOND FUND
---------
Net Assets of A Shares............................................. $2,803,943
Outstanding A Shares............................................... 280,950
Net Asset Value Per Share
($9.98 / 95.25%)................................................... $9.98
Sales Charge, 4.75% of
offering price (5.01% of
net asset value per share)......................................... $.50
Offering to Public................................................. $10.48
INTERMEDIATE BOND FUND
----------------------
Net Assets of A Shares............................................. $5,129,418
Outstanding A Shares............................................... 492,519
Net Asset Value Per Share
($10.41 / 95.25%).................................................. $10.41
Sales Charge, 4.75% of
offering price (5.00% of
net asset value per share)......................................... $.52
Offering to Public................................................. $10.93
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GNMA FUND
---------
Net Assets of A Shares............................................. $1,497,415
Outstanding A Shares............................................... $148,223
Net Asset Value Per Share
($10.10 / 95.25%).................................................. $10.10
Sales Charge, 4.75% of
offering price (4.95% of
net asset value per share)*........................................ $.50
Offering to Public................................................. $10.60
ENHANCED INCOME FUND
--------------------
Net Assets of A Shares............................................. $550,430
Outstanding A Shares............................................... 55,120
Net Asset Value Per Share
($9.99 / 97.25%)................................................... $9.99
Sales Charge, 2.75% of
offering price (2.80% of
net asset value per share)......................................... $.28
Offering to Public................................................. $10.27
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<PAGE> 207
OHIO TAX EXEMPT BOND FUND
-------------------------
Net Assets of A shares............................................. $4,807,991
Outstanding A shares............................................... 437,155
Net Asset Value Per Share
($11.00 / 97.0%)................................................... $11.00
Sales Charge, 3.00% of
offering price (3.09% of
net asset value per share)......................................... $.34
Offering to Public................................................. $11.34
PENNSYLVANIA MUNICIPAL BOND FUND
--------------------------------
Net Assets of A shares............................................. $217,980
Outstanding A shares............................................... 20,958
Net Asset Value Per Share
($10.40 / 97.0%)................................................... $10.40
Sales Charge, 3.00% of
offering price (3.08% of
net asset value per share)......................................... $.32
Offering to Public................................................. $10.72
NATIONAL TAX EXEMPT BOND FUND
-----------------------------
Net Assets of A shares............................................. $4,205,129
Outstanding A shares............................................... 421,712
Net Asset Value Per Share
($9.97 / 95.25%)................................................... $9.97
Sales Charge, 4.75% of
offering price (5.02% of
net asset value per share)......................................... $.50
Offering to Public................................................. $10.47
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<PAGE> 208
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 Fund Prospectus, will apply in
connection with any such exchange. The exchange privilege may be modified or
terminated at any time upon 60 days' notice to shareholders.
By use of the exchange privilege, the Investor authorizes the
Transfer Agent's financial institution or his or her financial institution to
act on telephonic, website 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 Funds as follows, and as further described in
this Statement of Additional Information and the related Prospectuses:
Money Market Fund
Class A Class I Shares
Class A - Special Series 1 Class A Shares
Class A - Special Series 2 Class B Shares
Class A - Special Series 3 Class C Shares
Government Money Market Fund
Class B Class I Shares
Class B - Special Series 1 Class A Shares
Treasury Money Market Fund
Class C Class I Shares
Class C - Special Series 1 Class A Shares
Tax Exempt Money Market Fund
Class D Class I Shares
Class D - Special Series 1 Class A Shares
Class D - Special Series 2 Class B Shares
-80-
<PAGE> 209
Equity Growth Fund
Class H Class I Shares
Class H - Special Series 1 Class A Shares
Class H - Special Series 2 Class B Shares
Class H - Special Series 3 Class C Shares
Intermediate Bond Fund
Class I Class I Shares
Class I - Special Series 1 Class A Shares
Class I - Special Series 2 Class B Shares
Class I - Special Series 3 Class C Shares
Ohio Tax Exempt Bond Fund
Class K Class I Shares
Class K - Special Series 1 Class A Shares
Class K - Special Series 2 Class B Shares
Class K - Special Series 3 Class C Shares
National Tax Exempt Bond Fund
Class L Class I Shares
Class L - Special Series 1 Class A Shares
Class L - Special Series 2 Class B Shares
Class L - Special Series 3 Class C Shares
Equity Income Fund
Class M Class I Shares
Class M - Special Series 1 Class A Shares
Class M - Special Series 2 Class B Shares
Class M - Special Series 3 Class C Shares
Small Cap Value Fund
Class N Class I Shares
Class N - Special Series 1 Class A Shares
Class N - Special Series 2 Class B Shares
Class N - Special Series 3 Class C Shares
Enhanced Income Fund
Class O Class I Shares
Class O - Special Series 1 Class A Shares
Class O - Special Series 2 Class B Shares
Class O - Special Series 3 Class C Shares
Total Return Advantage Fund
Class P Class I Shares
Class P - Special Series 1 Class A Shares
Class P - Special Series 2 Class B Shares
Class P - Special Series 3 Class C Shares
Pennsylvania Tax Exempt Money Market Fund
Class Q Class I Shares
Class Q - Special Series 1 Class A Shares
-81-
<PAGE> 210
Bond Fund
Class R Class I Shares
Class R - Special Series 1 Class A Shares
Class R - Special Series 2 Class B Shares
Class R - Special Series 3 Class C Shares
GNMA Fund
Class S Class I Shares
Class S - Special Series 1 Class A Shares
Class S - Special Series 2 Class B Shares
Class S - Special Series 3 Class C Shares
Pennsylvania Tax Exempt Bond Fund
Class T Class I Shares
Class T - Special Series 1 Class A Shares
Class T - Special Series 2 Class B Shares
Class T - Special Series 3 Class C Shares
International Equity Fund
Class U Class I Shares
Class U - Special Series 1 Class A Shares
Class U - Special Series 2 Class B Shares
Class U - Special Series 3 Class C Shares
Equity Index Fund
Class V Class I Shares
Class V - Special Series 1 Class A Shares
Class V - Special Series 2 Class B Shares
Class V - Special Series 3 Class C Shares
Core Equity Fund
Class W Class I Shares
Class W - Special Series 1 Class A Shares
Class W - Special Series 2 Class B Shares
Class W - Special Series 3 Class C Shares
Small Cap Growth Fund
Class X Class I Shares
Class X - Special Series 1 Class A Shares
Class X - Special Series 2 Class B Shares
Class X - Special Series 3 Class C Shares
Tax Managed Equity Fund
Class Z Class I Shares
Class Z - Special Series 1 Class A Shares
Class Z - Special Series 2 Class B Shares
Class Z - Special Series 3 Class C Shares
Balanced Allocation Fund
Class AA Class I Shares
Class AA - Special Series 1 Class A Shares
Class AA - Special Series 2 Class B Shares
Class AA - Special Series 3 Class C Shares
Ohio Municipal Money Market Fund
Class BB Class I Shares
Class BB - Special Series 1 Class A Shares
-82-
<PAGE> 211
Treasury Plus Money Market Fund
Class CC Class I Shares
Class CC - Special Series 1 Class A Shares
U.S. Government Income Fund
Class DD Class I Shares
Class DD - Special Series 1 Class A Shares
Class DD - Special Series 2 Class B Shares
Class DD - Special Series 3 Class C Shares
Mid Cap Growth Fund
Class GG Class I Shares
Class GG - Special Series 1 Class A Shares
Class GG - Special Series 2 Class B Shares
Class GG - Special Series 3 Class C Shares
Michigan Municipal Bond Fund
Class HH Class I Shares
Class HH - Special Series 1 Class A Shares
Class HH - Special Series 2 Class B Shares
Class HH - Special Series 3 Class C Shares
Large Cap Ultra Fund
Class II Class I Shares
Class II - Special Series 1 Class A Shares
Class II - Special Series 2 Class B Shares
Class II - Special Series 3 Class C Shares
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
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<PAGE> 212
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.
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
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<PAGE> 213
gains from options, futures, or forward contracts) derived with respect to the
Fund's business of investing in such stock, securities or currencies. The
Treasury Department may by regulation exclude from qualifying income foreign
currency gains which are not directly related to the Fund's principal business
of investing in stock or securities, or options and futures with respect to
stock or securities. Any income derived by the Fund from a partnership or trust
is treated as derived with respect to the Fund's business of investing in stock,
securities or currencies only to the extent that such income is attributable to
items of income which would have been qualifying income if realized by the Fund
in the same manner as by the partnership or trust.
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.
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<PAGE> 214
ADDITIONAL TAX INFORMATION CONCERNING THE OHIO TAX EXEMPT BOND, PENNSYLVANIA
- ----------------------------------------------------------------------------
MUNICIPAL BOND, NATIONAL TAX EXEMPT BOND AND TAX EXEMPT MONEY MARKET FUNDS.
- ---------------------------------------------------------------------------
As described above and in the Prospectus, the Ohio Tax Exempt
Bond, Pennsylvania Municipal Bond, National Tax Exempt Bond, Ohio Municipal
Money Market, Pennsylvania Tax Exempt Money Market and Tax Exempt Money Market
Funds are designed to provide investors with tax-exempt interest income. The
Funds are not intended to constitute a balanced investment program and are not
designed for investors seeking capital appreciation or maximum tax-exempt income
irrespective of fluctuations in principal. Shares of the Funds would not be
suitable for tax-exempt institutions and may not be suitable for retirement
plans qualified under Section 401 of the Code, H.R. 10 plans and IRAs since such
plans and accounts are generally tax-exempt and, therefore, would not gain any
additional benefit from the Funds' dividends being tax-exempt.
The policy of the 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 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
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<PAGE> 215
appreciation or maximum tax-exempt income irrespective of fluctuations in
principal. Shares of the Fund would not be suitable for tax-exempt institutions
and may not be suitable for retirement plans qualified under Section 401 of the
Code, H.R. 10 plans and 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
-87-
<PAGE> 216
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 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 Bond Fund is not subject to the Ohio
personal income or school district or municipal income taxes in Ohio. The Ohio
Tax Exempt Bond 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 or 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
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<PAGE> 217
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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<PAGE> 218
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 Retired Co-Chairman of Ernst & Young,
32980 Creekside Drive Trustee April 1984 to September 1993; Director,
Pepper Pike, OH 44124 Cold Metal Products, Inc., since March
Age 66 1994; Director, Strategic Distribution,
Inc., since January 1999. Trustee,
Parkstone Group of Funds and Parkstone
Advantage Fund, since 1998.
Herbert R. Martens, Jr.* President and Trustee Executive Vice President, National City
c/o NatCity Investments, Inc. Corporation (bank holding company),
1965 East Sixth Street since July 1997; Chairman, President 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. Trustee,
Parkstone Group of Funds and Parkstone
Advantage Fund, since 1998
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 74 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. Trustee,
Parkstone Group of Funds and Parkstone
Advantage Fund, since 1998
</TABLE>
-90-
<PAGE> 219
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
POSITION WITH DURING PAST 5 YEARS
NAME AND ADDRESS THE TRUST AND OTHER AFFILIATIONS
- ---------------- ------------ ----------------------
<S> <C> <C>
John F. Durkott Trustee President and Chief Operating Officer,
8600 Allisonville Road Kittle's Home Furnishings Center, Inc.,
Indianapolis, IN 46250 since January 1982; partner, Kittle's
Age 55 Bloomington Properties LLC, since
January 1981; partner, KK&D LLC, since
January 1989; partner, KK&D II LLC,
since February 1998; (affiliated real
estate companies of Kittle's Home
Furnishings Center, Inc.). Trustee,
Parkstone Group of Funds and Parkstone
Advantage Fund, since 1998
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 63 October 1997; Director, National City
Bank until October 1997; Director,
Republic Engineered Steels, October 1997
to September 1998. Trustee, Parkstone
Group of Funds and Parkstone Advantage
Fund, since 1998
Richard W. Furst, Dean Trustee Garvice D. Kincaid Professor of Finance
2133 Rothbury Road and Dean, Gatton College of Business and
Lexington, KY 40515 Economics, University of Kentucky, since
Age 61 1981; Director, The Seed Corporation
(restaurant group), since 1990;
Director; Foam Design, Inc.,
(manufacturer of industrial and
commercial foam products), since 1993;
Director, Office Suites Plus, Inc.
(office buildings) since 1999;
Director, ihigh.com, Inc., (Internet
company) since 1999; Trustee,
Parkstone Group of Funds and Parkstone
Advantage Fund, since 1998
Gerald L. Gherlein Trustee Executive Vice-President and General
3679 Greenwood Drive Counsel, Eaton Corporation, since 1991
Pepper Pike, OH 44124 (global manufacturing); Trustee, WVIZ
Age 61 Educational Television (public
television). Trustee, Parkstone Group
of Funds and Parkstone Advantage Fund,
since 1998
</TABLE>
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<PAGE> 220
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
POSITION WITH DURING PAST 5 YEARS
NAME AND ADDRESS THE TRUST AND OTHER AFFILIATIONS
- ---------------- ------------ ----------------------
<S> <C> <C>
J. William Pullen Trustee President and Chief 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. Trustee, Parkstone
Group of Funds and Parkstone Advantage
Fund, since 1998
W. Bruce McConnel, III Secretary Partner, Drinker Biddle & Reath LLP,
One Logan Square Philadelphia, Pennsylvania (law firm).
18th and Cherry Streets
Philadelphia, PA 19103-6996
Age 56
John Leven Treasurer Director of Funds Accounting of SEI
One Freedom Valley Drive Investments since March 1999; Division
Oaks, PA 19456 Controller, First Data Corp. from
Age 42 February 1998 to March 1999; Corporate
Controller, FPS Services, a mutual
funds servicing company, from February
1993 to February 1998; Treasurer, FPS
Broker Services, Inc. from March 1993
to December 1998.
Edward T. Searle Assistant Treasurer Vice President and Assistant Secretary
One Freedom Valley Drive of SEI Investments Mutual Funds Services
Oaks, PA 19456 and SEI Investments Distribution Co.
Age 45 since August 1999; Associate, Drinker
Biddle & Reath LLP (law firm) from
June 1998 to August 1999; Associate,
Ballard Spahr Andrews & Ingersoll LLP
(law firm) from September 1995 to June
1998; Student, Temple University
School of Law, from 1992 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.
As of the date of this Statement of Additional Information,
the trustees of the Trust as a group owned beneficially less than 1% of the
outstanding shares of each of the Funds of the Trust, and less than 1% of the
outstanding shares of all of the Funds of the Trust in the aggregate.
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
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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 Mr. Searle are employed by SEI Investments
Mutual Funds Services, which receives fees as Administrator to the Trust. Mr.
Searle 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. The trustees and officers of the Trust own less than 1% of the
shares of the Trust.
The following table summarizes the compensation for each of
the Trustees of the Trust for the fiscal year ended May 31, 1999:
<TABLE>
<CAPTION>
Pension or Estimated
Aggregate Retirement Benefits Approval Total Compensation
Name of Compensation Accrued as Part of Benefits Upon from the Trust and
Person, Position from the Trust the Trust's Expense Retirement Fund Complex*
- ---------------- -------------- ------------------- ---------- -------------
<S> <C> <C> <C> <C>
Robert D. Neary, $26,198.80 $0 $0 $35,000
Chairman and Trustee
Leigh Carter, Trustee $22,394.43 $0 $0 $30,000
John F. Durkott, Trustee $22,394.43 $0 $0 $30,000
Robert J. Farling, Trustee $22,394.43 $0 $0 $30,000
Richard W. Furst, Trustee $22,394.43 $0 $0 $30,000
Gerald L. Gherlein, Trustee $22,394.43 $0 $0 $30,000
Herbert R. Martens, Jr., $ 0 $0 $0 $ 0
President and Trustee
J. William Pullen, Trustee $22,394.43 $0 $0 $30,000
</TABLE>
- ---------------------
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* 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
treated as if they had been invested by the Trust in the shares of one or more
portfolios of the Trust and 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 particular level of
compensation.
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.
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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 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. Prior to such dates,
National City Bank or an affiliate served as adviser to the Funds other than the
Core Equity Fund.
National Asset Management Corporation ("NAM") serves as
investment sub-adviser to the Core Equity Fund (the "sub-adviser"). 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,
National City Bank and its affiliates (including NAM until March 6, 1998) are
affiliates of National City Corporation, a bank holding company with $85 billion
in assets, and headquarters in Cleveland, Ohio and over 1,300 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) $2,360,071 (after
waivers of $0), $1,989,606 (after waivers of $0) and $982,053 with respect to
the Small Cap Value Fund; (ii) $8,840,432 (after waivers of $0), $2,395,579
(after waivers of $0), and $1,612,194 with respect to the Equity Growth Fund;
and (iii) $3,169,439 (after waivers of $0), $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 $1,723,308, $611,655, $947,557, (after fee
waivers of $0, $0 and $0) 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,
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<PAGE> 224
1999, the Tax Managed Equity Fund incurred advisory fees in the amount of
$1,302,931 (after fee waivers of $308,130) and $0 (after fee waivers of
$173,851). The Equity Index Fund commenced operations on July 10, 1998, and as
of May 31, 1999 paid advisory fees of $0 (after fee waivers of $503,834). The
Mid Cap Growth and Large Cap Ultra Funds have not yet commenced operations. The
Balanced Allocation Fund commenced operations on July 10, 1998. Advisory fees
were $422,278 (after fee waivers of $0) for the period from commencement of
operations until May 31, 1999.
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) $1,105,774 (after waivers of
$634,144), $404,823 (after waivers of $1,133,101), and $0 (after waivers of
$1,530,963) for the Total Return Advantage Fund; (ii) $1,057,813 (after waivers
of $396,680), $593,301 (after waivers of $222,488), and $550,261 (after waivers
of $118,288) for the Intermediate Bond Fund; and (iii) $172,808 (after waivers
of $173,823) $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)
$3,589,348 (after waivers of $0), $574,688 (after waivers of $0) and $485,145
(after fee waivers of $54,417) for the Bond Fund and (ii) $491,789 (after
waivers of $0), $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
$866,399, 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)
$11,464 and $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) $924,937 (after waivers
of $1,233,250), $742,324 (after waivers of $989,768) and $573,529 (after waivers
of $764,704), respectively, for the Tax Exempt Money Market Fund; (ii)
$8,013,996 (after waivers of $3,205,598), 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) $3,699,448 (after waivers of $1,479,779),
$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 $980,380 (after waivers of $196,076), $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.
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Pursuant to the Advisory Agreement, the Trust incurred
advisory fees in the amount of $203,004 (after waivers of $338,340) 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 September 15, 1998.
Advisory fees were $103,978 (after waivers of $157,160) for the period from
commencement of operations until May 31, 1999.
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 $71,985 for the fiscal year ended May 31, 1999 (after
waivers of $1,060,233) $0 for the fiscal year ended May 31, 1998 (after waivers
of $649,247) and $0 for the period from commencement of operations (January 5,
1990) to May 31, 1997 (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 Municipal Bond Fund advisory fees of $78,742 (after waivers of
$137,798) 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
Municipal Bond Fund) until May 31, 1997, National City Bank, the then adviser of
the Pennsylvania Municipal 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 Municipal 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
$36,100 (after waivers of $492,594) 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.
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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 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 Bond
and Pennsylvania Municipal 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
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<PAGE> 227
company or affiliate from acting as investment adviser, transfer agent, or
custodian to such an investment company. The Adviser believes that it may
perform the services for the Fund contemplated by its Advisory Agreement with
the Trust as described in such agreement without violation of applicable banking
laws or regulations. However, there are no controlling judicial precedents and
future changes in legal requirements relating to the permissible activities of
banks and their affiliates, as well as future interpretations of present
requirements, could prevent the Adviser from continuing to perform services for
the Trust. If the Adviser were prohibited from providing services to the Fund,
the Board of Trustees would consider selecting another qualified firm. Any new
investment advisory agreement would be subject to shareholder approval.
Should future legislative, judicial, or administrative action
prohibit or restrict the proposed activities of the Adviser, or its affiliated
and correspondent banks in connection with shareholder purchases of Fund shares,
the Adviser and its affiliated and correspondent banks might be required to
alter materially or discontinue the services offered by them to shareholders. It
is not anticipated, however, that any resulting change in the Trust's method of
operations would affect its net asset value per share or result in financial
losses to any shareholder.
If current restrictions preventing a bank or its affiliates
from legally sponsoring, organizing, controlling, or distributing shares of an
investment company were relaxed, the Adviser, or an affiliate of the Adviser,
would consider the possibility of offering to perform additional services 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 Investments Mutual Funds Services (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,
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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) 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: $116,269 (after
waivers of $0) and $8,857 (after waivers of $0) with respect to the
International Equity Fund; $180,236 (after waivers of $0) and $16,100 (after
waivers of $0) with respect to the Small Cap Value Fund; $45,999 (after waivers
of $0) and $4,252 (after waivers of $0) with respect to the Small Cap Growth
Fund; $830,212 (after waivers of $0) and $19,814 with respect to the Equity
Growth Fund (after waivers of $0); $150,366 (after waivers of $0) and $15,886
(after waivers of $0) with respect to the Tax Managed Equity Fund; $89,073
(after waivers of $0) and $6,096 (after waivers of $0) with respect to the Core
Equity Fund; and $295,814 (after waivers of $0) and $10,576 (after waivers of
$0) with respect to the Equity Income Fund.
The Equity Index Fund commenced operations on July 10, 1998,
and as of May 31, 1999 paid Administration fees of $100,767.
Prior to May 1, 1998, PFPC served as the administrator and
accounting agent to the Funds other than the Tax Managed Equity Fund and
National Tax Exempt Bond 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 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
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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 $41,193, $223,081, $457,444, $185,117, $62,591 and
$54,342, (after waivers $0, $0, $0, $0, $0 and $0) with respect to the Balanced
Allocation, 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 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 $144,100, $27,560 and $67,288 with respect to the
Ohio Tax Exempt, Pennsylvania Municipal and National Tax Exempt Bond Funds
(after waivers of $0, $0 and $0). 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)
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$36,010, for the fiscal period ended 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: $18,799 and $68,101,
respectively, and waived fees of $0 and $9,681, respectively.
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.
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) $65,115, $79,005 and
$37,703 respectively for the Treasury Fund.
For the fiscal year ending May 31, 1999, 1998 and 1997, the
Administrator earned administration fees of $74,228, $94,553, $431,637,
$2,261,919, $1,035,845 and $274,506, (after waivers of $0, $0, $0, $0, $0 and
$0) with respect to the Ohio Municipal Money Market, Pennsylvania Tax Exempt,
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.
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 ("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
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Distribution Agreements have been approved, and are subject to annual approval
by, a majority of the Trust's Board of Trustees, and by a majority of the
trustees who are not interested persons of the Trust and have no direct or
indirect interest in the operation of the Distribution Plans or any agreement
relating to the Distribution Plans, by vote cast in person at a meeting called
for the purpose of voting on the Distribution Plans and related agreements. In
compliance with the Rule, the trustees requested and evaluated information they
thought necessary to an informed determination of whether the Distribution Plans
and related agreements should be implemented, and concluded, in the exercise of
reasonable business judgment and in light of their fiduciary duties, that there
is a reasonable likelihood that the Distribution 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. 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 A Shares and Class I 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.
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 under the A and I Shares Plan and B Shares
Plan for its distribution services and shareholder service assistance:
FISCAL YEAR 1999 DISTRIBUTION FEES
PORTFOLIO DISTRIBUTION MARKETING/ TOTAL FEES
SERVICES CONSULTATION
International Equity Fund $ 14,752 $ 34,422 $ 49,174
Small Cap Value Fund $ 22,615 $ 52,768 $ 75,384
Small Cap Growth $ 5,934 $ 13,846 $ 19,779
Equity Growth Fund $116,102 $270,905 $387,008
Tax Managed Equity Fund $ 22,924 $ 53,490 $ 76,414
Core Equity Fund $ 11,995 $ 27,989 $ 39,985
Equity Index Fund* $ 9,917 $ 23,140 $ 33,058
Equity Income Fund $ 39,215 $ 91,501 $130,716
Balanced Allocation Fund $ 5,415 $ 12,635 $ 18,050
Total Return Advantage Fund $ 0
Bond Fund $ 61,780 $144,153 $205,933
Intermediate Bond Fund $ 24,457 $ 57,066 $ 81,523
GNMA Fund $ 7,736 $ 18,050 $ 25,786
Enhanced Income Fund $ 0
Ohio Tax Exempt Bond Fund $ 18,062 $ 42,145 $ 60,207
Pennsylvania Tax Exempt Bond Fund $ 0
National Tax Exempt Bond Fund $ 8,586 $ 20,034 $ 28,620
Ohio Municipal Money Market Fund $ 7,689 $ 17,942 $ 25,631
Pennsylvania Tax Exempt Money Market $ 12,011 $ 28,025 $ 40,035
Fund
Tax Exempt Money Market Fund $ 54,340 $126,793 $181,133
Money Market Fund $285,026 $665,060 $950,086
Government Money Market Fund $130,635 $304,814 $435,449
Treasury Money Market Fund $ 34,243 $ 79,901 $114,144
Mid Cap Growth Fund N/A
Large Cap Ultra Fund N/A
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PORTFOLIO DISTRIBUTION MARKETING/ TOTAL FEES
SERVICES CONSULTATION
U.S. Government Income Fund N/A
Michigan Municipal Bond Fund N/A
Treasury Plus Money Market Fund N/A
*The Equity Index Fund commenced operations on July 10, 1998.
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.
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;
(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. Each Fund
reimburses National City Bank for its direct and indirect costs and expenses
incurred in rendering custodial services.
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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 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;
(v) make periodic reports to the Board of Trustees
concerning the Fund's operations.
The Transfer Agent sends each shareholder of record periodic
statements showing the total number of shares owned as of the last business day
of the period (as well as the dividends paid during the current period 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
--------------------------
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, Mid Cap
Growth, U.S. Government Income and Large Cap Ultra Funds, of the net asset value
of such 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 .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, and the Enhanced Income Fund (B Shares only), of the net asset
value of such 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
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to their customers who are the beneficial owners of Class A Shares or Class B
Shares in consideration for the payment of up to .10% (on an annualized basis),
in the case of the Ohio Tax Exempt Bond, Pennsylvania Municipal Bond, National
Tax Exempt Bond and Michigan Municipal Bond Funds, and the Enhanced Income Fund
(A Shares only), 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 Shares or
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 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 $1,102,442, $780,933 and $421,322; $1,271,614, $1,398,444, and $803,733;
$249,890, $86,349 and $102,856; $0, $0 and $0 in brokerage commissions,
respectively. For the same periods, the Intermediate Bond and
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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 $726,464 and $290,141; $503,450 and $51,366; and $0 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 $26,801 and $0 in brokerage commissions. For the
period from commencement of operations (July 10, 1998) to May 31, 1999, the
Equity Index Fund paid brokerage commissions of $93,484. For the period from
commencement of operations (July 10, 1998) to May 31, 1999, the Balanced
Allocation Fund paid brokerage commissions of $33,019. 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 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 Municipal Bond Fund paid $0 and $0 in brokerage commission. For the
period from September 9, 1996 (date of reorganization of the Predecessor fund to
the Pennsylvania Municipal Bond Fund) until May 31, 1997, the Pennsylvania
Municipal 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 Municipal 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 $0 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 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.
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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.
The Adviser to the Fund has agreed to maintain a policy and
practice of conducting its investment management activities independently of its
respective commercial departments all of the Adviser's affiliates. In making
investment recommendations for the Trust, the Adviser's personnel will not
inquire or take into consideration whether the issuer of securities proposed for
purchase or sale for the Trusts' accounts are customers of the commercial
departments of all of the Adviser's affiliates.
Investment decisions for the Fund are made independently from
those for the other Funds and for other investment companies and accounts
advised or managed by the Adviser. Such other Funds, investment companies and
accounts may also invest in the same securities as the Fund. When a purchase or
sale of the same security is made at substantially the same time on behalf of
the Fund and another investment company or account, the transaction will be
averaged as to price, and available investments allocated as to amount, in a
manner which the Adviser believes to be equitable to the Fund and such other
investment company or account. In some instances, this investment procedure may
adversely affect the price paid or received by the Fund or the size of the
position obtained or sold by the Fund. In connection therewith, and to the
extent permitted by law, and by the 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.
During the last fiscal year, the following Funds engaged in
the directed brokerage transactions in the following amounts and for the
following commissions: the Equity Growth Fund, $304,941,120 in transactions and
$253,608 in commissions; the Small Cap Value Fund, $18,044,068 in transactions
and $76,449 in commissions; the Equity Income Fund, $34,973,766 in transactions
and $45,834 in commissions; the Small Cap Growth Fund, $5,745,685 in
transactions and $24,515 in commissions; the Core Equity Fund, $61,561,884 in
transactions and $33,610 in commissions; the Tax Managed Equity Fund, $7,098,518
in transactions and $9,917 in
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commissions; the Equity Index Fund, $86,663,189 in transactions and $28,093 in
commissions; the Balanced Allocation Fund, $31,999,895 in transactions and
$15,515 in commissions; the International Fund, $3,554,917 in transactions and
$7,698 in commissions.
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 statements of net assets
for each of the Funds, except for the Armada Balanced Allocation Fund, the
statement of asset and liabilities, including portfolio of investments, of the
Armada Balanced Allocation Fund as of May 31, 1999, and the related statement of
operations, statements of changes in net assets, and financial highlights for
each of the Funds for each of the periods indicated therein except for the
financial highlights of the Armada Bond Fund, Armada GNMA Fund, Armada
Pennsylvania Municipal Bond Fund, and Armada Pennsylvania Tax Exempt Money
Market Fund from April 30, 1995 through May 31, 1996, which are incorporated by
reference in this Statement of Additional Information, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report referred
to under "Financial Statements," and are incorporated by reference in reliance
upon the report given on the authority of such firm as experts in accounting and
auditing.
The financial highlights for the Armada Bond Fund, Armada GNMA
Fund, Armada Pennsylvania Municipal Bond Fund, and Armada Pennsylvania Tax
Exempt Money Market Fund from April 30, 1995 through May 31, 1996, which are
incorporated by reference in this Statement of Additional Information, were
audited by PricewaterhouseCoopers LLP, independent accountants, whose report
dated July 26, 1996 expressed an unqualified opinion on such financial
highlights, 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 Public Square, Cleveland, Ohio
44114-1304 act as special Ohio tax counsel for the Trust and have reviewed the
sections of this Statement of Additional Information entitled "Special Risk
Considerations Regarding Investment in Ohio Municipal Securities."
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
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rules of the SEC) by the net asset value per share on the last day of the period
and annualizing the result on a semi-annual basis by adding one to the quotient,
raising the sum to the power of six, subtracting one from the result and then
doubling the difference. The Fund's net investment income per share earned
during the period is based on the average daily number of shares outstanding
during the period entitled to receive dividends and includes dividends and
interest earned during the period minus expenses accrued for the period, net of
reimbursements. This calculation can be expressed as follows:
a-b to the 6th power
Yield = 2 [(------) - 1]
cd + 1
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.
d = maximum offering price per share on the last day
of the period.
The Equity Income, Balanced Allocation, Total Return
Advantage, Bond, Intermediate Bond, GNMA, Enhanced Income, the Tax-Exempt Funds,
Mid Cap Growth and U.S. Government Income 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.
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Expenses accrued for the period (variable "b" in the formula)
include all recurring fees charged by the Fund to all shareholder accounts in
proportion to the length of the base period and the Fund's mean (or median)
account size. Undeclared earned income will be subtracted from the net asset
value per share (variable "d" in the formula). Undeclared earned income is the
net investment income which, at the end of the 30-day base period, has not been
declared as a dividend, but is reasonably expected to be and is declared as a
dividend shortly thereafter. For applicable sales charges, see "How to Purchase
and Redeem Shares -- Sales Charges Applicable to Purchases of 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 B Shares for the
Equity Index Fund were issued or outstanding. Accordingly, no performance
information is available for Class B Shares of the Equity Index Fund.
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 Bond,
Pennsylvania Municipal Bond and National Tax Exempt Bond Funds were: 3.73% and
3.94%; 3.76% and 3.98%; and 3.56% and 3.85%, 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 6.99% and 7.38%, 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 and Class I shares for the same period were 6.53%
and 6.91%, 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 6.37%.
For the 30-day period ended May 31, 1999, the yield of the
Class B Shares of the National Tax Exempt Bond Fund was 3.00%.
For the 30-day period ended May 31, 1999, the yields of the
Class A and Shares 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 N/A and N/A, 2.86% and 3.27%, .33% and .63%, N/A and N/A,
.03%, and .67%, N/A and N/A, 1.48% and 1.77%, respectively.
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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 5.66% and 6.20%;
5.25% and 5.69%; 5.20%, and 5.73%; 5.49%, and 6.03%; and 5.18% and 5.44%,
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 4.73% and 4.78%,
respectively.
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 1/n
T = [(-----) - 1]
P
Where: T = average annual total return
ERV = ending redeemable value at the end of the
period covered by the computation of a
hypothetical $1,000 payment made at the
beginning of the period
P = hypothetical initial payment of $1,000
n = period covered by the computation, expressed in
terms of years
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 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.
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<PAGE> 242
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 (9.64)% (after taking the sales load into account) and (4.38)%
(without taking into account any sales load), for the Small Cap Value Fund's
Class A Shares, (9.40)% (after taking the sales load into account) and (5.13)%
(without taking into account any sales load) for its Class B Shares and (3.67)%
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 13.23% (after taking into account the sales load) and 14.57% (without
taking into account any sales load), for its Class A Shares, (6.21)% (after
taking the sales load into account) and (3.06)% (without taking into account any
sales load) for its Class B Shares, and 15.43% for the Class I Shares. The Fund
commenced operations December 20, 1989.
The average annual total returns for the one year period
ending May 31, 1999 were 13.30% (after taking the sales load into account) and
19.88% (without taking into account any sales load), for the Equity Growth
Fund's Class A Shares, 14.22% (after taking the sales load into account) and
19.22% (without taking into account any sales load) for its Class B Shares and
20.16% 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 14.97% (after taking into account the sales load) and 15.78%
(without taking into account any sales load), for its Class A Shares, 17.66%
(after taking the sales load into account) and 20.99% (without taking into
account any sales load) for its Class B shares, and 16.36% for the Class I
Shares. The Fund commenced operations December 20, 1989.
The average annual total returns for the one year period ended
May 31, 1999 were 16.24% (after taking the sales load into account) and 23.03%
(without taking into account any sales load), for the Tax Managed Equity Fund's
Class A Shares, 17.31% (after taking the sales load into account) and 22.31%
(without taking into account any sales load) for its Class B Shares and 22.82%
for its Class I Shares. The average annual total returns since the Tax Managed
Equity Fund's commencement of operations through May 31, 1999 were 17.22% (after
taking into account the sales load) and 17.66% (without taking into account any
sales load), for its Class A Shares, 17.63% (after taking the sales load into
account) and 17.63% (without taking into account any sales load) for its Class B
Shares, and 17.65% for the Class I shares.
The average annual total returns for the one year period ended
May 31, 1999 were 18.86% (after taking the sales load into account) and 25.76%
(without taking into account any sales load), for the Core Equity Fund's Class A
Shares, 20.17% (after taking the sales load into account) and 25.17% (without
taking into account any sales load) for its Class B Shares and 26.08% for its
Class I Shares. The average annual total returns since the Core Equity Fund's
shares. The average annual total returns since the Core Equity Fund's
commencement of operations through May 31, 1999 were 17.98% (after taking into
account the sales load) and 21.68% (without taking into account the sales load),
for its Class A Shares, 22.88% (after taking the sales load into account) and
26.16% (without taking into account any sales load) for its Class B Shares, and
21.94% for the Class I Shares.
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<PAGE> 243
The average annual total returns since the Equity Index Fund's
commencement of operations through May 31, 1999 were 32.33% (after taking into
account the sales load) and 39.76% (without taking into account any sales load),
for its Class A Shares, and 15.20% for the Class I Shares. As of May 31, 1999,
the Equity Index Fund had been operating for less than one year.
The average annual total returns for the one year period ended
May 31, 1999 were 4.32% (after taking the sales load into account) and 10.40%
(without taking into account any sales load), for the Equity Income Fund's Class
A Shares, 4.14% (after taking the sales load into account) and 9.14% (without
taking into account any sales load) for its Class B Shares and 10.62% 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 17.24%
(after taking into account the sales load) and 18.64% (without taking into
account any sales load), for its Class A Shares, 10.10% (after taking the sales
load into account) and 13.52% (without taking into account any sales load) for
its Class B Shares, and 18.93% for the Class I Shares. The Fund commenced
operations December 20, 1989.
The average annual total returns since the Balance Allocation
Fund's commencement of operations through May 31, 1999 were 2.55% (after taking
into account the sales load) and 8.71% (without taking into account any sales
load), for its Class A Shares, 1.94% (after taking the sales load into account)
and 11.02% (without taking into account any sales load) for its Class B Shares,
and 5.13% for the Class I Shares. As of May 31, 1999, the Equity Index Fund had
been operating for less than one year.
The average annual total returns for the Total Return
Advantage Fund's fiscal year ended May 31, 1999 were (1.71)% (after taking the
sales load into account) and 3.18% (without taking into account any sales load)
for its Class A Shares, and 3.54% for its Class I Shares. The average annual
total returns since the Total Return Advantage Fund's commencement of May 31,
1999 were 6.15% (after taking into account the sales load), and 7.25% (without
taking into account any sales load) for its Class A Shares and 7.65% for its
Class I Shares. The Class A Share class of the Total Return Advantage Fund
commenced operations on September 6, 1994 and the Class 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 (1.14)% (after taking the sales load into account)
and 3.77% (without taking into account any sales load) for its Class A Shares
and, (1.80)% (after taking the sales load into account) and 3.06% (without
taking into account any sales load) for its Class B Shares and 3.82% for its
Class I Shares. The average annual total returns since the Bond Fund's
commencement of operations through May 31, 1999 were 4.55% (after taking into
account the sales load) and 6.45% (without taking into account any sales load)
for its Class A Shares, (0.15)% (after taking the sales load into account) and
3.28% (without taking into account any sales load) for its Class B Shares and
6.52% for its Class I Shares. The Bond Fund commenced operations on August 10,
1994. The Class A Share class of the Bond Fund commenced operations on September
11, 1996,
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<PAGE> 244
the Class B Share class of the Bond Fund commenced operations on January 6,
1998, and the Class I Share class of the Bond Fund commenced operations on
August 10, 1998.
The average annual total returns for the Intermediate Bond
Fund's fiscal year ended May 31, 1999 were (1.38)% (after taking the sales load
into account) and 3.54% (without taking into account any sales load) for its
Class A Shares, (2.07)% (after taking the sales load into account) and 2.83%
(without taking into account any sales load) for its Class B Shares and 3.98%
for its Class I Shares. The average annual total returns since the Intermediate
Bond Fund's commencement of operations through May 31, 1999 were 5.95% (after
taking into account the sales load) and 6.59% (without taking into account any
sales load) for its Class A shares, (0.55)% (after taking the sales load into
account) and 2.92% (without taking into account any sales load) for its Class B
Shares, and 7.24% for its Class I Shares. The Class A Share class of the
Intermediate Bond Fund commenced operations on April 15, 1991, the Class B Share
class of the Intermediate Bond Fund commenced operations on January 8, 1998 and
the Class I Share class of 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 (1.19)% (after taking the sales load into account) and 3.77%
(without taking into account any sales load) for its Class A Shares and 4.02%
for its Class I Shares. The average annual total returns since the GNMA Fund's
commencement of operations through May 31, 1999 were 5.35% (after taking into
account the sales load) and 7.25% (without taking into account any sales load)
for its Class A Shares and 7.58% for its Class I Shares. The Class A Share class
of the GNMA Fund commenced operations on September 9, 1998 and the Class I Share
class of 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 2.01% (after taking the sales load
into account) and 4.94% (without taking into account any sales load) for its
Class A Shares and 5.14% for its Class I Shares. The average annual total
returns since the Enhanced Income Fund's commencement of operations through May
31, 1999 were 5.21% (after taking into account the sales load) and 5.84%
(without taking into account any sales load) for its Class A Shares and 5.91%
for its Class I Shares. The Class A Share class of the Enhanced Income Fund
commenced operations on September 9, 1994 and the Class 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 .84% (after taking into
account the sales load) and 3.93% (without taking into account any sales load)
for the Class A Shares and 3.94% for the Class I Shares. The average annual
total returns since the Fund's commencement of operations through May 31, 1999
were 5.51% (after taking into account the sales load) and 5.90% (without taking
into account any sales load) for the Class A Shares and 5.83% 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 Municipal Bond Fund were 1.11% (after taking
into account the sales load) and 4.21% (without taking into account any sales
load), for the Class A Shares and 4.21% for the Class
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<PAGE> 245
I Shares. The average annual total returns since the predecessor fund to the
Pennsylvania Municipal Bond Fund's commencement of operations through May 31,
1999 were 4.53% (after taking into account the sales load) and 5.70% (without
taking into account any sales load) for the Class A Shares and 5.36% for the
Class I Shares. The predecessor fund to the Pennsylvania Municipal Bond Fund
commenced investment operations on August 10, 1994.
The average annual total return since the predecessor fund to
the National Tax Exempt Bond Funds commencement of operations through May 31,
1999 was 7.05% for the Class I Shares. The predecessor fund to the National Tax
Exempt Bond commenced investment operations on July 31, 1984.
The average annual total returns for the International Equity
Fund for the one year period ending May 31, 1999 were (4.70)% (after taking into
account the sales load) and .84% (without taking into account any sales load)
for the Class A Shares, (4.90)% (after taking the sales load into account) and
.10% (without taking into account any sales load) for its Class B Shares and
.95% for the Class I Shares. The average annual total returns since the Fund's
commencement of operations through May 31, 1999 were 1.74% (after taking the
sales load into account) and 4.92% (without taking into account any sales load),
for the Class A shares, 8.15% (after taking the sales load into account) and
11.60% (without taking into account any sales load) for its Class B Shares and
5.24% for the International Equity Fund's Class I Shares. The Class A and Class
I Share classes of the International Equity Fund commenced operations on August
1, 1997 and the Class B Share class of the International Equity Fund commenced
operations on January 6, 1998.
The average annual total returns for the Small Cap Growth Fund
for the one year period ending May 31, 1999 were (17.36)% (after taking into
account the sales load) and (12.54)% (without taking into account any sales
load) for the Class A Shares, (17.55)% (after taking the sales load into
account) and (13.26)% (without taking into account any sales load) for its Class
B Shares and (12.36)% for the Class I Shares. The average annual total returns
since the Fund's commencement of operations through May 31, 1999 were (1.73)%
(after taking the sales load into account) and 1.35% (without taking into
account any sales load), for the Class A shares, (7.00)% (after taking the sales
load into account) and (3.56)% (without taking into account any sales load) for
its Class B Shares and 1.54% for the Class I Shares. The Class A Shares and
Class I Shares of the Small Cap Growth Fund commenced operations on August 1,
1997 and the Class B Share class of the Small Cap Growth Fund commenced
operations on January 6, 1998.
The average annual total returns for the Core Equity Fund for
the one year period ending May 31, 1999 were 18.86% (after taking into account
the sales load) and 25.78% (without taking into account any sales load) for the
Class A Shares, 20.17% (after taking the sales load into account) and 25.17%
(without taking into account any sales load) for its Class B Shares and 26.08%
for the Class I Shares. The average annual total returns since the Fund's
commencement of operations through May 31, 1999 were 17.98% (after taking the
sales load into account), and 21.68% (without taking into account any sales
load) for the Core Equity Fund's Class A Shares, 22.88% (after taking the sales
load into account) and 26.16% (without taking into account any sales load) for
its Class B Shares and 21.94% for the Core Equity Fund's Class I Shares. The
Class A
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<PAGE> 246
Shares and Class I Shares of the Core Equity Fund commenced operations
on August 1, 1997 and the Class B Share class of the Core Equity Fund commenced
operations on January 6, 1998.
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.
The Funds may also from time to time include discussions or
illustrations of the effects of compounding in Materials. "Compounding" refers
to the fact that, if dividends or other distributions on a Fund's investments
are reinvested by being paid in additional Fund shares, any future income or
capital appreciation of a Fund would increase the value, not only of the
original Fund investment, but also of the additional Fund shares received
through reinvestment. As a result, the value of a Fund's investments would
increase more quickly than if dividends or other distributions had been paid in
cash.
In addition, a Fund may also include in Materials discussions
and/or illustrations of the potential investment goals of a prospective
investor, investment management strategies, techniques, policies or investment
suitability of the Fund, high-quality investments, economic conditions, the
relationship between sectors of the economy and the economy as a whole, various
securities markets, the effects of inflation and historical performance of
various asset classes, including but not limited to, stocks, bonds and Treasury
securities. From time to time, Materials may summarize the substance of
information contained in shareholder reports (including the investment
composition of a Fund), as well as the views of the Adviser as to current
market, economic, trade and interest rate trends, legislative, regulatory and
monetary developments, investment strategies and related matters believed to be
of relevance to a Fund. Each 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 a Fund
and/or other mutual funds (such as value investing, market timing, dollar cost
averaging, asset allocation, constant ratio transfer, automatic accounting
rebalancing, the advantages and
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<PAGE> 247
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.
STANDARDIZED YIELD QUOTATIONS
-----------------------------
"Yields," as described in the Prospectus, are calculated
according to formulas prescribed by the SEC. The standardized seven-day yield
for a class of Fund shares is computed by determining the net change, exclusive
of capital changes, in the value of a hypothetical pre-existing account in the
class having a balance of one share at the beginning of the period, subtracting
a hypothetical charge reflecting deductions from shareholder accounts, dividing
the difference by the value of the account at the beginning of the base period
to obtain the base period return, and then multiplying the base period return by
(365/7). The net change in the value of an account in a class includes the value
of additional shares purchased with dividends from the original share, and
dividends declared on both the original share and any such additional shares,
net of all fees, other than nonrecurring account or sales charges, that are
charged to all shareholder accounts in proportion to the length of the base
period and the class' mean or median account size. The capital changes to be
excluded from the calculation of the net change in account value are realized
gains and losses from the sale of securities and unrealized appreciation and
depreciation. The "effective yield" for a class of Fund shares is computed by
compounding the unannualized base period return (calculated as above) by adding
1 to the base period return, raising the sum to a power equal to 365 divided by
7, and subtracting 1 from the result.
The Ohio Municipal, Pennsylvania Tax Exempt and Tax Exempt
Funds' "tax-equivalent yields" are computed by dividing the portion of those
Funds' yields (calculated as above) that is exempt from federal income tax by
one minus a stated federal income tax rate (using 39.6% tax bracket) and adding
that figure to that portion, if any, of the respective Fund's yield that is not
exempt from federal income tax.
For the seven-day period ended May 31, 1999, the yields of the
Class A Shares and Class I Shares of the Pennsylvania Tax Exempt Fund, Tax
Exempt Fund, Money Market Fund, Government Fund and Treasury Fund were 2.78% and
2.93%, 2.73% and 2.87%, 4.42% and 4.57%, 4.33% and 4.48%, and 3.96% and 4.11%,
respectively, and their respective effective yields were 2.82% and 2.97%, 2.76%
and 2.91%, 4.52% and 4.68%, 4.43% and 4.58%, and 4.03% and 4.19%, respectively.
For the seven-day period ended May 31, 1999, the yield of the Class B Shares of
the Money Market Fund was 3.70%.
For the Pennsylvania Tax Exempt and Tax Exempt Funds, the
tax-equivalent effective yields (assuming a 39.6% federal tax rate in the case
of both Funds and a 2.8% Pennsylvania tax rate in the case of the Pennsylvania
Tax Exempt Fund) for their Class A Shares and Class I Shares for the seven-day
period ended May 31, 1999 were 4.90% and 5.16%, and 4.57% and 4.82%,
respectively.
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<PAGE> 248
The current yield for each class of shares in a Fund may be
obtained by calling the Trust at the telephone number provided on the cover
page. Quoted yields are not indicative of future yields. Yields will depend upon
factors such as fund maturity, the Fund's expenses and the types of instruments
held by the Fund.
The Funds may also from time to time include discussions or
illustrations of the effects of compounding in Materials. "Compounding" refers
to the fact that, if dividends or other distributions on a Fund investment are
reinvested by being paid in additional Fund shares, any future income or capital
appreciation of a Fund would increase the value, not only of the original Fund
investment, but also of the additional Fund shares received through
reinvestment. As a result, the value of the Fund investment would increase more
quickly than if dividends or other distributions had been paid in cash.
In addition, the Funds may also include in Materials
discussions and/or illustrations of the potential investment goals of a
prospective investor, investment management strategies, techniques, policies or
investment suitability of a Fund, high-quality investments, economic conditions,
the relationship between sectors of the economy and the economy as a whole,
various securities markets, the effects of inflation and historical performance
of various asset classes, including but not limited to, stocks, bonds and
Treasury securities. From time to time, Materials may summarize the substance of
information contained in shareholder reports (including the investment
composition of a Fund), as well as the views of the Adviser as to current
market, economic, trade and interest rate trends, legislative, regulatory and
monetary developments, investment strategies and related matters believed to be
of relevance to a Fund. The Funds may also include in Materials charts, graphs
or drawings which compare the investment objective, return potential, relative
stability and/or growth possibilities of the Funds and/or other mutual funds, or
illustrate the potential risks and rewards of investment in various investment
vehicles, including but not limited to, stocks, bonds, Treasury securities and
shares of a Fund and/or other mutual funds. Materials may include a discussion
of certain attributes or benefits to be derived by an investment in a Fund
and/or other mutual funds (such as value investing, market timing, dollar cost
averaging, asset allocation, constant ratio transfer, automatic accounting
rebalancing, the advantages and disadvantages of investing in tax-deferred and
taxable investments), shareholder profiles and hypothetical investor scenarios,
timely information on financial management, tax and retirement planning and
investment alternatives to certificates of deposit and other financial
instruments. Such Materials may include symbols, headlines or other material
which highlight or summarize the information discussed in more detail therein.
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<PAGE> 249
<TABLE>
<CAPTION>
Aggregate Total Return
Aggregate Total Return From From Inception Through
Inception Through 5/31/99 5/31/99 (without
(with Deduction of Maximum Deduction for
Sales Charge) Any Sales Charge) Inception Date
------------- ----------------- --------------
<S> <C> <C> <C>
Armada International Equity Fund
Class A 3.21% 9.19% 08/01/97
Class I N/A 9.80% 08/01/97
Class B 11.57% 16.57% 01/06/98
Armada Small Cap Value Fund
Class A 81.47% 92.00% 08/15/94
Class I N/A 100.58% 07/26/94
Class B -8.57% -4.26% 01/06/98
Armada Small Cap Growth Fund
Class A -3.14% 2.48% 08/01/97
Class I N/A 2.85% 08/01/97
Class B -9.64% 4.94% 01/06/98
Armada Equity Growth Fund
Class A 210.04% 228.06% 04/15/91
Class I N/A 318.50% 12/20/89
Class B 25.51% 30.51% 01/06/98
Armada Tax Managed Equity Fund*
Class A 971.75% 1033.58% 05/11/98
Class I 1031.70% N/A 04/09/98
Class B 1027.03% 1027.03% 05/04/98
Armada Core Equity Fund
Class A 35.35% 43.20% 08/01/97
Class I N/A 43.77% 08/01/97
Class B 33.36% 38.36% 01/06/98
Armada Equity Index Fund
Class A 20.20% 24.83%
Class I 14.16% N/A 10/15/99
Class B N/A N/A 07/10/98
Armada Equity Income Fund
Class A 113.69% 126.18% 08/22/94
Class I N/A 134.59% 07/01/94
Class B 14.39% 19.39% 01/06/98
Armada Balanced Allocation Fund
Class A 2.12% 7.26% 07/31/98
Class I N/A 4.57% 07/10/98
Class B 1.07% 6.07% 11/11/98
Armada Total Return Advantage Fund
Class A 32.63% 39.29% 09/06/94
Class I N/A 43.53% 07/07/94
Class B N/A N/A 08/16/99
</TABLE>
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<PAGE> 250
<TABLE>
<CAPTION>
Aggregate Total Return
Aggregate Total Return From From Inception Through
Inception Through 5/31/99 5/31/99 (without
(with Deduction of Maximum Deduction for
Sales Charge) Any Sales Charge) Inception Date
------------- ----------------- --------------
<S> <C> <C> <C>
Armada Bond Fund
Class A 12.87% 18.53% 09/11/96
Class I N/A 35.50% 08/10/94
Class B -0.20% 4.61% 01/06/98
Armada Intermediate Bond Fund
Class A 59.79% 67.83% 04/15/91
Class I N/A 93.55% 12/20/89
Class B -0.76% 4.10% 01/06/98
Armada GNMA Fund
Class A 15.21% 20.96% 09/11/96
Class I N/A 42.12% 08/10/94
Class B N/A N/A 08/16/99
Armada Enhanced Income Fund
Class A 27.12% 30.77% 09/09/94
Class I N/A 32.48% 07/07/94
Class B N/A N/A 08/16/99
Armada Ohio Tax Exempt Bond Fund
Class A 54.48% 59.21% 04/15/91
Class I N/A 70.37% 01/05/90
Class B N/A N/A
Armada Pennsylvania Municipal Bond Fund
Class A
Class I 12.80% 16.26% 09/11/96
Class B N/A 28.52% 08/10/94
N/A N/A
Armada National Tax Exempt Bond
Fund*
Class A 161.72% 174.72% 06/22/98
Class I 174.82% N/A 04/09/98
Class B 174.23% 174.23% 01/28/99
Armada Balanced Allocation Fund
Class A 2.12% 7.26% 07/31/98
Class I 4.57% N/A 07/10/98
Class B 1.07% 6.07% 11/11/98
</TABLE>
* Includes the history of a predecessor common trust fund which commenced
operations July 31, 1994.
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
-122-
<PAGE> 251
Fund's performance with other measures of investment return. For example, in
comparing the Fund's total return with data published by Lipper Analytical
Services, Inc., CDA Investment Technologies, Inc. or Weisenberger Investment
Company Service, or with the performance of an index, the Fund may calculate its
aggregate total return for the period of time specified in the advertisement or
communication by assuming the investment of $10,000 in shares and assuming the
reinvestment of each dividend or other distribution at net asset value on the
reinvestment date. Percentage increases are determined by subtracting the
initial value of the investment from the ending value and by dividing the
remainder by the beginning value. The Fund does not, for these purposes, deduct
from the initial value invested or the ending value redeemed any amount
representing sales charges. The Fund will, however, disclose the maximum sales
charge and will also disclose that the performance data do not reflect sales
charges and that inclusion of sale charges would reduce the performance quoted.
The 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.
-123-
<PAGE> 252
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, 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.
-124-
<PAGE> 253
As of October 20, 1999, the following persons owned of record 5 percent
or more of the shares of the Funds of the Trust:
International Equity Fund
- -------------------------
(Class A Shares)
- ----------------
<TABLE>
<CAPTION>
OUTSTANDING SHARES PERCENTAGE
<S> <C> <C>
Second National Bank TTEE 7,415.4260 5.67%
FBO Thomas Crago
Keogh Profit Sharing Plan
108 Main Ave. SW
Warren, OH 44481-1058
International Equity Fund
- -------------------------
(Class B Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
Shore West Construction 401(k) Plan 391.7150 5.71%
Kenneth M. Sokol
Attn: Barbara Beyer
Personal and Confidential
23826 Lorain Road
North Olmsted, OH 44070-2226
Shore West Construction 401(k) Plan 432.5180 6.31%
Mark A. Giel
Attn: Barbara Beyer
Personal and Confidential
23826 Lorain Road
North Olmsted, OH 44070-2226
Shore West Construction 401(k) Plan 420.1730 6.13%
Audrey M. Sokol
Attn: Barbara Beyer
Personal and Confidential
23826 Lorain Road
North Olmsted, OH 44070-2226
First Clearing Corporation 1,498.5200 21.86%
A/C 4499-9888
Dale I. Isenberg IRA
WFS as Custodian
1190 Parkside Dr.
Limestone, NY 14753-9704
</TABLE>
-125-
<PAGE> 254
<TABLE>
<CAPTION>
<S> <C> <C>
First Clearing Corporation 1,101.3470 16.06%
A/C 2124-6203
Paul C. Carver IRA
WFS as Custodian
314 Concord Circle Rd
Beaver Falls, PA 15010-8516
First Clearing Corporation 442.8700 6.46%
A/C 7062-5091
Mary C. Roberts IRA
WFS as Custodian
12107 Southeastern Ave.
Acton, IN 46259-1140
First Clearing Corporation 645.6820 9.42%
A/C 2919-9357
Nathaniel Dungy IRA R/O
WFS as Custodian 14490 Washington Blvd.
University Hts., OH 44118-4665
International Equity Fund
- -------------------------
(Class I Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
KeyTrust Co. TTEE FBO 1,168,102.7200 5.62%
Foundation Balanced Fund
A/C 04 66 300
P.O. Box 94871
Cleveland, OH 44101-4871
Sheldon & Co. TTEE 6,742,845.4630 32.42%
c/o National City Bank
Trust Mutual Funds
P.O. Box 94984
Cleveland, OH 44101-4984
National City Bank 10,877,414.8650 52.30%
c/o Sheldon & Co.
Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
</TABLE>
-126-
<PAGE> 255
<TABLE>
<CAPTION>
Small Cap Value Fund
- --------------------
(Class A Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
<S> <C> <C>
Corelink Financial, Inc. 107,798.4690 12.99%
P.O. Box 4054
Concord, CA 94524-4054
Small Cap Value Fund
- --------------------
(Class B Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
First Clearing Corporation 2,891.8160 6.28%
A/C 5072-0540
Judith E. Lewis IRA R/O
WFS as Custodian
1800 W. Wallings Rd.
Broadview Hts., OH 44147-1137
Small Cap Value Fund
- --------------------
(Class I Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
National City Bank 1,257,040.3890 6.31%
Attn: Trust Mutual Funds
P.O. Box 94984
Cleveland, OH 44101-4984
National City Bank, Whitelaw & Co. 2,351,009.7230 11.81%
Daily Valuation Account
P.O. Box 94777
Attn: Trust Mutual Funds
Cleveland, OH 44101-4777
Sheldon & Co. (Reinv) 5,788,642.6210 29.08%
Attn: Trust Mutual Funds
A/C 10023342
P.O. Box 94777
Cleveland, OH 44101-4777
Sheldon & Co. 6,366,522.3020 31.98%
P.O. Box 94984
Attn: Trust Mutual Funds
Cleveland, OH 44101-4984
</TABLE>
-127-
<PAGE> 256
<TABLE>
<CAPTION>
<S> <C> <C>
Sheldon & Co. (Cash/Reinv) 2,289,281.3500 11.50%
C/O National City Bank
Attn: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Small Cap Growth Fund
- ---------------------
(Class A Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
Second National Bank TTEE 7,627.9540 5.70%
FBO Thomas Crago
Keogh Profit Sharing Plan
108 Main Ave. SW
Warren, OH 44481-1058
Small Cap Growth Fund
- ---------------------
(Class B Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
First Clearing Corporation 3,234.7500 19.27%
A/C 3226-1441
Catherine E. Fisher DCDNT IRA
FBO John Clarence Fisher
527 Beecher St.
Louisville, KY 40215-2803
First Clearing Corporation 1,157.2660 6.89%
A/C 4421-4137
William S. Irwin and
Joan A. Irwin
4008 Kurtz Ave.
Louisville, KY 40229-1136
First Clearing Corporation 5,235.6020 31.19%
A/C 5732-8021
Keith A. Monnett IRA
WFS as Custodian 716 Castleton Dr.
Greencastle, IN 46135-1104
First Clearing Corporation 1,158.9220 6.00%
A/C 3957-2081
Nick Hardie &
Shirley Hardie JT Ten
1333 West 32nd SE
Holland, MI 49423-6780
</TABLE>
-128-
<PAGE> 257
<TABLE>
<CAPTION>
<S> <C> <C>
First Clearing Corporation 1,782.5310 10.62%
A/C 8349-0905
Virgil C. Thorson and
Marlys M. Thorson
6125 Waterside Dr.
Fort Wayne, IN 46814-3267
Small Cap Growth Fund
- ---------------------
(Class I Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
Sheldon & Co. (Reinv) 558,203.4700 6.63%
Attn: Trust Mutual Funds
Account #10023342
P.O. Box 94777
Cleveland, OH 44101-4777
Sheldon & Co. TTEE 3,446,118.7630 40.94%
c/o National City Bank
Trust Mutual FDS
P.O. Box 94984
Cleveland, OH 44101-4984
National City Bank 3,502,161.0840 41.60%
c/o Sheldon & Co
Trust Mutual FDS
P.O. Box 94777
Cleveland, OH 44101-4777
Equity Growth Fund
- ------------------
(Class A Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
State Street Bank & Trust TTEE 4,867,027.2710 77.28%
FBO First Energy Corp.
Savings Plan
DTD 7/1/98
105 Rosemont Ave. WES/IN
Westwood, MA 02090-2318
</TABLE>
-129-
<PAGE> 258
<TABLE>
<CAPTION>
Equity Growth Fund
- ------------------
(Class B Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
<S> <C> <C>
First Clearing Corporation 6,925.7410 9.03%
A/C 4815-5374
Ernest Kline IRA
WFS as Custodian
12 Deerfield Lane
Beechwood, OH 44122-7502
Equity Growth Fund
- ------------------
(Class I Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
Whitelaw & Co. 13,506,124.4460 27.99%
Daily Valuation Acct.
Attn: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Sheldon & Co. 12,514,626.1290 25.93%
c/o National City Bank
Attn: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Sheldon & Co. 6,495,090.9460 13.46%
Attn: Trust Mutual Funds
P.O. Box 94984
Cleveland, OH 44101-4984
Sheldon & Co. (Cash/Reinv) 12,734,750.5760 26.39%
c/o National City Bank
Attn: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
</TABLE>
-130-
<PAGE> 259
<TABLE>
<CAPTION>
Tax Managed Equity Fund
- -----------------------
(Class A Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
<S> <C> <C>
First Clearing Corporation 52,528.0920 5.77%
A/C 7100-2062
Ann Ruhlin-Levine Rev. Trust
Ann Ruhlin-Levine TTEE
22 Hemlock Dr.
Grand Island, NY 14072-3315
National Financial Services Corp. 79,845.8760 8.77%
FBO Allison Vanharesveldt
A/C #241-257923
200 Liberty Street, Floor 5
New York, NY 10281-5500
Tax Managed Equity Fund
- -----------------------
(Class I Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
Sheldon & Co., TTEE 9,315,467.1090 49.08%
c/o National City Bank
Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Sheldon & Co., TTEE 9,330,928.1780 49.17%
c/o National City Bank
Attn: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Core Equity Fund
- ----------------
Class (A) Shares
- ----------------
OUTSTANDING SHARES PERCENTAGE
Harrel Builders Supply Co., Inc. PS PL 11,187.6850 6.08%
George W. Harrel
Attn: Tracey Harrel, Jr.
Personal and Confidential
100 E. LaFayette Street
Winfield, LA 71483-3280
</TABLE>
-131-
<PAGE> 260
<TABLE>
<CAPTION>
Core Equity Fund
- ----------------
(Class I Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
<S> <C> <C>
Sheldon & Co. 10,033,903.7160 93.98%
c/o National City Bank
Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Equity Index Fund
- -----------------
(Class I Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
National City Bank 6,746,868.0010 25.14%
Attn: Trust Mutual Funds
P.O. Box 94984
Cleveland, OH 44101-4984
National City Bank 2,469,860.9220 9.20%
Attn: Trust Mutual Funds
P.O. Box 94984
Cleveland, OH 44101-4984
Whitelaw & Co. 9,458,258.7570 35.24%
Daily Valuation Account
Attn: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Sheldon & Co. (Reinv) 5,614,143.5470 20.92%
Attn: Trust Mutual Funds
Account # 10023342
P.O. Box 94777
Cleveland, OH 44101-4777
Whitelaw & Co. - Voyage 1,398,551.5180 5.21%
P.O. Box 94777
Attn: Trust Mutual Funds
Cleveland, OH 44101-4777
First Clearing Corporation 26,642.9840 5.79%
A/C 5343-7901
Robert I. Martin MD IRA
WFS as Custodian
708 Conn Road
Hanna City, IL 61536-9609
</TABLE>
-132-
<PAGE> 261
<TABLE>
<CAPTION>
Equity Income Fund
- ------------------
(Class A Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
<S> <C> <C>
National Financial Services Corp. 61,338.8190 8.82%
For the Exclus. Ben. of our Customer
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
Equity Income Fund
- ------------------
(Class B Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
First Clearing Corporation 3,871.5300 5.80%
A/C 5072-0540
Judith E. Lewis IRA R/O
WFS as Custodian
1800 W. Wallings Rd.
Broadview Hts., OH 44147-1137
First Clearing Corporation 4,035.4370 6.05%
A/C 1182-2774
Walter S. Archer IRA R/O
WFS as Custodian
69 E. Schaaf Road
Brooklyn Hts., OH 44131-1201
Equity Income Fund
- ------------------
(Class I Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
Whitelaw & Co. 1,501,892.9070 5.08%
Daily Valuation Account
P.O. Box 94777
Attn: Trust Mutual Funds
Cleveland, OH 44101-4777
Sheldon & Co. (Reinv) 8,028,084.1510 27.17%
Attn: Trust Mutual Funds
Account #1023342
P.O. Box 94777
Cleveland, OH 44101-4777
Sheldon & Co. 4,489,974.6330 15.19%
Attn: Trust Mutual Funds
P.O. Box 94984
Cleveland, OH 44101-4984
</TABLE>
-133-
<PAGE> 262
<TABLE>
<CAPTION>
<S> <C> <C>
Sheldon & Co. (Cash/Reinv) 13,646,573.0850 46.18%
c/o National City Bank
Attn: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Balanced Allocation Fund
- ------------------------
(Class A Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
Janitor Supplies Inc. P/S Plan 43,642.0710 17.58%
Conversion Holding Account
1612 S. Neil St
Champaign, IL 61820-7212
First Clearing Corporation 26,635.2160 10.73%
A/C 6995-3098
Steven R. Schlater
Marlene L. Schlater
9900 Klipstine Road
Versailles, OH 45380-9584
Balanced Allocation Fund
- ------------------------
(Class B Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
First Clearing Corporation 5,750.6240 14.48%
A/C 4892-6313
Willy P. Kutschke
RR 3 Box 140
Sugar Grove, PA 16350-9113
First Clearing Corporation 3,231.1740 8.14%
A/C 5159-5306
Wayne W. Loomis & Lois S. Loomis
4 Pleasant Drive
Youngsville, PA 16371-9643
First Clearing Corporation 3,280.3130 8.26%
A/C 7477-1439
Barbara A. Stanford &
Herbert L. Stanford
104 Main Street
North Warren, PA 16365-4618
</TABLE>
-134-
<PAGE> 263
<TABLE>
<CAPTION>
<S> <C> <C>
First Clearing Corporation 3,358.9250 8.46%
A/C 2135-7612
Wanda Cassell IRA
WFS AS Custodian
3310 Teakwood Circle
Louisville, KY 40216-3107
First Clearing Corporation 2,346.7860 5.91%
A/C 5095-4553
Judy L. Limbrick IRA
WFS AS Custodian
2315 Fluhrs Lane
Louisville, KY 40216-1419
First Clearing Corporation 3,468.6580 8.74%
A/C 3607-7352
Mary M. Goodman
710 West Washington Street
Bradford, PA 16701-2631
Balanced Allocation Fund
- ------------------------
(Class I Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
National City Bank 1,341,814.2120 19.66%
Attn: Trust Mutual Funds
P.O. Box 94984
Cleveland, OH 44101-4984
Whitelaw & Co. 2,441,748.4000 35.77%
Daily Valuation Acct.
Attn: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Sheldon & Co. (Reinv) 2,933,909.9690 42.98%
Attn: Trust Mutual Funds
Account #10023342
P.O. Box 94777
Cleveland, OH 44101-4777
</TABLE>
-135-
<PAGE> 264
<TABLE>
<CAPTION>
Total Return Advantage Fund
- ---------------------------
(Class A Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
<S> <C> <C>
Capinco 123,416.2030 19.73%
c/o Firstar East
P.O. Box 1787
Milwaukee, WI 53201-1787
Fifth Third Bank 187,944.2540 30.04%
TTEE IBEW 688 RET SA
P.O. Box 630074
Cincinnati, OH 45263-0001
Fifth Third Bank TTEE 193,674.5400 30.96%
FBO IBEW 688 Pension
52-2-7034515
P.O. Box 630074
Cincinnati, OH 45263-0001
Total Return Advantage Fund
- ---------------------------
(Class B Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
SEI Investments Co. 10.3350 45.07%
Attn: Rob Silverstri
One Freedom Valley Drive
Oaks, PA 19456
Audit National City 12.5960 54.93%
National City Participant
P.O. Box 8431
Boston, MA 02266-8431
Total Return Advantage Fund
- ---------------------------
(Class I Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
Sheldon & Co. (Reinv) 18,683,073.0480 57.42%
Attn: Trust Mutual Funds
P.O. Box 94984
Cleveland, OH 44101-4984
</TABLE>
-136-
<PAGE> 265
<TABLE>
<CAPTION>
<S> <C> <C>
Sheldon & Co. 7,057,420.3030 21.69%
P.O. Box 94777
Attn: Trust Mutual Funds
Cleveland, OH 44101-4777
Sheldon & Co. TTEE 4,925,097.3860 15.14%
c/o National City Bank
P.O. Box 94777
Attn: Trust Mutual Funds
Cleveland, OH 44101-4777
Bond Fund
- ---------
(Class A Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
AAL Trust Company FSB 23,759.4720 6.40%
FBO Harold W. Braun Irrev. Tr.
U/A DTD 8/31/79
Attn: Cheryl Klein
P.O. Box 2977
Milwaukee, WI 53202-2977
First Clearing Corporation 46,561.9830 12.53%
A/C 1302-8189
Baldwin & Sours PSP & TR
Thomas Sours TTEE
5263 Trabue Road
Columbus, OH 43228-9564
Bond Fund
- ---------
(Class B Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
First Clearing Corporation 4,088.0800 5.54%
A/C 4499-9888
Dale I. Isenberg IRA
WFS as Custodian
1190 Parkside Drive
Limestone, NY 14753-9704
First Clearing Corporation 3,762.1010 5.09%
A/C 7786-3557
Charles D. Thompson IRA
WFS as Custodian
4604 Dannywood Road
Louisville, KY 40220-1053
</TABLE>
-137-
<PAGE> 266
<TABLE>
<CAPTION>
<S> <C> <C>
First Clearing Corporation 4,759.8530 6.45%
A/C 6242-7306
James M. Pearl IRA
WFS as Custodian
3130 Kaye Lawn Drive
Louisville, KY 40220-2713
First Clearing Corporation 14,942.0540 20.23%
A/C 2065-0386
Carborundum Grinding Wheel Co.
Savings Plan
1011 E. Front Street
P.O. Box 759
First Clearing Corporation 4,072.6200 5.51%
A/C 5610-2760
Judy A. Messett
1855 Farrell Terrace
Farrell, PA 16121-1332
First Clearing Corporation 3,878.8560 5.25%
A/C 5717-0934
Joseph D. Masso
4155 West 144th
Cleveland, OH 44135-2053
</TABLE>
-138-
<PAGE> 267
<TABLE>
<CAPTION>
Bond Fund
- ---------
(Class I Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
<S> <C> <C>
Whitelaw & Co. 10,429,057.0610 14.22%
Daily Valuation Acct
Attn: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Shelden & Co
c/o National City Bank 8,269,828.3420 11.27%
Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Sheldon & Co 11,511,463.3980 15.69%
Attn: Trust Mutual Funds
P.O. Box 94984
Cleveland, OH 44101-4984
Sheldon & Co. (Cash/Reinv) 41,414,557.2910 56.46%
c/o National City Bank
Attn: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Intermediate Bond Fund
- ----------------------
(Class A Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
Mertru & Co. 30,637.8570 5.89%
c/o American National Trust and Investment
Management Co.
320 S. High Street
Muncie, IN 47305-2325
National Financial Services Corp. 88,343.6210 16.99%
For the Exclus Ben of our Customer
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
</TABLE>
-139-
<PAGE> 268
<TABLE>
<CAPTION>
Intermediate Bond Fund
- ----------------------
(Class B Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
<S> <C> <C>
First Clearing Corporation 4,808,8850 8.84%
A/C 7786-3557
Charles D. Thompson IRA
WFS as Custodian
4604 Dannywood Road
Louisville, KY 40220-1053
First Clearing Corporation 2,906.7030 5.34%
A/C 7822-5634
Janet Sadecky IRA
WFS as Custodian
145 Illinois Drive
Lower Burrell, PA 15068-3022
First Clearing Corporation 4,128.4830 7.59%
A/C 3167-9506
Robert Fello Sr. IRA
WFS as Custodian
216 Holmes Street
Vandergrift, PA 15690-1621
First Clearing Corporation 3,385.1560 6.22%
A/C 7005-7606
Robert L. Robinson IRA
WFS as Custodian
6107 Diablo Ct.
Louisville, KY 40219-5236
First Clearing Corporation 3,198.6500 5.88%
A/C 2124-6203
Paul C. Carver IRA
WFS as Custodian
314 Concord Circle Road
Beaver Falls, PA 15010-8516
First Clearing Corporation 5,853.5620 10.76%
A/C 6581-8618
Marie A. Pace IRA
WFS as Custodian
305 Irvine Road
Lexington, KY 40502-1817
</TABLE>
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<TABLE>
<CAPTION>
Intermediate Bond Fund
- ----------------------
(Class I Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
<S> <C> <C>
Sheldon & Co. (Reinv) 3,901,984.2650 13.21%
Attn: Trust Mutual Funds
Account #10023342
P.O. Box 94984
Cleveland, OH 44101-4984
Sheldon & Co. 7,474,150.7630 25.31%
P.O. Box 94984
Attn: Trust Mutual Funds
Cleveland, OH 44101-4984
Sheldon & Co. 12,638,543.9510 42.79%
Attn: Trust Mutual Funds
P.O. Box 94984
Cleveland, OH 44101-4984
SEI Trust Company 3,979,371.7850 13.47%
Attn: Mutual Fund Administrator
One Freedom Valley Drive
Oaks, PA 19456
GNMA Fund
- ---------
(Class B Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
Shore West Construction 401(k) Plan 1,886.5620 51.01%
Kenneth M. Sokol
Attn: Barbara Beyer
Personal and Confidential
23826 Lorain Rd
North Olmsted, OH 44070-2226
Shore West Construction 401(k) Plan 1,517.0960 41.02%
Audrey M. Sokol
Attn: Barbara Byer
Personal and Confidential
23826 Lorain Rd
North Olmsted, OH 44070-2226
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
Shore West Construction 401(k) Plan
Carol A. Van Blarcom
Attn: Barbara Beyer
Personal and Confidential
23826 Lorain Rd
North Olmsted, OH 44070-2226 213.3950 5.77%
GNMA Fund
- ---------
(Class I Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
Sheldon & Co. 830,180.8200 7.98%
c/o National City Bank
Attn: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Sheldon & Co. TTEE 7,533,077.0330 72.39%
c/o National City Bank
Trust Mutual FDS
P.O. Box 94984
Cleveland, OH 44101-4984
National City Bank 1,608,279.5780 15.46%
c/o Sheldon & Co.
Trust Mutual FDS
P.O. Box 94777
Cleveland, OH 44101-4777
Enhanced Income Fund
- --------------------
(Class A Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
Radco Industries Inc 401(k) Plan 2,621.5080 5.07%
Randy Orner
Attn: Jim Paul
Personal and Confidential
3226 Frenchmen's Road
Toledo, OH 43607-2919
First Clearing Corporation 19,371.5730 37.48%
A/C 1882-1036
Harvey M. Brunner, Jr. IRA
WFS as Custodian
700 Brick Mill Run, Apt. 106
Westlake, OH 44145-1655
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
First Clearing Corporation 4,247.8560 8.22%
A/C 8506-3444
Arthur A. Winkel IRA R/O
WFS as Custodian
47935 Hanford
Canton, MI 48187-5421
Enhanced Income Fund
- --------------------
(Class B Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
Shore West Construction 401(k) Plan 4,058.9020 50.65%
Gary Scothon
Attn: Barbara Beyer
Personal and Confidential
23826 Lorain Rd
North Olmsted, OH 44070-2226
Shore West Construction 401(k) Plan 1,891.9030 23.61%
Kenneth M. Sokol
Attn: Barbara Beyer
Personal and Confidential
23826 Lorain Rd
North Olmsted, OH 44070-2226
Shore West Construction 401(k) Plan 1,521.5610 18.99%
Audrey M. Sokol
Attn: Barbara Beyer
Personal and Confidential
23826 Lorain Rd
North Olmsted, OH 44070-2226
Enhanced Income Fund
- --------------------
(Class I Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
Sheldon & Co. (Reinv) 3,724,536.9080 45.44%
Future Quest
c/o National City Bank
Attn: Trust Mutual Funds/01-999999774
P.O. Box 94777
Cleveland, OH 44101-4777
Sheldon & Co. 3,038,938.0590 35.07%
Future Quest
c/o National City Bank
Attn: Trust Mutual Funds/01-999999774
P.O. Box 94984
Cleveland, OH 44101-4984
</TABLE>
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<PAGE> 272
<TABLE>
<CAPTION>
<S> <C> <C>
Sheldon & Co. TTEE 551,609.0260 6.73%
Future Quest - c/o National City Bank
Trust Mutual Funds/01-999999774
P.O. Box 94777
Cleveland, OH 44101-4777
Ohio Municipal Money Market Fund (Class A
- -----------------------------------------
Shares)
- -------
OUTSTANDING SHARES PERCENTAGE
National City Bank 17,491,789.1400 71.27%
FBO PCG/Retail Sweep Customer
770 W. Broad Street LOC 16-0347
Columbus, OH 43222-1419
First Clearing Corporation 2,091,977.1200 8.52%
A/C 7655-6279
Stephen Sweetnich
Christine Sweetnich
10114 Highland Drive
Brecksville, OH 44141-3327
First Clearing Corporation 1,813,489.2600 7.39%
A/C 2144-7718
Timothy Scott Couch
c/o IAI
1360 East 9th Street #100
Cleveland, OH 44114-1730
Ohio Municipal Money Market
- ---------------------------
(Class I Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
National City Bank 27,812,706.0900 21.98%
Trust Operations
Operations Center
3rd Floor North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 11,778,018.3200 9.31%
Trust Operations
Operations Center
3rd Floor North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
</TABLE>
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<PAGE> 273
<TABLE>
<CAPTION>
<S> <C> <C>
National City Bank 53,399,778.9300 42.20%
Operations Center
3rd Floor North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 19,754,300.3600 15.61%
Trust Operations
Operations Center
3rd Floor North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
Natcity Investments 7,925,519.8700 6.26%
Attn: Jo Bredt
1965 East Sixth Street Loc #3090
Cleveland, OH 44114-2214
Ohio Tax Exempt Bond Fund
- -------------------------
(Class A Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
Bank of America 55,539.4240 9.32%
Successor TTEE Harriet F. Urschel TR
01-01-001-8457048
Trust Securities Processing
555 South Flower St Level C
Los Angeles, CA 90071-2300
Bank of America Successor TTEE 59,101.3900 9.95%
George C. Urschel TR
01-01-001-8457049
Trust Securities Processing
555 South Flower St Level C
Los Angeles, CA 90071-2300
First Clearing Corporation 94,818,6560 15.96%
A/C 1528-5380
David J. Beverly &
Pamela C. Beverly
1128 Laguna Drive
Huron, OH 44839-2605
First Clearing Corporation 49,882.9780 8.40%
A/C 1750-2503
Edward B. Brandon &
Phyllis P. Brandon JTWROS
Lakepoint Office Park Ste. 470
3201 Enterprise Pkwy.
</TABLE>
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<PAGE> 274
<TABLE>
<CAPTION>
Ohio Tax Exempt Bond Fund
- -------------------------
(Class I Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
<S> <C> <C>
Sheldon and Co. (Cash) 15,969,910.1230 88.57%
National City Bank
Trust Mutual Funds - 5312
P.O. Box 94984
Cleveland, OH 44101-4984
Sheldon and Co. (Cash/Reinv) 1,551,280.7770 8.60%
National City Bank
Trust Mutual Funds-5312
P.O. Box 94777
Cleveland, OH 44101-4777
Pennsylvania Municipal Bond Fund
- --------------------------------
(Class A Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
Robert H. Rhone 1,205.7980 6.47%
c/o Michael Rhone
P.O. Box 175
Rew, PA 16744-0175
Helen M. Weyer 5,921.1750 31.79%
James N. Weyer, Jr. JTTEN
2600 Mohawk Drive
White Oak, PA 15131-3121
First Clearing Corporation 8,573.7280 46.04%
A/C 7618-3716
Helga A. Suhr
304 Michigan Avenue
Lower Burrell, PA 15068-2936
First Clearing Corporation 2,287.2830 12.28%
A/C 4267-7452
John M. Hankey
2430 Renton Road
Pittsburgh, PA 15239-1227
</TABLE>
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<PAGE> 275
<TABLE>
<CAPTION>
Pennsylvania Municipal Bond Fund
- --------------------------------
(Class I Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
<S> <C> <C>
Sheldon & Co. 3,762,032.4100 96.40%
P.O. Box 94984
Attn: Trust Mutual Funds
Cleveland, OH 44101-4984
National Tax Exempt Bond Fund
- -----------------------------
(Class A Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
First Clearing Corporation 341,697.4350 72.94%
A/C 1143-7442
Bill Anest
400 S. Curran
Grayslake, IL 60030-9784
National Tax Exempt Bond Fund
- -----------------------------
(Class B Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
Wheat, First Securities, Inc. 4,503.6230 14.75%
A/C 2099-9089
James E. Chenault &
Judith E. Chenault
8609 Cool Brook Ct.
Louisville, KY 40291-1501
First Clearing Corporation 5,254.2290 17.21%
A/C 7220-3519
Emory G. Simmons
717 Thornwood Road
Crawfordsville, IN 47933-2760
First Clearing Corporation 5,116.0880 16.76%
A/C 6708-7889
Dorothy K. Riley TTEE
Dorothy and Lester Riley Trust
5 Locust HL
Crawfordsville, IN 47933-3347
First Clearing Corporation 5,048.1930 16.53%
A/C 5482-0768
Theodore R. McDonald &
Rose Ann McDonald
7712 St. Bernard Ct.
Louisville, KY 40291-2462
</TABLE>
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<PAGE> 276
<TABLE>
<CAPTION>
<S> <C> <C>
First Clearing Corporation 7,099.4470 23.25%
A/C 7309-7317
Howard B. Smith, Jr.
545 Country Manor Lane
Shepherdsville, KY 40165-9543
First Clearing Corporation 1,632.7060 5.35%
A/C 3132-5861
Anne B. Farkas and Robert S. Farkas
279 S. Oakland Avenue
Sharon, PA 16146-4049
National Tax Exempt Bond Fund
- -----------------------------
(Class I Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
Sheldon & Co. TTEE 6,895,842.7870 70.56%
c/o National City Bank
Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
National City Bank 2,575,902.4840 26.36%
c/o Sheldon & Co.
Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Pennsylvania Tax Exempt Money Market Fund
- -----------------------------------------
Class (A Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
Pennsylvania FBO Corporate Autosweep Customers 21,103,000.0000 44.19%
c/o National City Bank of PA
300 Fourth Street 2-191
Pittsburgh, PA 15222-2003
Pennsylvania National City Bank of Pennsylvania 23,556,954.3400 49.32%
FBO PCG/Retail Sweep Customers
Cash Management Operations
770 W. Broad Street 16-0347
Columbus, OH 43222-1419
</TABLE>
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<PAGE> 277
<TABLE>
<CAPTION>
Pennsylvania Tax Exempt Money Market Fund
- -----------------------------------------
(Class I Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
<S> <C> <C>
National City Bank 82,766,234.6700 98.08%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
Tax Exempt Money Market Fund
- ----------------------------
(Class A Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
National City MI/IL 11,473,398.2200 6.08%
FBO Corporate PCG/Retail Sweep Cust
Cash Management Operations
770 W. Broad Street LOC 16-0347
Columbus, OH 43222-1419
National City MI/IL 16,015,000.0000 8.48%
FBO Corporate Sweep Customer
Cash Management Operations
770 W. Broad Street LOC 16-0347
Columbus, OH 43222-1419
Wheat First Securities 89,347,333.0900 47.33%
P.O. Box 6629
Glen Allen, VA 23058-6629
Indiana 16,231,555.2100 8.60%
National City Bank of Indiana
FBO PCG/Retail Sweep Customers
Cash Management Operations
770 W. Broad St. LOC. 16-0347
Columbus, OH 43222-1419
National City Bank 39,991,289.1700 21.18%
FBO PCG/Retail Sweep Customers
770 W. Broad Street, Location 16-0347
Columbus, OH 43222-1419
</TABLE>
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<PAGE> 278
<TABLE>
<CAPTION>
Tax Exempt Money Market Fund
- ----------------------------
(Class I Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
<S> <C> <C>
National City Bank 62,781,973.5100 15.51%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 116,111,329.2400 28.69%
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 31,976,481.4200 7.90%
Operations Center
Attn: Trust Operations Funds
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 95,186,170.6900 23.52%
Operations Center
Attn: Trust Operations Funds
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 46,148,092.0800 11.40%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
Money Market Fund
- -----------------
(Class A Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
Pennsylvania 320,050,000.0000 21.00%
FBO Corporate Autoswwep customers
C/o National Bank of PA
300 Fourth Street 2-191
Pittsburgh, PA 15222-2003
</TABLE>
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<PAGE> 279
<TABLE>
<CAPTION>
<S> <C> <C>
Wheat First Securities 709.285,760.8000 46.54%
P.O. Box 6629
Glen Allen, VA 23058-6629
National City Bank 230,983,000.0000 15.16%
FBO PCG/Retail Sweep Customer
770 W. Broad St. Location 16-0347
Columbus, OH 43222-1419
National City Bank 82,775,566.6500 5.43%
FBO PCG/Retail Sweep Customer
770 W. Broad Street LOC 16-0347
Columbus, OH 43222-1419
Money Market Fund
- -----------------
(Class B Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
First Clearing Corporation 54,574.2200 5.26%
A/C 7335-5550
Roger L. Schafer IRA
WFS as Custodian
3945 7th Street
New Kensington, PA 15068-7205
The Marting Bros. Co. 401(k) 629,550.5400 60.72%
Conversion Holding Account
P.O. Box 8705
Boston, MA 02266-8705
McMullen Travel & Tours Inc. 254,722.3400 24.57%
Conversion Holding Account
224 S. Broad St.
Grove City, PA 16127-1504
First Clearing Corporation 60,331.1100 5.82%
A/C 4505-9511
John M. Jervis
301 W. Beardsley
Champaign, IL 61820-2927
</TABLE>
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<PAGE> 280
<TABLE>
<CAPTION>
Money Market Fund
- -----------------
(Class I Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
<S> <C> <C>
National City Bank 877,743,193.2100 38.65%
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 183,036,781.5800 8.06%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 246,728,554.3100 10.87%
Operations Center
Attn: Trust Operations Funds
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
Whitelaw & Co. 133,805,456.5280 5.89%
Daily Valuation Account - Disc.
Attn: Trust Mutual Funds
P.O. Box 94984
Cleveland, OH 44101-4984
National City Bank 246,928,975.8400 10.87%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
Government Money Market Fund
- ----------------------------
(Class A Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
National City MI/IL 257,911,000.0000 41.84%
FBO Corporate Sweep Customer
Cash Management Operations
770 W. Broad Street Loc. 16-0347
Columbus, OH 43222-1419
</TABLE>
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<PAGE> 281
<TABLE>
<CAPTION>
<S> <C> <C>
Pennsylvania FBO Corporate Autosweep Customers 237,953,000.0000 38.61%
c/o National City Bank of PA
300 Fourth Street 2-191
Pittsburgh, PA 15222-2003
Wheat First Securities 67,555,831.7700 10.96%
P.O. Box 6629
Glen Allen, VA 23058-6629
Government Money Market Fund
- ----------------------------
(Class I Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
National City Bank 88,240,340.9500 8.60%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 West 150th Street
Cleveland, OH 44135-1389
National City Bank 249,499,187.2400 24.31%
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 351,410,992.1900 34.23%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 127,196,914.4200 12.39%
Operations Center
Attn: Trust Operations Funds
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 83,228,874.9200 8.11%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
</TABLE>
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<PAGE> 282
<TABLE>
<CAPTION>
Treasury Money Market Fund
- --------------------------
(Class A Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
<S> <C> <C>
National City Bank MI/IL 62,351,000.0000 85.64%
FBO Corporate Sweep Customer
Cash Management Operations
770 W. Broad St. Location 16-0347
Columbus, OH 43222-1419
Wheat First Securities 5,115,965.0700 7.03%
P.O. Box 6629
Glen Allen, VA 23058-6629
Treasury Money Market Fund
- --------------------------
(Class I Shares)
- ----------------
OUTSTANDING SHARES PERCENTAGE
National City Bank 51,616,613.7900 15.00%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 66,551,628.7000 19.34%
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 41,283,443.5800 11.99%
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 17,322,521.4200 5.03%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
</TABLE>
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<PAGE> 283
<TABLE>
<CAPTION>
<S> <C> <C>
National City Bank 83,465,764.6000 24.25%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 43,078,919.3400 12.52%
Trust Operations
Operations Center
3rd Floor North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
</TABLE>
FINANCIAL STATEMENTS
--------------------
The audited financial statements contained in the annual
report to shareholders for the fiscal year ended May 31, 1999 are hereby
incorporated herein by reference. Copies of the Funds' annual report may be
obtained by calling the Trust at 1-800-622-FUND (3863) or by writing to the
Trust, One Freedom Valley Drive, Oaks, Pennsylvania 19456.
-155-
<PAGE> 284
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" - An obligation rated "AAA" has the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
Obligations rated "BB," "B," "CCC," "CC" and "C" - are
regarded as having significant speculative characteristics. "BB" indicates the
least degree of speculation and "C" the highest. While such obligations will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major exposures to adverse conditions.
"BB" - An obligation rated "BB" is less vulnerable to
nonpayment than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial or economic conditions
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
"B" - An obligation rated "B" is more vulnerable to
nonpayment than obligations rated "BB", but the obligor currently has the
capacity to meet its financial commitment on the obligation. Adverse business,
financial or economic conditions will likely impair the obligor's capacity or
willingness to meet its financial commitment on the obligation.
"CCC" - Debt is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial or economic conditions, the obligor is not likely to
have the capacity to meet its financial commitment on the obligation.
"CC" - An obligation rated "CCC" is currently highly
vulnerable to nonpayment.
A-1
<PAGE> 285
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action taken, but payments on this
obligation are being continued.
"D" - An obligation rated "D" is 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 also will be used upon the filing of a bankruptcy petition or the
taking of a 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.
"c" - The 'c' subscript is used to provide additional
information to investors that the bank may terminate its obligation to purchase
tendered bonds if the long-term credit rating of the issuer is below an
investment grade level and/or the issuer's bonds are deemed taxable.
"p" - The letter 'p' indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project financed by the debt being rated and indicates that payment of debt
service requirements is largely or entirely dependent upon the successful,
timely completion of the project. This rating, however, while addressing credit
quality subsequent to completion of the project, makes no comment on the
likelihood of or the risk of default upon failure of such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
* Continuance of the ratings is contingent upon Standard &
Poor's receipt of an executed copy of the escrow agreement or closing
documentation confirming investments and cash flows.
"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.
N.R. Not rated. Debt obligations of issuers outside the United
States and its territories are rated on the same basis as domestic corporate and
municipal issues. The ratings measure the creditworthiness of the obligor but do
not take into account currency exchange and related uncertainties.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
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"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" indicates 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.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered to be of high credit quality.
Protection factors are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below-average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when due.
Debt rated "B" possesses the risk that obligations will not be met when due.
Debt rated "CCC" is well below investment grade and has considerable uncertainty
as to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
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To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. These ratings denote the lowest expectation of credit
risk and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
affected by reasonably foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. These ratings denote a very low expectation of credit risk
and indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to forceable events.
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. These ratings denote that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment grade category.
"BB" - Bonds considered to be speculative. These ratings
indicate that there is a possibility of credit risk developing, particularly as
the result of adverse economic change over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings
indicate that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable business and
economic environment.
"CCC", "CC", "C" - Bonds have high default risk. Default is a
real possibility, and capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments. "CC"
ratings indicate that default of some kind appears probable, and "C" ratings
signal imminent default.
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"DDD", "DD" and "D" - Bonds are in default. The ratings of
obligations in this category are based on their prospects for achieving partial
or full recovery in a reorganization or liquidation of the obligor. While
expected recovery values are highly speculative and cannot be estimated with any
precision, the following serve as general guidelines. "DDD" obligations have
the highest potential for recovery, around 90%-100% of outstanding amounts and
accrued interest. "DD" indicates potential recoveries in the range of 50%-90%,
and "D" the lowest recovery potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all
of their obligations. Entities rated "DDD" have the highest prospect for
resumption or performance or continued operation with or without a formal
reorganization process. Entities rated "DD" and "D" are generally undergoing a
formal reorganization or liquidation process; those rated "DD" are likely to
satisfy a higher portion of their outstanding obligations, while entities rated
"D" have a poor prospect for repaying all obligations.
To provide more detailed indications of credit quality, the
Fitch IBCA ratings from and including "AA" to "CCC" may be modified by the
addition of a plus (+) or minus (-) sign to denote relative standing within
these major rating categories.
'NR' indicates the Fitch IBCA does not rate the issuer or
issue in question.
'Withdrawn': A rating is withdrawn when Fitch IBCA deems the
amount of information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.
RatingAlert: Ratings are placed on RatingAlert to notify
investors that there is a reasonable probability of a rating change and the
likely direction of such change. These are designated as "Positive", indicating
a potential upgrade, "Negative," for a potential downgrade, or "Evolving", if
ratings may be raised, lowered or maintained. RatingAlert is typically resolved
over a relatively short period.
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Thomson Financial BankWatch assesses the likelihood of an
untimely repayment of principal or interest over the term to maturity of long
term debt and preferred stock which are issued by United States commercial
banks, thrifts and non-bank banks; non-United States banks; and broker-dealers.
The following summarizes the rating categories used by Thomson BankWatch for
long-term debt ratings:
"AAA" - This designation indicates that the ability to repay
principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to
repay principal and interest on a timely basis, with limited incremental risk
compared to issues rated in the highest category.
"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 Financial BankWatch to non-investment grade long-term debt. Such
issues are regarded as having speculative characteristics regarding the
likelihood of timely payment of principal and interest. "BB" indicates the
lowest degree of speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
COMMERCIAL PAPER RATINGS
- ------------------------
A Standard & Poor's ("S&P") commercial paper rating is a
current opinion of the creditworthiness of an obligor with respect to financial
obligations 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.
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"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 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.
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"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 the highest certainty of timely
payment. Short-term liquidity, including internal operating factors and/or
access to alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
"D-3" - Debt possesses satisfactory liquidity and other
protection factors qualify issues as investment grade. Risk factors are larger
and subject to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch 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:
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"F1" - Securities possess the highest credit quality. This
designation indicates the best 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 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.
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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 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.
Margins of protection ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality,
with all security elements accounted for but lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt
instruments in this category lack of margins of protection.
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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 commercial paper rating is a current
opinion of the creditworthiness of an obligor with respect to financial
obligations 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 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
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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.
"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:
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"F1" - Securities possess the highest credit quality. This
designation indicates the best 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 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 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.
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MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity factors
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's 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.
Margins of protection ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality,
with all security elements accounted for but lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt
instruments in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings
described under Commercial Paper Ratings for municipal notes.
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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 difference and realizes
a loss.
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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.
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
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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
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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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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 trends or interest
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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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