<PAGE>
As filed with the Securities and Exchange Commission on December 15, 2000
Registration No. 33-00488/811-04416
============================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/X/
POST-EFFECTIVE AMENDMENT NO. 54
/X/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
/X/
Amendment No. 53
/X/
Armada Funds (formerly known as "NCC Funds")
(Exact Name of Registrant as Specified in Charter)
One Freedom Valley Drive
Oaks, Pennsylvania, 19456
(Address of Principal Executive Offices)
Registrant's Telephone Number:
1-800-622-FUND
W. Bruce McConnel, III, Esq.
DRINKER BIDDLE & REATH LLP
One Logan Square
18th and Cherry Streets
Philadelphia, Pennsylvania 19103-6996
(Name and Address of Agent for Service)
Copy to:
Thomas F. Harvey, Esq.
National City Bank
National City Center
P.O. Box 5756
Cleveland, Ohio 44101-0756
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (b)
[X] on March 1, 2001 pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
===========
The Title of Securities Being Registered . . . . Class NN, Class NN-Special
Series 1, Class NN-Special Series 2, Class NN-Special Series 3, Class OO, Class
OO-Special Series 1, Class OO-Special Series 2 and Class OO-Special Series 3
Shares of beneficial interest
<PAGE>
ARMADA FUNDS
CLASS A, CLASS B, CLASS C AND CLASS I SHARES
PROSPECTUS
MARCH 1, 2001
ARMADA AGGRESSIVE ALLOCATION FUND
ARMADA CONSERVATIVE ALLOCATION FUND
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
INVESTMENT ADVISER
NATIONAL CITY INVESTMENT MANAGEMENT COMPANY
Page 1 of 43
<PAGE>
ABOUT THIS PROSPECTUS
Armada Funds (the Trust) is a mutual fund family that offers different classes
of shares in separate investment portfolios (Funds). The Funds have individual
investment goals and strategies. This prospectus gives you important information
that you should know about the Class A, Class B, Class C and Class I Shares of
the Aggressive Allocation and Conservative Allocation Funds before investing.
The Trust offers 28 additional funds including equity, fixed income, balanced,
tax free bond and money market funds in separate prospectuses. To view these
prospectuses or obtain more information on Armada Funds visit us on-line at
www.armadafunds.com or call 1-800-622-FUND (3863). Please read this prospectus
and keep it for future reference.
THIS PROSPECTUS HAS BEEN ARRANGED INTO DIFFERENT SECTIONS SO THAT YOU CAN REVIEW
THIS IMPORTANT INFORMATION. ON THE NEXT PAGE, THERE IS SOME GENERAL INFORMATION
YOU SHOULD KNOW ABOUT RISK AND RETURN THAT IS COMMON TO EACH OF THE FUNDS. FOR
MORE DETAILED INFORMATION ABOUT EACH FUND, PLEASE SEE:
PAGE
ARMADA AGGRESSIVE ALLOCATION FUND.....................................XXX
ARMADA CONSERVATIVE ALLOCATION FUND...................................XXX
MORE INFORMATION ABOUT RISK...........................................XXX
MORE INFORMATION ABOUT FUND INVESTMENTS...............................XXX
INVESTMENT ADVISER, SUB-ADVISER AND
INVESTMENT TEAM.....................................................XXX
PURCHASING, SELLING AND EXCHANGING FUND SHARES........................XXX
DIVIDENDS AND TAXES...................................................XXX
FINANCIAL HIGHLIGHTS..................................................XXX
Page 2 of 43
<PAGE>
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 one or more indices. 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, Class C and Class I 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
- LOW 12b-1 FEES
- $500 MINIMUM INITIAL INVESTMENT - NO SUBSEQUENT MINIMUM
CLASS B SHARES
- NO FRONT-END SALES CHARGE
- CONTINGENT DEFERRED SALES CHARGE (BACK-END CHARGE IF YOU REDEEM
WITHIN 5 YEARS-DECLINING FROM YEAR TO YEAR)
- HIGHER 12b-1 FEES THAN CLASS A
- $500 MINIMUM INITIAL INVESTMENT - NO SUBSEQUENT MINIMUM
- CONVERTS TO CLASS A SHARES AFTER THE EIGHTH YEAR
CLASS C SHARES
- NO FRONT-END SALES CHARGE
- CONTINGENT DEFERRED SALES CHARGE (BACK-END CHARGE IF YOU REDEEM
WITHIN THE FIRST 18 MONTHS)
- HIGHER 12b-1 FEES THAN CLASS A
- $500 MINIMUM INITIAL INVESTMENT - NO SUBSEQUENT MINIMUM
- DOES NOT CONVERT TO ANY OTHER SHARE CLASS
CLASS I SHARES
- NO SALES CHARGE
- NO MINIMUM INITIAL INVESTMENT
- ONLY AVAILABLE TO FINANCIAL INSTITUTIONS
Page 3 of 43
<PAGE>
THE FUND OF FUNDS STRUCTURE
Each Fund is structured as a "fund of funds," which means that a Fund attempts
to implement its investment strategies by investing in other mutual funds
("Underlying Armada Funds"), all of which are managed by National City
Investment Management Company (the "Adviser").
Each Fund has its own distinct risk and reward characteristics, investment
objectives, policies and strategies. The Adviser constructs and maintains asset
allocation strategies for the Funds. The degree to which a Fund is invested in
the particular market segments and/or asset classes represented by the
Underlying Armada Funds varies, as does the investment risk and reward potential
represented by each Fund. Because of the historical lack of correlation between
various asset classes, an investment in the Funds may reduce an investor's
overall level of volatility. As a result, an asset allocation strategy may
reduce risk.
In managing the Funds, the Adviser focuses on three key principles: asset
allocation, portfolio structure, and continuous Fund management. Asset
allocation across appropriate asset classes (I.E. the Underlying Armada
Funds) is the central theme of Armada's investment philosophy. The Adviser
seeks to reduce risk by investing in Underlying Armada Funds that are
diversified within each asset class. Finally, the Adviser regularly
rebalances to ensure that the appropriate mix of assets is constantly in
place.
Each Fund reserves the ability to convert from the fund of funds structure in
the future and to invest directly in the types of securities in which the
Underlying Armada Funds invest. Shareholders will be notified in advance before
the structure of a Fund is changed.
Page 4 of 43
<PAGE>
RISK/RETURN INFORMATION COMMON TO THE FUNDS
Each Fund has its own investment goal and strategies for reaching that goal. The
investment managers invest Fund assets in the Underlying Armada Funds 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.
The value of your investment in a Fund is based primarily on the market prices
of the securities that the Underlying Armada Funds hold. 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 an Underlying Armada Fund
owns and the markets in which they trade. The effect on an Underlying Armada
Fund of a change in the value of a single security will depend on how widely the
Underlying Armada Fund diversifies its holdings.
Page 5 of 43
<PAGE>
ARMADA AGGRESSIVE ALLOCATION FUND
FUND SUMMARY
<TABLE>
<S> <C>
INVESTMENT GOAL Capital appreciation with current income as a secondary
objective
INVESTMENT FOCUS A combination of Underlying Armada Funds that invest in
equity securities and fixed income securities
SHARE PRICE VOLATILITY Medium
(RELATIVE TO MUTUAL FUNDS GENERALLY)
PRINCIPAL INVESTMENT STRATEGY Investing in a combination of
Underlying Armada Funds that,
in turn, invest primarily in
U.S. and foreign equity securities
and, to a lesser extent, in
investment grade fixed income
securities - and cash
equivalents
INVESTOR PROFILE Investors seeking capital growth with the potential for
above-average total returns (as gauged by the returns of the
S&P 500 Composite Index), who are willing to accept the
risks of investing in a fund that may allocate a high
percentage of its assets in Underlying Armada Funds that
focus their investments in equity securities
</TABLE>
PRINCIPAL INVESTMENT STRATEGIES
The Armada Aggressive Allocation Fund's investment objective is to provide
capital appreciation with current income as a secondary objective. The
investment objective may be changed without a shareholder vote.
The Fund invests in Underlying Armada Funds in accordance with weightings
determined by the Adviser. The Underlying Armada Funds invest directly in equity
and fixed income securities in accordance with their own investment policies and
strategies.
The Fund intends to invest 60% to 90% of its net assets in shares of Underlying
Armada Funds that invest primarily in equity securities (Armada International
Equity, Armada Large Cap Ultra, Armada Large Cap Value, Armada Small Cap Growth
and Armada Small Cap Value Funds), 10% to 40% of its net assets in shares of
Underlying Armada Funds that invest primarily in fixed income securities (Armada
Bond and Armada Intermediate Bond Funds) and 0% to 20% of its net assets in
shares of the Armada Money Market Fund. The Fund normally intends to invest
exclusively in shares of Underlying Armada Funds, but may from time to time also
invest directly in U.S. government securities and short-term money market
instruments. The particular Underlying Armada Funds in which the Fund allocates
its investments may be changed in the Adviser's discretion. Please see pages
24-27 for a fuller description of each Underlying Armada Fund.
Page 6 of 43
<PAGE>
PRINCIPAL RISKS OF INVESTING
The value of an investment in the Fund is based on the performance of the
Underlying Armada Funds and allocation of the Fund's assets among them. Since
some Underlying Armada Funds purchase 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 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. In addition, some Underlying Armada Funds' 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, 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. 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 the Adviser's decisions regarding
asset classes and selection of Underlying Armada Funds will not anticipate
market trends successfully. For example, weighting Underlying Armada Funds that
invest in common stocks too heavily during a stock market decline may result in
a loss. Conversely, investing too heavily in Underlying Armada Funds that invest
in fixed income securities during a period of stock market appreciation may
result in lower total return.
Investing in Underlying Armada Funds that invest 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
an Underlying Armada 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 Underlying Armada Funds that invest in fixed income securities
and money market instruments is subject to interest rate risk, which is the
possibility that the Underlying Armada Fund's yield will decline due to falling
interest rates.
Although an Underlying Armada Fund's investments in 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 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. An Underlying Armada Fund
may have to reinvest prepaid amounts at lower interest rates. This risk of
prepayment is an additional risk of mortgage-backed securities. This risk also
exists for other asset-backed securities, although generally to a lesser degree.
Page 7 of 43
<PAGE>
Debt extension risk is the risk that an issuer will pay principal on an
obligation held by the Underlying Armada Fund (such as an asset-backed or
mortgage-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 Underlying Armada Fund will suffer from the inability to
invest in higher yielding securities.
In managing the Fund, the Adviser has the authority to select and substitute
Underlying Armada Funds. The Adviser is subject to conflicts of interest in
allocating Fund assets among the various Underlying Armada Funds both because
the fees payable to the Adviser by some Underlying Armada Funds are higher than
fees payable by other Underlying Armada Funds and because the Adviser is also
responsible for managing the Underlying Armada Funds. The Trustees and officers
of the Trust may also have conflicting interests in fulfilling their fiduciary
duties to both the Fund and the Underlying Armada Funds.
You may invest in the Underlying Armada Funds directly. By investing in the
Underlying Armada Funds indirectly through a Fund, you will incur not only a
proportionate share of the Underlying Armada Funds held by the Fund, but also
expenses of the Fund.
PERFORMANCE INFORMATION
There is no performance information for Class A, Class B, Class C and Class I
Shares because none had commenced operations prior to the date of this
prospectus.
FUND FEES AND EXPENSES
See page 12 for a description of the fees and expenses that you may pay if you
buy and hold Fund shares.
Page 8 of 43
<PAGE>
ARMADA CONSERVATIVE ALLOCATION FUND
FUND SUMMARY
<TABLE>
<S> <C>
INVESTMENT GOAL Current income and moderate capital appreciation
consistent with the preservation of capital
INVESTMENT FOCUS A combination of Underlying Armada Funds that invest in
fixed income securities and equity securities
SHARE PRICE VOLATILITY Low
(RELATIVE TO MUTUAL FUNDS GENERALLY)
PRINCIPAL INVESTMENT STRATEGY Investing in a combination of Underlying Armada Funds
that, in turn, invest primarily in investment-grade
fixed income securities and, to a lesser extent, in U.S.
and foreign equity securities and cash equivalents
INVESTOR PROFILE Investors seeking current income with the potential for
above-average total returns (as gauged by the returns of the
Lehman Aggregate Bond Index), who are willing to accept
the risks of investing in a fund that may allocate a high
percentage of its assets in Underlying Armada Funds that
focus their investments in fixed income securities
</TABLE>
PRINCIPAL INVESTMENT STRATEGIES
The Armada Conservative Allocation Fund's investment objective is to provide
current income and moderate capital appreciation consistent with the
preservation of capital. The investment objective may be changed without a
shareholder vote.
The Fund invests in Underlying Armada Funds in accordance with weightings
determined by the Adviser. The Underlying Armada Funds invest directly in fixed
income and equity securities in accordance with their own investment policies
and strategies.
The Fund intends to invest 50% to 80% of its net assets in shares of Underlying
Armada Funds that invest primarily in fixed income securities (Armada Bond and
Armada Intermediate Bond Funds), 20% to 50% of its net assets in shares of
Underlying Armada Funds that invest primarily in equity securities (Armada
International Equity, Armada Large Cap Ultra, Armada Large Cap Value, Armada
Small Cap Growth and Armada Small Cap Value Funds), and 0% to 20% of its net
assets in shares of the Armada Money Market Fund. The Fund normally intends to
invest exclusively in shares of Underlying Armada Funds, but may from time to
time also invest directly in U.S. government securities and short-term money
market instruments. The particular Underlying Armada Funds in which the Fund
allocates its investments may be changed in the Adviser's discretion. Please see
pages 24-27 for a fuller description of each Underlying Armada Fund.
Page 9 of 43
<PAGE>
PRINCIPAL RISKS OF INVESTING
The value of an investment in the Fund is based on the performance of the
Underlying Armada Funds and allocation of the Fund's assets among them. The
prices of an Underlying Armada 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, 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. Since some Underlying Armada Funds purchase
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 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 the Adviser's decisions regarding
asset classes and selection of Underlying Armada Funds will not anticipate
market trends successfully. For example, weighting Underlying Armada Funds that
invest in common stocks too heavily during a stock market decline may result in
a failure to preserve capital. Conversely, investing too heavily in Underlying
Armada Funds that invest in fixed income securities during a period of stock
market appreciation may result in lower total return.
Investing in Underlying Armada Funds that invest 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
an Underlying Armada 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 Underlying Armada Funds that invest in fixed income
securities and money market instruments is subject to interest rate risk,
which is the possibility that the Underlying Armada Fund's yield will decline
due to falling interest rates.
Although an Underlying Armada Fund's investments in 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 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. An Underlying Armada Fund
may have to reinvest prepaid amounts at lower interest rates. This risk of
prepayment is an additional risk of mortgage-backed securities. This risk also
exists for other asset-backed securities, although generally to a lesser degree.
Page 10 of 43
<PAGE>
Debt extension risk is the risk that an issuer will pay principal on an
obligation held by the Underlying Armada Fund (such as an asset-backed or
mortgage-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 Underlying Armada Fund will suffer from the inability to
invest in higher yielding securities.
In managing the Fund, the Adviser has the authority to select and substitute
Underlying Armada Funds. The Adviser is subject to conflicts of interest in
allocating Fund assets among the various Underlying Armada Funds both because
the fees payable to the Adviser by some Underlying Armada Funds are higher than
fees payable by other Underlying Armada Funds and because the Adviser is also
responsible for managing the Underlying Armada Funds. The Trustees and officers
of the Trust may also have conflicting interests in fulfilling their fiduciary
duties to both the Fund and the Underlying Armada Funds.
You may invest in the Underlying Armada Funds directly. By investing in the
Underlying Armada Funds indirectly through a Fund, you will incur not only a
proportionate share of the Underlying Armada Funds held by the Fund, but also
expenses of the Fund.
PERFORMANCE INFORMATION
There is no performance information for Class A, Class B, Class C and Class I
Shares because it had not commenced operations prior to the date of this
prospectus.
FUND FEES AND EXPENSES
See page 12 for a description of the fees and expenses that you may pay if you
buy and hold Fund shares.
Page 11 of 43
<PAGE>
FUND FEES AND EXPENSES OF THE AGGRESSIVE ALLOCATION AND CONSERVATIVE
ALLOCATION FUNDS
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD
FUND SHARES.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
AGGRESSIVE ALLOCATION FUND CLASS A CLASS B CLASS C CLASS I
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of
offering price)(1) 5.50% None None None
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) None 5.00%(2) 1.00%(3) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and other
Distributions (as a percentage of offering price) None None None None
Redemption Fee (as a percentage of amount redeemed, if applicable) None None None None
Exchange Fee None None None None
<CAPTION>
CONSERVATIVE ALLOCATION FUND CLASS A CLASS B CLASS C CLASS I
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of
offering price)(1) 5.50% None None None
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) None 5.00%(2) 1.00%(3) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and other
Distributions (as a percentage of offering price) None None None None
Redemption Fee (as a percentage of amount redeemed, if applicable) None None None None
Exchange Fee None None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<TABLE>
<CAPTION>
AGGRESSIVE ALLOCATION FUND CLASS A CLASS B CLASS C CLASS I
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Advisory Fees 0.25% 0.25% 0.25% 0.25%
Distribution and Service (12b-1) Fees 0.10% 0.90% 0.90% 0.10%
Shareholder Servicing Fees (4) 0.25% --- --- 0.00%
Other Expenses (5) 0.43% 0.43% 0.43% 0.43%
-------- -------- -------- --------
Total Annual Fund Operating Expenses(6)(7) 1.03% 1.58% 1.58% 0.78%
------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CONSERVATIVE ALLOCATION FUND CLASS A CLASS B CLASS C CLASS I
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Advisory Fees 0.25% 0.25% 0.25% 0.25%
Distribution and Service (12b-1) Fees 0.10% 0.90% 0.90% 0.10%
Shareholder Servicing Fees (4) 0.25% --- --- 0.00%
Other Expenses (5) 0.43% 0.43% 0.43% 0.43%
-------- -------- -------- --------
Total Annual Fund Operating Expenses(6)(7) 1.03% 1.58% 1.58% 0.78%
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) This sales charge varies depending upon how much you invest. See "Sales
Charges."
(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 "Contingent Deferred
Sales Charges."
(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 Trust enters into shareholder servicing agreements with certain
financial institutions under which they agree to provide shareholder
administrative services to their customers who beneficially own Class A, Class B
and Class C Shares. Shareholder Servicing Fees paid by Class B and Class C
Shares are included in Distribution and Service (12b-1) Fees and reflect payment
of up to 0.25% (on an annualized basis) of the net asset value of such Class B
and Class C Shares. For further information concerning these plans, see
"Shareholder Services Plans" in the Statement of Additional Information.
(5) Other expenses for the Funds are based on estimated amounts for the current
fiscal year.
Page 12 of 43
<PAGE>
(6) The Adviser (with respect to each Class of Shares) and Distributor (with
respect to Class A and Class I Shares) expect to waive fees for the Funds so
that total operating expenses for the current fiscal year are expected to be:
<TABLE>
<CAPTION>
Class A Class B Class C Class I
<S> <C> <C> <C> <C>
Armada Aggressive Allocation Fund 0.73% 1.33% 1.33% 0.48%
Armada Conservative Allocation Fund 0.73% 1.33% 1.33% 0.48%
</TABLE>
These fee waivers are in effect as of the date of this prospectus, but the
Adviser and/or Distributor may discontinue all or part of these waivers at
any time.
(7) Because the Funds invest in other mutual funds, your investment in a Fund
is also indirectly subject to the operating expenses of those mutual funds.
Such expenses have typically ranged from 0.56% to 1.49% for Class I Shares,
which is the only class of shares of the Underlying Armada Funds in which the
Funds invest. The above table does not reflect these indirect expenses.
For more information about these fees, see "Investment Adviser, Sub-Adviser and
Investment Team" and "Distribution of Fund Shares."
EXAMPLE
These Examples are intended to help you compare the cost of investing in each
Fund with the cost of investing in other mutual funds. The Examples assume that
you invest $10,000 in a Fund for the time periods indicated and that you sell
your shares at the end of the period.
The Examples also assume 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 a Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
--------------------------------------------------------------------------------
<S> <C> <C>
AGGRESSIVE ALLOCATION FUND
Class A Shares $649 $860
Class B Shares(1) $661 $899
Class B Shares(2) $161 $499
Class C Shares(1) $261 $499
Class C Shares(2) $161 $499
Class I Shares $80 $249
<CAPTION>
1 YEAR 3 YEARS
--------------------------------------------------------------------------------
<S> <C> <C>
Conservative Allocation Fund
Class A Shares $649 $860
Class B Shares(1) $661 $899
Class B Shares(2) $161 $499
Class C Shares(1) $261 $499
Class C Shares(2) $161 $499
Class I Shares $80 $249
</TABLE>
(1) If you sell your shares at the end of the period.
(2) If you do not sell your shares at the end of the period.
Page 13 of 43
<PAGE>
MORE INFORMATION ABOUT RISK
The following pages provide additional information about the risks of the
particular investments of the Underlying Armada Funds. Because each Fund invests
in the Underlying Armada Funds, your investment, indirectly, may be subject to
these risks.
<TABLE>
<S> <C>
EQUITY RISK -- Equity securities include public and Armada International Equity Fund
privately issued equity securities, common and Armada Large Cap Ultra Fund
preferred stocks, warrants, rights to subscribe to Armada Large Cap Value Fund
common stock and convertible securities, as well as Armada Small Cap Growth Fund
instruments that attempt to track the price movement Armada Small Cap Value Fund
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 RISK -- Convertible Armada International Equity Fund
securities have characteristics of both fixed Armada Large Cap Ultra Fund
income and equity securities. The value of the Armada Large Cap Value Fund
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 Armada Bond Fund
investments change in response to interest rate changes Armada Intermediate Bond Fund
and other factors. During periods of falling interest Armada Money Market Fund
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:
</TABLE>
Page 14 of 43
<PAGE>
<TABLE>
<S> <C>
CALL RISK -- During periods of falling interest Armada Bond Fund
rates, certain debt obligations with high Armada Intermediate Bond Fund
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 Armada Bond Fund
will be unable to make timely payments of Armada Intermediate Bond Fund
either principal or interest. Armada Money Market Fund
EVENT RISK -- Securities may suffer declines Armada Bond Fund
in credit quality and market value due to issuer Armada Intermediate Bond Fund
restructurings or other factors. This risk Armada Money Market Fund
should be reduced because of the diversification
provided by the Fund's multiple holdings.
ASSET-BACKED SECURITIES RISK -- Asset-backed securities Armada Bond Fund
are fixed income securities representing an interest in Armada Intermediate Bond Fund
a pool of shorter-term loans such as automobile loans,
home equity loans, equipment or computer leases or credit
card receivables. The payments from the loans are passed
through to the security holder. The loans underlying
asset-backed securities tend to have prepayment rates that
do not vary with interest rates. In addition, the short-term
nature of the loans reduces the impact of any change in
prepayment level. However, it is possible that prepayments
will alter the cash flow on asset-backed securities and it
is not possible to determine in advance the actual final
maturity date or average life. Faster prepayment will
shorten the average life and slower prepayment will lengthen
it, affecting the price volatility of the security. However,
it is possible to determine what the range of that movement
could be and to calculate the effect that it will have on
the price of the security.
</TABLE>
Page 15 of 43
<PAGE>
<TABLE>
<S> <C>
MORTGAGE-BACKED SECURITIES RISK -- Armada Bond Fund
Mortgage-backed securities are fixed income Armada Intermediate Bond Fund
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.
</TABLE>
Page 16 of 43
<PAGE>
<TABLE>
<S> <C>
FOREIGN SECURITY RISKS -- Investments in securities Armada International Equity Fund
of foreign companies or governments can be more Armada Large Cap Ultra Fund
volatile than investments in U.S. companies or Armada Large Cap Value Fund
governments. Diplomatic, political, or economic Armada Small Cap Growth Fund
developments, including nationalization or Armada Small Cap Value Fund
appropriation, could affect investments in foreign Armada Intermediate Bond Fund
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:
</TABLE>
Page 17 of 43
<PAGE>
<TABLE>
<S> <C>
CURRENCY RISK -- Investments in foreign Armada International Equity Fund
securities denominated in foreign currencies Armada Large Cap Ultra Fund
involve additional risks, including: Armada Large Cap Value Fund
Armada Small Cap Growth Fund
- The value of a Fund's assets measured in Armada Small Cap Value Fund
U.S. dollars may be affected by changes in Armada Intermediate Bond Fund
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.
EMERGING MARKETS RISK -- Emerging markets Armada International Equity Fund
countries are countries that the World
Bank or the United Nations considers to be
emerging or developing. Emerging markets may
be more likely to experience political
turmoil or rapid changes in market or
economic conditions than more developed
countries. In addition, the financial
stability of issuers (including governments)
in emerging market countries may be more
precarious than in other countries. As a
result, there will tend to be an increased
risk of price volatility associated with the
investments in emerging market countries,
which may be magnified by currency
fluctuations relative to the U.S. dollar.
HEDGING RISK -- Hedging is a strategy Armada International Equity Fund
designed to offset investment risks. Hedging Armada Large Cap Ultra Fund
activities include, among other things, the use of Armada Large Cap Value Fund
forwards, options and futures. There are risks Armada Small Cap Growth Fund
associated with hedging activities, including: Armada Small Cap Value Fund
Armada Bond Fund
Armada Intermediate Bond Fund
- 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
</TABLE>
Page 18 of 43
<PAGE>
<TABLE>
<S> <C>
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.
</TABLE>
Page 19 of 43
<PAGE>
<TABLE>
<S> <C>
LEVERAGING RISK -- Leveraging activities Armada International Equity Fund
include, among other things, borrowing and the Armada Large Cap Ultra Fund
use of short sales, options and futures. There Armada Large Cap Value Fund
are risks associated with leveraging activities, Armada Small Cap Growth Fund
including: Armada Small Cap Value Fund
Armada Intermediate Bond Fund
Armada Money Market Fund
- 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 Armada International Equity Fund
attempt to achieve their investment objectives, Armada Large Cap Ultra Fund
while at the same time maintaining liquidity. Armada Large Cap Value Fund
To collateralize (or cover) these derivatives Armada Small Cap Growth Fund
transactions, the Funds hold cash or U.S. Armada Small Cap Value Fund
government securities. Armada Bond Fund
Armada Intermediate Bond Fund
Armada Money Market Fund
</TABLE>
Page 20 of 43
<PAGE>
<TABLE>
<S> <C>
FUTURES RISK -- Futures contracts and Armada International Equity Fund
options on futures contracts provide for the Armada Large Cap Ultra Fund
future sale by one party and purchase by Armada Large Cap Value Fund
another party of a specified amount of a Armada Small Cap Growth Fund
specific security at a specified future time and Armada Small Cap Value Fund
at a specified price. An option on a futures Armada Intermediate Bond Fund
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 RISK -- The buyer of an option Armada International Equity Fund
acquires the right to buy (a call option) or Armada Large Cap Ultra Fund
sell (a put option) a certain quantity of a Armada Large Cap Value Fund
security (the underlying security) or Armada Small Cap Growth Fund
instrument at a certain price up to a Armada Small Cap Value Fund
specified point in time. The seller or Armada Bond Fund
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, a Fund 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, a Fund 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 Fund.
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.
</TABLE>
Page 21 of 43
<PAGE>
<TABLE>
<S> <C>
SHORT SALES -- Short sales are transactions Armada International Equity Fund
in which a Fund sells a security it does not Armada Large Cap Ultra Fund
own. To complete a short sale, a Fund must Armada Large Cap Value Fund
borrow the security to deliver to the buyer. Armada Small Cap Growth Fund
The Fund is then obligated to replace the Armada Small Cap Value Fund
borrowed security by purchasing the security Armada Intermediate Bond Fund
at the market price at the time of Armada Bond Fund
replacement. This price may be more or less Armada Money Market Fund
than the price at which the security was
sold by the Fund.
REAL ESTATE INVESTING RISK -- The Fund's investments Armada Large Cap Value Fund
in the securities of real estate investment trusts Armada Small Cap Value Fund
(REITs) and companies principally engaged in the real Armada Intermediate Bond Fund
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.
</TABLE>
Page 22 of 43
<PAGE>
MORE INFORMATION ABOUT FUND INVESTMENTS
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 other temporary defensive or liquidity purposes, each Fund
may invest up to 100% of its assets in short-term high quality debt instruments
that would not ordinarily be consistent with a Fund's principal investment
strategies, which may prevent the Fund from achieving its investment objective.
A Fund will do so only if the Adviser believes that the risk of loss outweighs
the opportunity for achieving a Fund's investment objective. Of course, the
Trust cannot guarantee that any Fund will achieve its investment goal.
The Trust has applied for an order from the SEC that, if granted, would allow
the Underlying Armada Funds (other than the Armada Money Market Fund) to use
cash balances that have not been invested in portfolio securities and cash
collateral from securities lending programs to purchase shares of the money
market funds offered by the Trust. An Underlying Armada Fund will hold shares of
money market funds only to the extent that its total investment in the money
market funds does not exceed 25% of its total assets. The Aggressive Allocation
and Conservative Allocation Funds' investments in money market funds offered by
the Trust are limited to investments in the Armada Money Market Fund in
accordance with each Fund's investment policies.
INVESTMENT ADVISER AND INVESTMENT TEAM
The Adviser makes investment decisions for the Funds and Underlying Armada Funds
and continuously reviews, supervises and administers each Fund's and each
Underlying Armada Fund's respective investment program.
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, with its principal offices at 1900
East Ninth Street, Cleveland, Ohio 44114, serves as Adviser to the Funds and the
Underlying Armada Funds. On June 30, 2000, the Adviser had approximately $25.6
billion in assets under management.
The Adviser utilizes a team approach for management of the Funds. No one person
is primarily responsible for making investment recommendations to the team.
Each Fund is contractually obligated to pay the Adviser an advisory fee of
0.25% annually based on the average net assets of such Fund.
Page 23 of 43
<PAGE>
INFORMATION ABOUT THE UNDERLYING ARMADA FUNDS
The following describes the investment objectives and primary investment
strategies for each of the Underlying Armada Funds that are available for
investment by the Funds as of the date of this Prospectus. Each Underlying
Armada Fund also may invest in other securities, use other strategies and engage
in other investment practices, which are described in detail in our Statement of
Additional Information.
The Funds may, in accordance with the Funds' investment objectives and policies,
invest in other investment portfolios offered by the Trust without shareholder
approval. Shareholders will be notified in advance of any change in the
Underlying Armada Funds.
No offer is made in this Prospectus of any of the Underlying Armada Funds.
UNDERLYING EQUITY FUNDS
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 net assets in the
equity securities of foreign issuers. The Fund focuses on issuers included in
the Morgan Stanley Capital International Europe, Australasia, Far East (MSCI
EAFE) Index, but may invest up to 10% of its total assets in issuers located
in countries with emerging markets or economies, including countries not
included in the MSCI EAFE Index. The MSCI 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 judgments 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 judgments. The percentage of the Fund in each country is
determined by its relative attractiveness and weight in the MSCI 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 may lower Fund performance.
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 net assets
in a diversified portfolio of common stocks and securities convertible into
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
Page 24 of 43
<PAGE>
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/Barra Growth
Index. The S&P/Barra Growth Index is an unmanaged index of common stocks which
are capitalization-weighted and have higher price-to-book ratios.
The ARMADA LARGE CAP VALUE FUND'S investment objective is to provide capital
appreciation by investing in a diversified portfolio of publicly traded larger
capitalization equity securities. 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 net assets in common stocks and
securities convertible into common stocks. The Fund may invest up to 20% of its
total assets at the time of purchase in foreign equity securities. In buying and
selling securities for the Fund, the Adviser attempts to emphasize equity
securities that the Adviser believes are undervalued relative to the general
market. The Fund will generally sell securities when they fail to satisfy
investment criteria.
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 net 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 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 result in higher transaction costs and additional capital gains tax
liabilities, and may lower Fund performance.
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
Page 25 of 43
<PAGE>
objective may be changed without a shareholder vote. The Fund will normally
invest at least 80% of its net 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 to
cash flow, price to book and price to sales 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 higher than median book to price
ratios and lower than median growth characteristics.
Due to its investment strategy, the Fund may buy and sell securities frequently.
This may increase transaction costs and capital gains tax liabilities, and may
lower Fund performance.
UNDERLYING FIXED INCOME FUNDS
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
investment-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 net assets in
investment-grade fixed income securities of all types, including but not limited
to 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. 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.
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 may lower Fund performance.
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
investment-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 net assets in
domestic and foreign investment-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 the
Page 26 of 43
<PAGE>
U.S. government, its agencies and instrumentalities, as well as obligations of
foreign governments. 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.
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.
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 may lower Fund performance.
UNDERLYING MONEY MARKET FUND
The ARMADA MONEY MARKET FUND'S investment objective is to provide as high a
level of current income as is consistent with liquidity and stability of
principal. The investment objective may be changed without a shareholder vote.
The Fund invests in a variety of high quality money market securities, including
certificates of deposit and other obligations issued by domestic and foreign
banks, as well as commercial paper. 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 (or in variable or floating rate
obligations with maturities that may exceed 397 days if they meet certain
conditions) that the Adviser believes present minimal credit risk. The Fund
maintains an average weighted maturity of 90 days or less.
Page 27 of 43
<PAGE>
PERFORMANCE OF THE UNDERLYING ARMADA FUNDS
The following tables compare each Underlying Armada Fund's (other than the
Armada Money Market Fund's) average annual total returns for the periods ended
December 31, 1999 to those of a broad-based market index. The indices used in
the tables are unmanaged indices which assume the reinvestment of dividends on
securities in the indices, and are generally considered to be representative
of securities similar to those invested in by the Underlying Armada Funds.
Because the Armada Aggressive Allocation Fund and Armada Conservative
Allocation Fund allocate their assets to investments in the Underlying Armada
Funds in varying percentages, their performance should not be expected to be
the same as any of the Underlying Armada Funds. The different classes of
shares of the Armada Aggressive Allocation and Conservative Allocation Funds
bear different fees and expenses than Class I Shares of the Underlying Armada
Funds, which will affect their performance. In addition, shareholders of the
Armada Aggressive Allocation and Armada Conservative Allocation Funds bear
indirectly the expenses of the Underlying Armada Funds in which they invest.
<TABLE>
<CAPTION>
ARMADA INTERNATIONAL EQUITY FUND 1 YEAR SINCE INCEPTION
------------------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS I SHARES 50.13% 23.77%(1)
MSCI EAFE INDEX(3) 26.96% 13.99%(2)
</TABLE>
(1) Since August 1, 1997
(2) Since July 31, 1997
(3) The Morgan Stanley Capital International Europe, Australasia and Far East
(MSCI EAFE) Index is an unmanaged index which represents the performance of more
than 1,000 equity securities of companies located in those regions.
<TABLE>
<CAPTION>
ARMADA LARGE CAP ULTRA FUND 1 YEAR SINCE INCEPTION
------------------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS I SHARES 29.04% 30.87%(1)
S&P/BARRA GROWTH INDEX(3) 28.26% 32.54%(2)
</TABLE>
(1) Since December 28, 1995
(2) Since December 31, 1995
(3) The S&P/Barra Growth Index is comprised of securities in the S&P 500
Composite Index that have a higher than average price-to-book ratio.
<TABLE>
<CAPTION>
ARMADA LARGE CAP VALUE FUND 1 YEAR 5 YEARS SINCE INCEPTION
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS I SHARES -0.13% 16.49% 15.02%(1)
S&P BARRA/VALUE INDEX(3) 12.72% 22.94% 21.04%(2)
</TABLE>
(1) Since July 1, 1994
(2) Since June 30, 1994
(3) The S&P/Barra Value Index is comprised of securities in the S&P 500
Composite Index that have a lower than median market capitalization weighted
price-to-book ratio.
<TABLE>
<CAPTION>
ARMADA SMALL CAP GROWTH FUND 1 YEAR SINCE INCEPTION
------------------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS I SHARES 36.06% 20.49%(1)
RUSSELL 2000 GROWTH INDEX(3) 43.10% 17.58%(2)
</TABLE>
(1) Since August 1, 1997
(2) Since July 31, 1997
(3) The Russell 2000 Growth Index is comprised of securities in the Russell 2000
Stock 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.
Page 28 of 43
<PAGE>
<TABLE>
<CAPTION>
ARMADA SMALL CAP VALUE FUND 1 YEAR 5 YEARS SINCE INCEPTION
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS I SHARES 7.91% 14.11% 14.40%(1)
RUSSELL 2000 VALUE INDEX(3) -1.49% 13.13% 12.02%(2)
</TABLE>
(1) Since July 26, 1994
(2) Since July 31, 1994
(3) The Russell 2000 Value Index is comprised of securities in the Russell 2000
Index with a 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. Companies in the Russell 2000
Value Index generally have low price to book and price-earnings ratios.
<TABLE>
<CAPTION>
ARMADA BOND FUND 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS I SHARES -1.80% 7.11% 7.03% 7.25%(1)
LEHMAN U.S. AGGREGATE BOND INDEX(2) -0.83% 7.73% 7.70% 8.06%(1)
</TABLE>
(1) Since October 31, 1988
(2) The Lehman U.S. 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.
<TABLE>
<CAPTION>
ARMADA INTERMEDIATE BOND FUND 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS I SHARES -0.04% 6.60% 6.92% 6.91%(1)
LEHMAN INTERMEDIATE U.S. GOVERNMENT/CREDIT INDEX(3) 0.39% 7.09% 7.26% 7.26%(2)
</TABLE>
(1)Since December 20, 1989.
(2)Since December 31, 1989.
(3) The Lehman Intermediate U.S. Government/Credit Index (formerly, the Lehman
Intermediate Government /Corporate Bond Index) is an unmanaged index which is
representative of intermediate-term bonds.
<TABLE>
<CAPTION>
ARMADA MONEY MARKET FUND 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS I SHARES 4.92% 5.28% 5.02% 5.62%(1)
</TABLE>
(1) Since September 3, 1986.
PURCHASING, SELLING AND EXCHANGING FUND SHARES
This section tells you how to purchase, sell (sometimes called "redeem") and
exchange Class A, Class B, Class C and Class I Shares of the Funds.
The classes have different expenses and other characteristics.
CLASS A SHARES
- FRONT-END SALES CHARGE
- LOW 12b-1 FEES
- $500 MINIMUM INITIAL INVESTMENT - NO SUBSEQUENT MINIMUM
Page 29 of 43
<PAGE>
CLASS B SHARES
- NO FRONT-END SALES CHARGE
- CONTINGENT DEFERRED SALES CHARGE (BACK-END SALES CHARGE IF YOU
REDEEM WITHIN 5 YEARS DECLINING FROM YEAR TO YEAR)
- HIGHER 12b-1 FEES THAN CLASS A
- $500 MINIMUM INITIAL INVESTMENT - NO SUBSEQUENT MINIMUM
- CONVERTS TO CLASS A SHARES AFTER THE EIGHTH YEAR
CLASS C SHARES
- NO FRONT-END SALES CHARGE
- CONTINGENT DEFERRED SALES CHARGE (BACK-END SALES CHARGE IF YOU
REDEEM WITHIN THE FIRST 18 MONTHS)
- HIGHER 12b-1 FEES THAN CLASS A
- $500 MINIMUM INITIAL INVESTMENT - NO SUBSEQUENT MINIMUM
- DOES NOT CONVERT TO ANY OTHER CLASS
CLASS I SHARES
- NO SALES CHARGE
- NO MINIMUM INITIAL INVESTMENT
- ONLY AVAILABLE TO FINANCIAL INSTITUTIONS
Class I Shares are for financial institutions investing for their own or their
customers' accounts. For information on how to open an account and set up
procedures for placing transactions call 1-800-622-FUND (3863).
From time to time, the Adviser may pay from its own resources a fee to financial
institutions that generate purchase orders for Class I Shares.
For investors purchasing shares through a Planned Investment Program, the
minimum initial investment is $50.
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 - CLASS A, CLASS B AND CLASS C SHARES
You may purchase Class A, Class B or Class C Shares directly by:
- Internet
- Telephone
- Mail
- Automated Clearing House (ACH)
- Wire
To purchase shares directly from us, please log on to our website at
WWW.ARMADAFUNDS.COM, or call 1-800- 622-FUND (3863). To set up a new account
with a different registration, complete and send in an Armada Funds New Account
application. You may complete the application directly online through the Armada
Website. Please print, sign and mail when finished or, you may call
1-800-622-FUND (3863) to obtain an application. Unless you arrange to pay by
wire or
Page 30 of 43
<PAGE>
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 and to receive a wire control number to be
included in the body of the wire. 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)
Note: Your bank may charge you a fee for this service.
BUYING OR SELLING SHARES THROUGH A FINANCIAL INTERMEDIARY - CLASS A, CLASS B,
CLASS C OR CLASS I SHARES
You may also buy Class A, Class B, Class C or Class I 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 broker or 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.
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. Daily NAV is
calculated for each of the Funds each Business Day at 4:00 p.m. Eastern time,
the regularly-scheduled close of normal trading on the New York Stock Exchange.
The deadline for submitting a purchase order to the Transfer Agent in order to
receive the current Business Day's NAV is 4:00 p.m. Eastern time.
Page 31 of 43
<PAGE>
So, for you to be eligible to receive dividends declared on the day you submit
your purchase order, a Fund generally must receive your order by the above
listed deadlines and federal funds (readily available funds) before 2:00 p.m.
Eastern time the following day.
HOW WE CALCULATE NAV
NAV for one Fund share is the value of that share's portion of the assets of the
Fund less liabilities and class expenses.
In calculating NAV, a Fund generally values its investment portfolio at market
price. The market price of an Underlying Armada Fund's shares held by a Fund
will be their net asset value at the time of the computation. 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. 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.
PLANNED INVESTMENT PROGRAM
With a $50 minimum initial investment and 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.
You may arrange for participation in this program via the Internet at
WWW.ARMADAFUNDS.COM, by calling 1-800-622-FUND (3863) or by completing an
account application.
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:
<TABLE>
<CAPTION>
SALES CHARGE AS A % OF DEALERS' REALLOWANCE
OFFERING PRICE PER AS A % OF NET ASSET AS A % OF OFFERING PRICE
If your Investment is: SHARE VALUE PER SHARE 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>
Page 32 of 43
<PAGE>
With respect to purchases of $1,000,000 or more of the Funds, the Adviser may
pay from its own resources a fee of 1.00% of the amount invested to the
financial institution placing the purchase order. A 1.00% 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.
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;
- when shares are purchased through certain broker-dealers who have agreed to
provide certain services with respect to shares of the Funds, including
Charles Schwab Mutual Fund Marketplace.-TM- Check with your broker-dealer
to see if you qualify for this exemption; and
- By direct rollover from an Armada Plus Retirement Plan or Armada SIMPLE
IRA.
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
Page 33 of 43
<PAGE>
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 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.
Page 34 of 43
<PAGE>
CONTINGENT DEFERRED SALES CHARGES -- CLASS B 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 DOLLAR
YEARS SINCE PURCHASE 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 and Class C Shares, the redemption
order is processed to minimize the amount of the contingent deferred sales
charge that will be charged. Class B and Class C Shares are redeemed first from
those Class B and Class C Shares that are not subject to the deferred sales load
(i.e. Class B and Class C Shares that were acquired through reinvestment of
dividends or capital gain distributions) and thereafter, unless otherwise
designated by the shareholder, from the Class B and Class C 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;
Page 35 of 43
<PAGE>
- redemptions following the death or disability of both shareholders in the
case of joint accounts;
- exchanges of Class B Shares between Class B Shares or Class C Shares
between Class C Shares, 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 Class A Shares and is
paid a servicing fee as long as you hold your shares. For Class B or C Shares,
your securities dealer receives 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.
There are no sales charges on the purchase of Class I Shares.
HOW TO SELL YOUR FUND SHARES
Holders of Class A, Class B and Class C Shares may sell shares by following the
procedures established when they opened their account or accounts. If you have
questions, call 1-800-622-FUND (3863).
Holders of Class I Shares may sell shares by following the procedures
established when they opened their account or accounts. If you have questions,
call 1-800-622-FUND (3863).
If you own your shares directly, you may sell (sometimes called "redeem") your
shares on any Business Day through the Internet, at WWW.ARMADAFUNDS.COM, by
telephone at 1-800-622-FUND (3863) or by mail. The minimum amount for Internet
and telephone redemptions is $100.
If you own your shares through an account with a broker or other institution,
contact that broker or institution to sell your shares. Your broker or
institution may charge a fee for its services, in addition to the fees charged
by the Fund.
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.
Page 36 of 43
<PAGE>
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 - CLASS A, CLASS B AND CLASS C SHARES
If you have at least $1,000 in your account, you may use the Systematic
Withdrawal Plan. Under the plan you may arrange periodic 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. You may
arrange for participation in this program via the Internet at
WWW.ARMADAFUNDS.COM, by calling 1-800-622-FUND (3863), or by completing an
account application.
RECEIVING YOUR MONEY
Normally, we will send your sale proceeds within seven Business Days after we
receive your request in good order. Good order means that your request includes
complete information on your purchase, exchange or redemption and that the Fund
has received the appropriate assets. 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). IF YOU RECENTLY CHANGED YOUR ADDRESS, YOU WILL NOT BE ABLE TO REDEEM
YOUR SHARES WITHIN 10 DAYS AFTER THE CHANGE WITHOUT A SIGNATURE GUARANTEE.
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 a
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.
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.
Page 37 of 43
<PAGE>
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 - CLASS A, CLASS B AND CLASS C SHARES
You may exchange your shares on any Business Day through the Internet at
WWW.ARMADAFUNDS.COM, by telephone or by mail. Exchange requests into a new Fund
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. The Trust may contact a shareholder who exceeds the limit and, if a
market-timing pattern continues, management of the Trust may revoke the
shareholder's privilege to purchase shares of a Fund through exchanges.
Management of the Trust reserves the right to limit, amend or impose charges
upon, terminate or otherwise modify the exchange privilege. Any modification to
the exchange privilege will not otherwise affect your right to redeem shares.
You will be provided 60 days' notice before any material change to the exchange
privilege is made. Any modification of the exchange privilege will not otherwise
affect your right to redeem shares.
IF YOU RECENTLY PURCHASED SHARES BY CHECK OR THROUGH ACH, YOU MAY NOT BE ABLE TO
EXCHANGE YOUR SHARES UNTIL YOUR CHECK OR ACH TRANSMISSION 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 Armada Fund for Class A Shares of any
other Armada Fund. If you exchange shares that you purchased without a sales
charge or with a lower sales charge into an Armada 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 an Armada 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 Armada Fund for Class B Shares of any
other Armada 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.
Page 38 of 43
<PAGE>
CLASS C SHARES
You may exchange Class C Shares of any Armada Fund for Class C Shares of any
other Armada Fund. No contingent deferred sales charge is imposed on redemptions
of shares you acquire in an exchange in this manner, provided you hold your
shares for at least 18 months from your initial purchase.
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, provided the Fund
has followed reasonable procedures to confirm the authenticity of instructions.
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 periodic intervals. The minimum amount of each exchange is
$50. Exchanging in this manner may reduce the average cost per share of a Fund.
Because purchases of Class A Shares of 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 Class A Shares in connection with this program.
If you would like to enter a systematic exchange program concerning Class B or
Class C Shares you must exchange them within six or twelve months from the date
of purchase.
You may arrange for participation in this program via the Internet at
WWW.ARMADAFUNDS.COM, by calling 1-800-622-FUND (3863) or by completing an
account application.
DISTRIBUTION OF FUND SHARES
Each Fund has adopted distribution plans under Rule 12b-1, pursuant to the
Investment Company Act of 1940, 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, after fee waivers, as a percentage of average daily net
assets are as follows:
<TABLE>
<CAPTION>
CLASS A(1) CLASS B CLASS C CLASS I
---------- ------- ------- -------
<S> <C> <C> <C> <C>
Armada Aggressive Allocation Fund 0.05% 0.65% 0.65% 0.05%
Armada Conservative Allocation Fund 0.05% 0.65% 0.65% 0.05%
</TABLE>
Page 39 of 43
<PAGE>
(1) Each Fund is permitted to pay up to 0.10% for distribution fees on Class A
and Class I Shares.
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 cash or non-cash
compensation as recognition for past sales or encouragement for future sales
that may include the following: merchandise, travel expenses, prizes, meals, and
lodgings, and gifts that do not exceed $100 per year, per individual.
DIVIDENDS AND TAXES
It is anticipated that the Armada Aggressive Allocation Fund will distribute
income quarterly and that the Armada Conservative Allocation Fund will
distribute income monthly.
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
dividend and/or capital gain distribution.
You will receive dividends and distributions in the form of additional Fund
shares unless you elect to receive payment in cash. Holders of Class A, Class B
or Class C Shares may change your distribution options directly through the
Internet at WWW.ARMADAFUNDS.COM, or you must notify the Fund in writing prior to
the record date of the distribution. Your election will be effective for
dividends and distributions paid the next day if done through the Internet or
after the Fund receives your written notice.
For holders of Class I Shares to elect to receive payment in cash you must
notify the Funds in writing prior to the date of distribution. Your election
will be effective for dividends and distributions received after the Funds
receive your written notice. To cancel your election, simply send the Funds
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.
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.
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."
Page 40 of 43
<PAGE>
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. Additionally, any loss realized on a sale or
redemption of shares of a Fund may be disallowed under "wash sale" rules to the
extent the shares disposed of are replaced with other shares of a Fund within a
period of 61 days beginning 30 days before and ending 30 days after the shares
are disposed of, such as pursuant to a dividend reinvestment in shares of a
Fund. If disallowed, the loss will be reflected in an adjustment to the basis of
the shares acquired.
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.
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. Shareowners should consult their tax advisers regarding the
tax status of distributions in their states and localities.
MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION.
Page 41 of 43
<PAGE>
ARMADA FUNDS
INVESTMENT ADVISER
National City Investment
Management Company
1900 East Ninth Street
Cleveland, Ohio 44114
DISTRIBUTOR
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
LEGAL COUNSEL
Drinker Biddle & Reath LLP
One Logan Square
18th and Cherry Streets
Philadelphia, PA 19103-6996
More information about the Funds is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI, as it may be amended or supplemented from time to time, includes more
detailed information about the Armada Funds. The SAI is on file with the SEC and
is incorporated by reference into this prospectus. This means that the SAI, for
legal purposes, is a part of this prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
These reports list each Fund's holdings and contain information from the Fund's
managers about strategies, and recent market conditions and trends and their
impact on Fund performance. The reports also contain detailed financial
information about the Funds.
TO OBTAIN MORE INFORMATION:
BY INTERNET:
WWW.ARMADAFUNDS.COM
BY TELEPHONE:
Call 1-800-622-FUND (3863)
BY MAIL:
P.O. Box 8421
Boston, MA 02266-8421
Page 42 of 43
<PAGE>
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 202-942-8090). You
may request documents by mail from the SEC, upon payment of a duplicating fee,
by writing to: Securities and Exchange Commission, Public Reference Section,
Washington, DC 20549-0102. You may also obtain this information, upon payment of
a duplicating fee, by e-mailing the SEC at the following address:
[email protected].
Armada Funds' Investment Company Act registration number is 811-4416.
Page 43 of 43
<PAGE>
ARMADA FUNDS
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 2001
ARMADA CORE EQUITY FUND
ARMADA EQUITY GROWTH FUND
ARMADA EQUITY INDEX FUND
ARMADA INTERNATIONAL EQUITY FUND
ARMADA LARGE CAP ULTRA FUND
ARMADA LARGE CAP VALUE FUND
ARMADA MID CAP GROWTH FUND
ARMADA SMALL CAP GROWTH FUND
ARMADA SMALL CAP VALUE FUND
ARMADA TAX MANAGED EQUITY FUND
ARMADA AGGRESSIVE ALLOCATION FUND
ARMADA BALANCED ALLOCATION FUND
ARMADA CONSERVATIVE ALLOCATION FUND
ARMADA BOND FUND
ARMADA GNMA FUND
ARMADA INTERMEDIATE BOND FUND
ARMADA LIMITED MATURITY BOND FUND
ARMADA STRATEGIC INCOME BOND FUND
ARMADA TOTAL RETURN ADVANTAGE FUND
ARMADA U.S. GOVERNMENT INCOME FUND
ARMADA MICHIGAN MUNICIPAL BOND FUND
ARMADA NATIONAL TAX EXEMPT BOND FUND
ARMADA OHIO TAX EXEMPT BOND FUND
ARMADA PENNSYLVANIA MUNICIPAL BOND FUND
ARMADA GOVERNMENT MONEY MARKET FUND
ARMADA MONEY MARKET FUND
ARMADA OHIO MUNICIPAL MONEY MARKET FUND
ARMADA PENNSYLVANIA TAX EXEMPT MONEY MARKET FUND
ARMADA TAX EXEMPT MONEY MARKET FUND
ARMADA TREASURY MONEY MARKET FUND
ARMADA TREASURY PLUS MONEY MARKET FUND
This Statement of Additional Information is not a prospectus but should be read
in conjunction with the current Prospectuses listed below for the above Funds of
Armada Funds (the "Trust"), as may be amended or supplemented from time to time.
The Prospectuses as well as the annual report to shareholders dated May 31, 2000
and semi-annual report to shareholders dated November 30, 2000,
<PAGE>
may be obtained by calling or writing the Trust at 1-800-622-FUND (3863), One
Freedom Valley Drive, Oaks, Pennsylvania 19456.
CURRENT PROSPECTUSES
- Prospectus for A, B and C Shares of the Armada Ohio Municipal Money
Market, Armada Pennsylvania Tax Exempt Money Market, Armada Tax Exempt
Money Market, Armada Money Market, Armada Government Money Market,
Armada Treasury Money Market and Armada Treasury Plus Money Market
Funds (the "Money Market Funds") dated October 2, 2000.
- Prospectus for I Shares of the Money Market Funds dated October 2,
2000.
- Prospectus for A, B and C Shares of all Funds other than the Armada
Aggressive Allocation Fund, Armada Conservative Allocation Fund and
Money Market Funds dated October 2, 2000.
- Prospectus for I Shares of all Funds other than the Money Market Funds
dated March 1, 2000.
- Prospectus for A, B, C and I Shares of the Armada Aggressive Allocation
Fund, Armada Balanced Allocation Fund and Armada Conservative
Allocation Fund dated March 1, 2001.
The Armada Funds' audited financial statements and the reports thereon of Ernst
& Young LLP, Armada Funds' independent auditors, included in the Armada Funds
2000 Annual Report dated May 31, 2000, the audited financial statements and
report thereon of Ernst & Young LLP, independent auditors for the Parkstone Mid
Capitalization Fund, Parkstone Large Capitalization Fund, Parkstone U.S.
Government Income Fund, Parkstone Michigan Municipal Bond Fund and Parkstone
Treasury Fund of The Parkstone Group of Funds, predecessors to the Armada Mid
Cap Growth Fund, Armada Large Cap Ultra Fund, Armada U.S. Government Income
Fund, Armada Michigan Municipal Bond Fund and Armada Treasury Plus Money Market
Fund, respectively, included in The Parkstone Group of Funds Annual Report dated
May 31, 2000, and the unaudited financial statements included in the Armada
Semi-Annual Report dated November 30, 2000, are incorporated by reference into
this Statement of Additional Information. No other parts of the Armada Funds
2000 Annual Report, Armada Semi-Annual Report or The Parkstone Group of Funds
Annual Report are incorporated herein.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
STATEMENT OF ADDITIONAL INFORMATION................................................................1
INVESTMENT OBJECTIVE AND POLICIES..................................................................2
INVESTMENT LIMITATIONS............................................................................64
NET ASSET VALUE...................................................................................67
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION....................................................70
DESCRIPTION OF SHARES.............................................................................81
ADDITIONAL INFORMATION CONCERNING TAXES...........................................................86
TRUSTEES AND OFFICERS.............................................................................90
ADVISORY, ADMINISTRATION, DISTRIBUTION, CUSTODIAN SERVICES AND TRANSFER AGENCY AGREEMENTS.........95
SHAREHOLDER SERVICES PLANS.......................................................................106
PORTFOLIO TRANSACTIONS...........................................................................107
AUDITORS.........................................................................................110
COUNSEL..........................................................................................111
PERFORMANCE INFORMATION..........................................................................111
MISCELLANEOUS....................................................................................125
APPENDIX A.......................................................................................A-1
APPENDIX B.......................................................................................B-1
</TABLE>
i
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read in
conjunction with the Prospectuses of the Trust that describe: the Core
Equity, Equity Growth, Equity Index, International Equity, Large Cap Ultra,
Large Cap Value, Mid Cap Growth, Small Cap Growth, Small Cap Value and Tax
Managed Equity Funds (collectively, the "Equity Funds"); the Aggressive
Allocation, Balanced Allocation and Conservative Allocation Funds
(collectively, the "Allocation Funds"); the Bond (formerly, Intermediate
Government), GNMA, Intermediate Bond (formerly, Fixed Income), Limited
Maturity Bond (formerly, Enhanced Income), Strategic Income Bond, Total
Return Advantage and U.S. Government Income Funds (collectively, the "Fixed
Income Funds"); the Michigan Municipal Bond, National Tax Exempt Bond, Ohio
Tax Exempt Bond and Pennsylvania Municipal Bond Funds (collectively, the "Tax
Free Funds"); and the Government Money Market, Money Market, Ohio Municipal
Money Market Fund, Pennsylvania Tax Exempt Money Market, Tax Exempt Money
Market, Treasury Money Market and Treasury Plus Money Market Funds
(collectively, the "Money Market 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 a 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 Funds are registered as
open end management investment companies. Each Fund other than the Tax Free
Funds is a diversified investment company. Each Tax Free Fund is a
non-diversified investment company.
The Pennsylvania Tax Exempt Money Market, Bond, GNMA and
Pennsylvania Municipal Bond Funds commenced operations as separate investment
portfolios (the "Predecessor Pennsylvania Tax Exempt Money Market,"
"Predecessor Intermediate Government Fund," "Predecessor GNMA Fund," and
"Predecessor Pennsylvania Tax Exempt Bond Fund," and collectively, the
"Predecessor Funds") of Inventor Funds, Inc. On September 9, 1996, the
Predecessor Funds were reorganized as new portfolios of the Trust. References
in this Statement of Additional Information are to a Fund's current name.
On June 9, 2000, the Enhanced Income Fund changed its name to
the Limited Maturity Bond Fund. On March __, 2001, the Equity Income Fund
changed its name to the Large Cap Value Fund. References in this Statement of
Additional Information are to the Funds' current names.
On June 9, 2000, the Bond Fund was reorganized with the
Parkstone Bond Fund, a separate investment portfolio offered by The Parkstone
Group of Funds ("Parkstone"). In connection with this reorganization, the
financial statements and performance history of the Parkstone Bond Fund were
adopted by the Bond Fund. Historical information concerning performance in this
Statement of Additional Information is that of the Parkstone Bond Fund.
<PAGE>
The Mid Cap Growth, Large Cap Ultra, U.S. Government Income
and Michigan Municipal Bond Funds commenced operations as separate investment
portfolios (the "Parkstone Mid Capitalization Fund," "Parkstone Large
Capitalization Fund," "Parkstone U.S. Government Income Fund" and "Parkstone
Michigan Municipal Bond Fund," and collectively, the "Parkstone Continuing
Funds") of Parkstone. On June 10, 2000, the Parkstone Continuing Funds were
reorganized as new portfolios of the Trust. References in this Statement of
Additional Information are to a Fund's current name.
The Treasury Plus Money Market Fund commenced operations as a
separate investment portfolio, the Parkstone Treasury Fund, of Parkstone. On
June 16, 2000, the Parkstone Treasury Fund was reorganized as a new portfolio of
the Trust. References in this Statement of Additional Information are to the
Fund's current name.
INVESTMENT OBJECTIVE AND POLICIES
ADDITIONAL INFORMATION ON FUND MANAGEMENT
Further information on the management strategies, techniques,
policies and related matters concerning National City Investment Management
Company, the investment adviser to the Funds ("IMC" or the "Adviser"), may be
included from time to time in advertisements, sales literature, communications
to shareholders and other materials. See also "Performance Information" below.
Attached to this Statement of Additional Information is
Appendix A which contains descriptions of the rating symbols used by Standard &
Poor's Rating Group ("S&P"), Fitch 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 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 Index (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.
2
<PAGE>
The S&P 500 is an index composed of 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 GROWTH FUND
Under normal conditions, at least 80% of the Fund's net 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.
The Fund is managed with a value approach, exhibiting
aggregate valuation characteristics such as price/earnings, price/book, and
price cash/flow ratios which are 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.
ARMADA EQUITY INDEX FUND
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 S&P 500 is composed of 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 July 31, 2000, the
3
<PAGE>
stocks in the S&P 500 had an average market capitalization of approximately
$25 billion. The range of market capitalization for companies represented in
the S&P 500 was $305 million to nearly $509 billion. "Market capitalization"
of a company is the market price per share of stock multiplied by the number
of shares outstanding.
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 Depositary
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.
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,
4
<PAGE>
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.
ARMADA INTERNATIONAL EQUITY FUND
The Fund seeks to achieve its investment objective by
investing, under normal market conditions, at least 80% of its net 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, but not exclusively, in equity
securities, including common and preferred stocks, rights, warrants, securities
convertible into common stocks and American Depositary Receipts ("ADRs") of
companies included in the Morgan Stanley Capital International Europe,
Australasia, 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 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.
The Fund may invest up to 10% of its total assets in
securities of issuers in countries with emerging markets or economies, but will
not invest more than 5% of its total assets in any single such country. See
"Additional Information about Portfolio Instruments - Foreign Securities and
Currencies" below.
5
<PAGE>
ARMADA LARGE CAP ULTRA FUND
The Fund normally will invest at least 80% of the value of its
net 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 and with market capitalizations
comparable to companies in the S&P/BARRA 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 ADRs or European Depositary Receipts ("EDRs") and may also invest in
securities issued by foreign branches of U.S. banks and foreign banks, Canadian
commercial paper ("CCP"), and in U.S. dollar-denominated commercial paper of a
foreign issuer.
The 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 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 such Fund to achieve its investment objective.
ARMADA LARGE CAP VALUE FUND
The Fund will normally invest at least 80% of the value of its
net assets in common stocks and securities convertible into common stocks. Such
convertible securities will have a rating of Ba/BB or higher by Moody's, S&P or
Fitch. 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 when they fail to satisfy investment criteria. The Fund is
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.
6
<PAGE>
ARMADA MID CAP GROWTH FUND
The Fund normally will invest at least 80% of the value of its
net 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 net 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, 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 ADRs, EDRs, Global Depositary Receipts ("GDRs") and other similar
global instruments, 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 Fund anticipates investing in growth-oriented,
medium-sized companies. Medium-sized companies are considered to be those with a
market capitalization comparable to companies in the Russell Mid Cap Growth
Index. Investments will be in companies that have typically exhibited
consistent, above-average growth in revenues and earnings, strong management,
and sound and improving financial fundamentals. Often, these companies are
market or industry leaders, have excellent products and/or services, and exhibit
the potential for growth. Primary holdings of the Fund are in companies that
participate in long-term growth industries, although these will be supplemented
by holdings in non-growth industries that exhibit the desired characteristics.
Consistent with the foregoing, the Fund will focus its
investments in those companies and types of companies that the Adviser believes
will enable the Fund to achieve its investment objective.
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ARMADA SMALL CAP GROWTH FUND
The Fund will normally invest at least 80% of its net 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 for Small Capitalization Stocks"
below.
ARMADA SMALL CAP VALUE FUND
Under normal conditions, at least 80% of the value of the
Fund's net 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 for
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
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.
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.
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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 net 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 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
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<PAGE>
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 AGGRESSIVE ALLOCATION FUND AND ARMADA CONSERVATIVE ALLOCATION FUND
Each of the Aggressive Allocation and Conservative Allocation
Funds is structured as a "fund of funds," which means that it pursues its
investment objective by allocating its assets among other investment portfolios
of Armada (the "Underlying Funds"). These Underlying Funds currently consist of
the Large Cap Value, Large Cap Ultra, Small Cap Growth, Small Cap Value and
International Equity Funds (the "Underlying Equity Funds"), the Bond and
Intermediate Bond Funds (the "Underlying Bond Funds"), and the Money Market
Fund. The specific portfolios that comprise the Underlying Funds can be changed
without shareholder approval. The Aggressive Allocation Fund currently intends
to invest 60% - 90% of its total assets in the Underlying Equity Funds, 10% -
40% of its total assets in the Underlying Bond Funds, and 0% - 20% of its total
assets in the Money Market Fund. The Conservative Allocation Fund currently
intends to invest 20% - 50% of its total assets in the Underlying Equity Funds,
50% - 80% of its total assets in the Underlying Bond Funds, and 0% - 20% of its
total assets in the Money Market Fund. Each Fund's allocation ranges can be
changed without shareholder approval. Each Fund normally intends to invest all
of its assets in the Underlying Funds; however, for temporary defensive purposes
each Fund may invest up to 100% of its assets in high quality, short-term debt
instruments. Each Fund reserves the ability to convert from a "fund of funds"
structure and to invest directly in the types of securities in which the
Underlying Funds invest. Shareholders will be provided with advance notice
before any such conversion occurs.
To the extent a Fund's assets is invested in a particular
Underlying Fund, the Fund is subject to the risks applicable to an investment in
such Underlying Fund. This Statement of Additional Information describes the
investment policies and strategies employed by the Underlying Funds and their
related risks.
ARMADA BALANCED ALLOCATION FUND
The Fund may invest in any type or class of security. The Fund
normally invests in common stocks, fixed income securities, securities
convertible into common stocks (i.e., warrants, convertible preferred stock,
fixed rate preferred stock, convertible fixed income securities, options and
rights) and cash equivalent securities. The Fund intends to invest 45% to 75% 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.
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<PAGE>
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 or Fitch. 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 BOND FUND
The Fund seeks to achieve its objective by normally investing
at least 80% of its net assets in investment grade fixed-income securities. The
Fund uses the Lehman Aggregate Bond Index as its performance benchmark. The
average maturity of the Fund will be from four to twelve years.
ARMADA GNMA FUND
The Fund seeks to achieve its objective by normally investing primarily
(at least 80% of its net 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 INTERMEDIATE BOND FUND
The Fund normally invests at least 80% of the value of its net
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.
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ARMADA LIMITED MATURITY BOND FUND
The Fund will normally invest at least 80% of the value of its
net 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.
ARMADA STRATEGIC INCOME BOND FUND
The Fund will normally allocate between 15% and 65% of its
assets in each of the following three types of fixed income securities: domestic
investment grade fixed income securities, domestic high-yield fixed income
securities, and fixed income securities of issuers in developed foreign
countries, based on the Adviser's analysis of the fixed income markets. The Fund
may invest up to 10% of its total assets in issuers in countries with emerging
markets or economies. 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. High-yield fixed income
securities are those rated below investment grade. Under normal market
conditions, the Fund maintains an average dollar-weighted portfolio maturity of
four to twelve years.
The Fund may invest up to 65% of its net assets in non-rated
securities and securities rated below investment grade. For a discussion of risk
factors relating to such securities, see "Additional Information About Portfolio
Instruments - Ratings Criteria," below.
ARMADA TOTAL RETURN ADVANTAGE FUND
The Fund will normally invest at least 80% of the value of its
net 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 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 "Additional Information About Portfolio
Instruments - Ratings Criteria" below.
ARMADA U.S. GOVERNMENT INCOME FUND
The Fund will normally invest at least 80% of its net assets
in obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities, although up to 20% of
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<PAGE>
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 an unaffiliated nationally recognized statistical rating
organization ("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.
Such 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 ("Michigan Municipal
Securities"). 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.
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.
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<PAGE>
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.
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% test 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. 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 Investment Company
Act of 1940, as amended (the "1940 Act"). Nevertheless, the Fund intends to
conduct its operations so as to qualify as a "regulated investment company" for
purposes of the Internal Revenue Code of 1986, as amended (the "Code"). The Code
requires that, at the end of each quarter of a fund's taxable year, (i) at least
50% of the market value of its total assets be invested in cash, U.S. government
securities, securities of other regulated investment companies and other
securities, with such other securities of any one issuer limited for the
purposes of this calculation to an amount not greater than 5% of the value of
the fund's total assets and 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its total assets be invested
in the securities of any one issuer (other than U.S. government securities or
the securities of other regulated investment companies). Since a relatively high
percentage of the Fund's assets may be invested in the
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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 NATIONAL TAX EXEMPT BOND FUND
The Fund will normally invest at least 80% of the value of its
net 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 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
net 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" 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, Pennsylvania Municipal Bond, National Tax Exempt Bond
and Tax Exempt Money Market Funds."
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").
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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" below). 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 Ohio Tax Exempt Bond, Pennsylvania Municipal Bond,
National Tax Exempt Bond and Tax Exempt Money Market Funds."
SPECIAL CONSIDERATIONS - ARMADA NATIONAL TAX EXEMPT BOND, OHIO TAX
EXEMPT BOND AND PENNSYLVANIA MUNICIPAL 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, 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 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 "Additional Information About Portfolio Investments" 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.
The Ohio Tax Exempt and Pennsylvania Tax Exempt Bond Funds are
classified as non-diversified under the 1940 Act. Investment return on a
non-diversified portfolio typically is dependent upon the performance of a
smaller number of securities relative to the number held in a diversified
portfolio. Consequently, the change in value of any one security may affect the
overall value of a non-diversified portfolio more than it would a diversified
portfolio, and thereby subject the market-based net asset value per share of the
non-diversified portfolio to greater fluctuations. In addition, a
non-diversified portfolio may be more susceptible to economic, political and
regulatory developments than a diversified investment portfolio with similar
objectives may be.
Although (i) all of the Funds may invest 25% or more of their
respective net assets in Municipal Securities the interest on which is paid
solely from revenues of similar projects, (ii) the Ohio Tax Exempt Bond and
National Tax Exempt Bond Funds may invest up to 20% of their
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respective total assets in private activity bonds 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.
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 may
not engage in reverse repurchase transactions or lend its portfolio securities.
The Fund is currently rated by S&P.
ARMADA MONEY MARKET FUND
The Fund seeks to achieve its objective by investing in "money
market" instruments such as certificates of deposit and other obligations issued
by domestic and foreign banks, and commercial paper (including variable and
floating rate instruments) rated high quality by a Rating Agency, or determined
to be of comparable quality by the Adviser. The 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 OHIO MUNICIPAL MONEY MARKET FUND
The Fund seeks to achieve its objective by investing
substantially all of its assets in 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 the interest
on which is an item of tax preference for purposes of
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the federal alternative minimum tax. 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 Fund's assets are 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 - Ohio Municipal Money
Market, Pennsylvania Tax Exempt Money Market and Tax Exempt Money Market Funds"
below.
ARMADA PENNSYLVANIA TAX EXEMPT MONEY MARKET FUND
The Fund seeks to achieve its objective by investing
substantially all of its assets in 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.
The Fund's assets are 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 - Ohio Municipal Money
Market, Pennsylvania Tax Exempt Money Market and Tax Exempt Money Market Funds"
below.
ARMADA TAX EXEMPT MONEY MARKET FUND
The Fund seeks to achieve its objective by investing
substantially all of its assets in a diversified portfolio of 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 - Ohio Municipal Money
Market, Pennsylvania Tax Exempt Money Market and Tax Exempt Money Market Funds
below."
SPECIAL RISK CONSIDERATIONS -- OHIO MUNICIPAL MONEY MARKET,
PENNSYLVANIA TAX EXEMPT MONEY MARKET AND TAX EXEMPT MONEY MARKET FUNDS
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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 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 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 may not engage in reverse repurchase transactions or lend its portfolio
securities. The Fund is currently rated by S&P.
ARMADA TREASURY PLUS MONEY MARKET FUND
The Fund seeks to achieve its investment objective by
investing exclusively in direct obligations of the U.S. Treasury, such as
Treasury bills and notes, repurchase agreements related to such securities, and
investment companies that invest exclusively in such obligations. The Fund may
not engage in reverse repurchase transactions or lend its portfolio securities.
The Fund is currently rated by S&P and Moody's.
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.
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ADDITIONAL INFORMATION ABOUT PORTFOLIO INSTRUMENTS
RATINGS CRITERIA
Investment grade debt securities in which the Funds invest are
those securities rated at the time of purchase by a Fund within the four highest
ratings groups assigned by Moody's (Aaa, Aa, A and Baa), S&P (AAA, AA, A and
BBB) or Fitch (AAA, AA, A and BBB), or, if unrated, which are determined by the
Adviser or Sub-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 or Fitch) 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.
The Strategic Income Bond and Total Return Advantage Funds may
also invest in debt securities rated below investment grade. While any
investment carries some risk, certain risks associated with lower rated
securities 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 a 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 a Fund. Current laws, such as those requiring
federally insured savings and loan associations to remove investments in lower
rated securities from their funds, as well as other pending proposals, may also
have a material adverse effect on the market for lower rated securities.
The economy and interest rates may affect lower rated
securities differently than other securities. For example, the prices of lower
rated securities are more sensitive to adverse economic changes or individual
corporate developments than are the prices of higher rated investments. In
addition, during an economic downturn or period in which interest rates are
rising significantly, highly leveraged issuers may experience financial
difficulties, which, in turn, would adversely affect their ability to service
their principal and interest payment obligations, meet projected business goals
and obtain additional financing.
If an issuer of a security held by a 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.
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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, a 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 a Fund, especially in a thinly traded market. Illiquid
or restricted securities held by a Fund may involve special registration
responsibilities, liabilities and costs, and could involve other liquidity and
valuation difficulties.
The ratings of Moody's, S&P and Fitch 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 Adviser and Sub-Adviser perform their own
analysis of the issuers of lower rated securities purchased by a Fund. Because
of this, a Fund's performance may depend more on its own credit analysis than is
the case for mutual funds investing in higher rated securities.
The Adviser and Sub-Adviser continuously monitor the issuers
of lower rated securities held by a 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.
ELIGIBLE SECURITIES
The Money Market Funds may purchase "eligible securities" (as
defined by Rule 2a-7 under the 1940 Act) 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 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.
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REITS
Each of the Large Cap Value, Mid Cap Growth, Small Cap Value,
Intermediate Bond and Limited Maturity Bond Funds may invest from time to time
in real estate investment trusts ("REITs"). REITs pool investors' funds for
investment primarily in income-producing real estate or real estate-related
loans or interests. A REIT is not taxed on income distributed to shareholders if
it complies with several requirements relating to its organization, ownership,
assets and income, and a requirement that it distribute to its shareholders at
least 95% of its taxable income (other than net capital gains) for each taxable
year.
REITs can generally be classified as equity REITs, mortgage REITs and
hybrid REITs. Equity REITs invest the majority of their assets directly in real
property and derive their income principally from rental and lease payments.
Equity REITs can also realize capital gains by selling properties that have
appreciated in value. Mortgage REITs make loans to commercial real estate
developers and derive their income primarily from interest payments on such
loans. Hybrid REITs combine the characteristics of both equity and mortgage
REITs. REITs may be subject to certain risks associated with the direct
ownership of real estate, including declines in the value of real estate, risks
related to general and local economic conditions, overbuilding and increased
competition, increases in property taxes and operating expenses, and variations
in rental income. Generally, increases in interest rates will decrease the value
of high yielding securities and increase the costs of obtaining financing, which
could decrease the value of a REIT's investments. In addition, equity REITs may
be affected by changes in the value of the underlying property owned by the
REITs, while mortgage REITs may be affected by the quality of credit extended.
Equity and mortgage REITs are dependent upon management skill, are not
diversified and are subject to the risks of financing projects. REITs are also
subject to heavy cash flow dependency, defaults by borrowers, self liquidation
and the possibility of failing to qualify for tax-free pass-through of income
under the Code and to maintain exemption from the 1940 Act.
REITs pay dividends to their shareholders based upon available funds
from operations. It is quite common for these dividends to exceed a REIT's
taxable earnings and profits resulting in the excess portion of such dividends
being designated as a return of capital. Each Fund intends to include the gross
dividends from any investments in REITs in its periodic distributions to its
shareholders and, accordingly, a portion of the Fund's distributions may be
designated as a return of capital.
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 Adviser will consider the earning power, cash flows and
other liquidity ratios of the issuers and guarantors of variable and floating
rate obligations 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.
With respect to the Money Market Funds, 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, Large Cap Value, Balanced
Allocation, Total Return Advantage, Intermediate Bond, Limited Maturity Bond,
Strategic Income Bond Funds and the Money Market Funds may make limited
investments in Guaranteed Investment Contracts ("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. GICs may provide a lower rate of
return then may be available to a Fund through other types of investments the
Fund is permitted to make. A GIC is backed only by the insurance company that
issued the GIC and, therefore, payments on the GIC are subject to the insurance
company's capacity to pay. Failure of the issuing company could
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result in a default on a GIC. A Fund will purchase a GIC only when its
Adviser or Sub-Adviser has determined, under guidelines established by the
Board of Trustees, that the GIC presents minimal credit risks to the Fund and
is of comparable quality to instruments that are rated high quality by one or
more rating agencies. For the Money Market Fund, the Fund's investments in
GICs will not exceed 10% of the Fund's net assets. In addition, because each
Fund may not receive the principal amount of a GIC from the insurance company
on seven days' notice or less, the GIC is considered an illiquid investment,
and, together with other instruments in the Fund which are not readily
marketable, will not exceed 15% (10% in the case of the Money Market Funds)
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. These bank obligations are not insured
by the Federal Deposit Insurance Corporation. 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
Money Market, Mid Cap Growth and Michigan Municipal 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, "F2" or better by Fitch, 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, Limited Maturity Bond, Strategic
Income Bond, 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
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agreement, a Fund purchases securities from financial institutions such as
banks and broker-dealers which the Fund's Adviser or Sub Adviser deems
creditworthy under guidelines approved by the Board of Trustees, subject to
the seller's agreement to repurchase such securities at a mutually
agreed-upon date and price. The repurchase price generally equals the price
paid by the Fund plus interest negotiated on the basis of current short term
rates, which may be more or less than the rate on the underlying portfolio
securities.
The seller under a repurchase agreement will be required to
maintain the value of collateral held pursuant to the agreement at not less than
the repurchase price (including accrued interest). If the seller were to default
on its repurchase obligation or become insolvent, the Fund holding such
obligation would suffer a loss to the extent that the proceeds from a sale of
the underlying portfolio securities were less than the repurchase price under
the agreement, or to the extent that the disposition of such securities by the
Fund were delayed pending court action. Although there is no controlling legal
precedent confirming that a Fund would be entitled, as against a claim by such
seller or its receiver or trustee in bankruptcy, to retain the underlying
securities, the Board of Trustees of the Trust believes that, under the regular
procedures normally in effect for custody of a Fund's securities subject to
repurchase agreements and under federal laws, a court of competent jurisdiction
would rule in favor of the Trust if presented with the question. Securities
subject to repurchase agreements will be held by the Trust's custodian or
another qualified custodian or in the Federal Reserve/Treasury book-entry
system. Repurchase agreements are considered to be loans by a Fund under the
1940 Act.
With respect to the Ohio Municipal Money Market, Pennsylvania
Tax Exempt Money Market, Tax Exempt Money Market, Money Market, 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, Large Cap Value,
Balanced Allocation, Total Return Advantage, Strategic Income Bond, Ohio
Municipal Money Market, Pennsylvania Tax Exempt Money Market, 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
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account to ensure that such equivalent value is maintained. Whenever the Ohio
Municipal Money Market, Pennsylvania Tax-Exempt Money Market and Money Market
Funds enter into a reverse repurchase agreement, it will place in a
segregated custodial account liquid assets at least equal to the repurchase
price marked to market daily (including accrued interest) and will
subsequently monitor the account to ensure such equivalent value is
maintained. Reverse repurchase agreements involve the risk that the market
value of the securities sold by a Fund may decline below the price at which
it is obligated to repurchase the securities. Reverse repurchase agreements
are considered to be borrowings by the Fund under the 1940 Act.
LENDING OF PORTFOLIO SECURITIES
The International Equity, Small Cap Value, Small Cap Growth,
Equity Growth, Tax Managed Equity, Core Equity, Equity Index, Large Cap Value,
Balanced Allocation, Total Return Advantage, Bond, Intermediate Bond, GNMA,
Limited Maturity Bond, Strategic Income Bond, 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
combined with any other outstanding 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.
ILLIQUID SECURITIES
The International Equity, Small Cap Value, Small Cap Growth,
Equity Growth, Tax Managed Equity, Core Equity, Equity Index, Large Cap Value,
Total Return Advantage,
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Bond, Intermediate Bond, GNMA, Limited Maturity Bond, Strategic Income Bond,
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 or Moody's; certificates of deposit; bankers'
acceptances; and repurchase agreements with respect to such obligations.
FOREIGN SECURITIES AND CURRENCIES
Each of the International Equity, Small Cap Value, Small Cap
Growth, Equity Growth, Tax Managed Equity, Core Equity, Large Cap Value,
Balanced Allocation, Mid Cap Growth, Total Return Advantage, Intermediate Bond,
Limited Maturity Bond, Strategic Income Bond and U.S. Government Income Funds
may invest in securities issued by foreign issuers either directly or indirectly
through investments in ADRs, EDRs or GDRs (see "American, European and Global
Depositary 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
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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.
With respect to the International Equity and Strategic Income
Bond Funds, certain of the risks associated with investments in foreign
securities are heightened with respect to investments in countries with emerging
economies or emerging securities markets. The risks of expropriation,
nationalization and social, politic and economic instability are greater in
those countries than in more developed capital markets.
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 Funds. 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.
Many European countries have adopted a single European
currency, the euro. On January 1, 1999, the euro became legal tender for all
countries participating in the Economic and Monetary Union ("EMU"). A new
European Central Bank has been created to manage the monetary policy of the new
unified region. On the same date, the exchange rates were irrevocably fixed
between the EMU member countries. National currencies will continue to circulate
until they are replaced by euro coins and bank notes by the middle of 2002.
This change is likely to significantly impact the European
capital markets in which the Funds (particularly the International Equity Fund)
may invest and may result in a Fund facing additional risks in pursuing its
investment objective. These risks, which include, but are not limited to,
volatility of currency exchange rates as a result of the conversion, uncertainty
as to capital market reaction, conversion costs that may affect issuer
profitability and creditworthiness, and lack of participation by some European
countries, may increase the volatility of a Fund's net asset value per share.
The expense ratio of a Fund investing substantially in foreign
securities can be expected to be higher than that of funds investing in domestic
securities. The costs of investing abroad are generally higher for several
reasons, including the cost of investment research, increased costs of custody
for foreign securities, higher commissions paid for comparable
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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.
AMERICAN, EUROPEAN AND GLOBAL DEPOSITARY RECEIPTS
The International Equity, Small Cap Value, Small Cap Growth,
Equity Growth, Tax Managed Equity, Core Equity, Large Cap Value, Balanced
Allocation, Mid Cap Growth, Total Return Advantage, Intermediate Bond, Limited
Maturity Bond, Strategic Income Bond and U.S. Government Income Funds may invest
in ADRs, EDRs, GDRs and other similar global instruments. ADRs are receipts
issued in registered form by a U.S. bank or trust company evidencing ownership
of underlying securities issued by a foreign issuer. ADRs may be listed on a
national securities exchange or may be traded in the over-the-counter markets.
ADR prices are denominated in U.S. dollars although the underlying securities
may be denominated in a foreign currency. EDRs, which are sometimes referred to
as Continental Depositary Receipts, are receipts issued in Europe typically by
non-U.S. banks or trust companies and foreign branches of U.S. banks that
evidence ownership of foreign or U.S. securities. EDRs are designed for use in
European exchange and over-the-counter markets. GDRs are receipts structured
similarly to EDRs and are marketed globally. GDRs are designed for trading in
non-U.S. securities markets. Investments in ADRs, EDRs and GDRs involve risks
similar to those accompanying direct investments in foreign securities, but
those that are traded in the over-the-counter market which do not have an active
or substantial secondary market will be considered illiquid and, therefore, will
be subject to a Fund's limitation with respect to illiquid securities.
The principal difference between sponsored and unsponsored
ADR, EDR and GDR programs is that unsponsored ones are organized independently
and without the cooperation of the issuer of the underlying securities.
Consequently, available information concerning the issuer may not be as current
as for sponsored ADRs, EDRs and GDRs, and the prices of unsponsored ADRs, EDRs
and GDRs may be more volatile.
FOREIGN GOVERNMENT OBLIGATIONS
The International Equity, Balanced Allocation, Strategic
Income Bond, 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 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. Certain foreign governments
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may be less capable of meeting repayment obligations on debt on a timely
basis than, for example, the United States 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, Large Cap Value, Balanced Allocation, Total
Return Advantage, Strategic Income Bond, Limited Maturity Bond, 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 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, Large Cap Value, Balanced Allocation,
Total Return Advantage and Limited Maturity Bond 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
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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 Fund 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, Large Cap Value, Balanced
Allocation, Total Return Advantage, Limited Maturity Bond and Strategic Income
Bond 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 Core Equity, Equity Growth, Large Cap Value, International
Equity, Large Cap Ultra, Tax Managed Equity, Balanced Allocation, Strategic
Income Bond and Mid Cap Growth Funds may invest in convertible securities
entitling the holder to receive interest paid or accrued on debt or the dividend
paid on preferred stock until the securities mature or are redeemed, converted
or exchanged. Prior to conversion, convertible securities have characteristics
similar to ordinary debt securities in that they normally provide a stable
stream of income with generally higher yields than those of common stock of the
same or similar issuers. Convertible securities rank senior to common stock in a
corporation's capital structure and therefore generally entail less market risk
than the corporation's common stock. Convertible securities will not normally
decrease significantly below their conversion value. 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
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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, Limited Maturity Bond, Strategic Income Bond, 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, Strategic
Income Bond, Intermediate Bond and Limited Maturity Bond 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, Strategic
Income Bond, Intermediate Bond and Limited Maturity Bond Funds' appreciation may
result from an improvement in the credit standing of an issuer whose securities
are held or a general decline in the level of interest rates or a combination of
both. An increase in the level of interest rates generally reduces the value of
the fixed rate debt instruments held by the Fund; conversely, a decline in the
level of interest rates generally increases the value of such investments. An
increase in the level of interest rates may temporarily reduce the value of the
floating rate debt instruments held by the Fund; conversely, a decline in the
level of interest rates may temporarily increase the value of those investments.
The Balanced Allocation, Intermediate Bond, and Limited
Maturity Bond 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), or Fitch (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. The
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Total Return Advantage Fund normally invests substantially all of its assets in
investment grade debt securities but may invest up to 15% of its securities in
lower grade securities. See "Ratings Criteria" above.
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.
WARRANTS
The International Equity, Small Cap Value, Small Cap Growth,
Equity Growth, Tax Managed Equity, Core Equity, Large Cap Value, 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, Large Cap Value
and Mid Cap Growth Funds may invest in stock index futures contracts and options
on 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, Limited Maturity Bond and Strategic Income Bond 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 Large Cap Value 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 currency
futures contracts 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
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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.
Each of the International Equity, Small Cap Value, Small Cap
Growth, Equity Growth, Tax Managed Equity, Equity Index, Large Cap Value,
Balanced Allocation, Strategic Income Bond, Total Return Advantage, Bond, GNMA,
Limited Maturity Bond, 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, Large Cap Value, Balanced
Allocation, Strategic Income Bond, Total Return Advantage, Limited Maturity
Bond, 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
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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 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 33 1/3% (20% with respect to the Equity Index
Fund) 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.
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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 Statement of Additional Information.
RISK FACTORS ASSOCIATED WITH FUTURES AND RELATED OPTIONS
To the extent the Total Return Advantage, Bond, Strategic
Income Bond, GNMA and Limited Maturity Bond 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 Strategic Income Bond, Total Return Advantage,
Bond, GNMA and Limited Maturity Bond Funds intend to enter into futures
contracts and the Strategic Income Bond, Total Return Advantage and Limited
Maturity Bond Funds into options transactions only
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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.
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.
DOLLAR ROLLS
The Balanced Allocation, U.S. Government Income, Strategic
Income Bond 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 a 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
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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 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
Each Fund may engage in short sales of its securities. Selling
securities short involves selling securities the seller does not own (but has
borrowed) in anticipation of a decline in the market price of such securities.
To deliver the securities to the buyer, the seller must arrange through a broker
to borrow the securities and, in so doing, the seller becomes obligated to
replace the securities borrowed at their market price at the time of
replacement. In a short sale, the proceeds the seller receives from the sale are
retained by a broker until the seller replaces the borrowed securities. The
seller may have to pay a premium to borrow the securities and must pay any
dividends or interest payable on the securities until they are replaced.
A Fund may only sell securities short "against the box." A
short sale is "against the box" if, at all times during which the short position
is open, the Fund owns at least an equal amount of the securities or securities
convertible into, or exchangeable without further consideration for, securities
of the same issuer as the securities that are sold short.
ASSET-BACKED SECURITIES
The Balanced Allocation Fund, the Fixed Income Funds and, to
the extent permitted by Rule 2a-7 under the 1940 Act and as is consistent with
their investment objective and policies, the Money Market 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 a 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
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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 purchase securities that are secured or backed
by mortgages and are issued by entities such as GNMA, Federal National Mortgage
Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC), or private
mortgage conduits. The market value and interest yield of these instruments can
vary due to market interest rate fluctuations and early prepayments of
underlying mortgages. Except for private mortgage conduits, these securities
represent ownership in a pool of federally insured mortgage loans. 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.
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 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 FNMA
include FNMA Guaranteed Mortgage Pass-Through
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Certificates (also known as "Fannie Maes") which are solely the obligations
of 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 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 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.
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.
CMOs may be issued by the U.S. Government, its agencies,
instrumentalities or sponsored enterprises, including FNMA and FHLMC or by
trusts formed by private originators of, or investors in, mortgage loans. In
general, CMOs represent direct ownership interests in a pool of residential
mortgage loans or mortgage pass-through securities (the "Mortgage Assets"), the
payments on which are used to make payments on the CMOs.
Each class of a CMO, often referred to as a "tranche," is
issued at a specific adjustable or fixed interest rate and must be fully retired
no later than its final distribution date. Principal prepayments on the Mortgage
Assets underlying a CMO may cause some or all of the classes of the CMO to be
retired substantially earlier than its final distribution date.
The principal of and interest on the Mortgage Assets may be
allocated among the several classes of a CMO in various ways. In certain
structures (known as "sequential pay" CMOs), payments of principal, including
any principal prepayments, on the Mortgage Assets generally are applied to the
classes of the CMO in the order of their respective final distribution dates.
Thus, no payment of principal will be made on any class of sequential pay CMOs
until all other classes having an earlier final scheduled distribution date have
been paid in full.
Additional structures of CMOs include, among others, "parallel
pay" CMOs. Parallel pay CMOs are those which are structured to apply principal
payments and prepayments of the Mortgage Assets to two or more classes
concurrently on a proportionate or disproportionate basis. These simultaneous
payments are taken into account in calculating the final distribution date of
each class.
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Non-mortgage asset-backed securities involve certain risks
that are not presented by mortgage-backed securities. Primarily, these
securities may not have the benefit of the same security interest in the
underlying collateral. Credit card receivables are generally unsecured and the
debtors are entitled to the protection of a number of state and federal consumer
credit laws, many of which have given debtors the right to set off certain
amounts owed on the credit cards, thereby reducing the balance due. Most issuers
of automobile receivables permit the servicers to retain possession of the
underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related automobile receivables. In
addition, because of the large number of vehicles involved in a typical issuance
and technical requirements under state laws, the trustee for the holders of the
automobile receivables may not have an effective security interest in all of the
obligations backing such receivables. Therefore, there is a possibility that
recoveries on repossessed collateral may not, in some cases, be able to support
payments on these securities.
INTEREST RATE AND TOTAL RETURN SWAPS
The Balanced Allocation, Total Return Advantage, GNMA, Limited
Maturity Bond, Strategic Income Bond and U.S. Government Income Funds may enter
into interest rate swaps for hedging purposes and not for speculation. The
Balanced 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 a 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 Limited Maturity
Bond, Strategic Income Bond and Total Return Advantage Funds, either "A" or
"A-1" or better by S&P 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, Limited
Maturity Bond and Strategic Income Bond Funds 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
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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.
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, Strategic Income 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, Limited Maturity Bond and Strategic Income Bond Funds may make or acquire
participations in privately negotiated loans to borrowers. Frequently, such
loans have variable interest rates and may be backed by a bank letter of credit;
in other cases they may be unsecured. Such transactions may provide an
opportunity to achieve higher yields than those that may be available from other
securities offered and sold to the general public.
Privately arranged loans, however, will generally not be rated
by a credit rating agency and will normally be liquid, if at all, only through a
provision requiring repayment following demand by the lender. Such loans made by
a Fund may have a demand provision permitting the Fund to require repayment
within seven days. Participations in such loans, however, may not have such a
demand provision and may not be otherwise marketable. Recovery of an investment
in any such loan that is illiquid and payable on demand will depend on the
ability of the borrower to meet an obligation for full repayment of principal
and payment of accrued interest within the demand period, normally seven days or
less (unless the Fund determines that a particular loan issue, unlike most such
loans, has a readily available market). As it deems appropriate, the Board of
Trustees of the Trust will establish procedures to monitor the credit standing
of each such borrower, including its ability to honor contractual payment
obligations.
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CERTIFICATES OF PARTICIPATION
The Michigan Municipal Bond Fund may purchase Michigan
Municipal Securities in the form of "certificates of participation" which
represent undivided proportional interests in lease payments by a governmental
or nonprofit entity. The other Tax Free Funds may also purchase certificates of
participation. The municipal leases underlying the certificates of participation
in which the Funds invest will be subject to the same quality rating standards
applicable to Municipal Securities. Certificates of participation may be
purchased from a bank, broker-dealer or other financial institution. The lease
payments and other rights under the lease provide for and secure the payments on
the certificates.
Lease obligations may be limited by law, municipal charter or
the duration or nature of the appropriation for the lease and may be subject to
periodic appropriation. In particular, lease obligations, may be subject to
periodic appropriation. If the entity does not appropriate funds for future
lease payments, the entity cannot be compelled to make such payments.
Furthermore, a lease may provide that the certificate trustee cannot accelerate
lease obligations upon default; in such event, the trustee would only be able to
enforce lease payments as they became due. In the event of a default or failure
of appropriation, it is unlikely that the trustee would be able to obtain an
acceptable substitute source of payment. In addition, certificates of
participation are less liquid than other bonds because there is a limited
secondary trading market for such obligations.
WHEN-ISSUED SECURITIES
The International Equity, Large Cap Ultra, Small Cap Value,
Small Cap Growth, Equity Growth, Tax Managed Equity, Core Equity, Large Cap
Value, Balanced Allocation, Total Return Advantage, Bond, Intermediate Bond,
GNMA, Limited Maturity Bond, Strategic Income Bond, Ohio Tax Exempt Bond,
Pennsylvania Municipal Bond, National Tax Exempt Bond, Michigan Municipal Bond,
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 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 segregates cash or liquid portfolio securities equal to the amount of
the commitment. 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
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value of the account remains equal to the amount of the Fund's commitment,
marked to market daily. It is likely that a Fund's net assets will fluctuate
to a greater degree when it sets aside portfolio securities to cover such
purchase commitments than when it sets aside cash. Because a Fund will set
aside cash or liquid assets to satisfy its purchase commitments in the manner
described, the Fund's liquidity and ability to manage its portfolio might be
affected in the event its commitments to purchase when-issued securities ever
exceeded 25% of the value of its total assets.
When a Fund engages in when-issued transactions, it relies on
the seller to consummate the trade. Failure of the seller to do so may result in
the Fund's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous. A Fund receives no income from when-issued or
delayed settlement securities prior to delivery of such securities.
SHORT-TERM OBLIGATIONS
The International Equity, Small Cap Value, Small Cap Growth,
Equity Growth, Mid Cap Growth, Tax Managed Equity, Core Equity, Equity Index,
Large Cap Value, Balanced Allocation, Total Return Advantage, Bond, Intermediate
Bond, GNMA, Limited Maturity Bond, Strategic Income Bond, 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 or less
in the case of the Mid Cap Growth and U.S. Government Income Funds) 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. See "Repurchase Agreements" and "Reverse
Repurchase Agreements" above.
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, "F2" or better by Fitch 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, Limited Maturity Bond and Strategic Income Bond
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
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foreign issuer. Each Fund may also acquire zero coupon obligations, which
have greater price volatility than coupon obligations and which will not
result in the payment of interest until maturity.
Bank obligations include bankers' acceptances and negotiable
certificates of deposit, and non-negotiable demand and time deposits issued for
a definite period of time and earning a specified return by a U.S. bank which is
a member of the Federal Reserve System. Bank obligations also include U.S.
dollar denominated bankers' acceptances and certificates of deposit and time
deposits issued by foreign branches of U.S. banks or foreign banks. Investment
in bank obligations is limited to the obligations of financial institutions
having more than $1 billion in total assets at the time of purchase. These bank
obligations are not insured by the Federal Deposit Insurance Corporation. Each
of the International Equity, Small Cap Growth, Tax Managed Equity, Core Equity,
Balanced Allocation, Total Return Advantage, Intermediate Bond, Limited Maturity
Bond and Strategic Income Bond 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 a Fund's total assets at the time of purchase.
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. These bank obligations
are not issued by the Federal Deposit Insurance Corporation. 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, "F2" or better by Fitch 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
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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 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. In addition to such investments,
the Balanced Allocation, Total Return Advantage, Bond, Intermediate Bond, GNMA,
Limited Maturity Bond, Strategic Income Bond, 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 may invest in U.S. government agency obligations, examples
of which include 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
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"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 the credit
risk with respect thereto is minimal.
U.S. TREASURY OBLIGATIONS AND RECEIPTS
The Balanced Allocation, Total Return Advantage, Bond,
Intermediate Bond, GNMA, Limited Maturity Bond, Strategic Income Bond, Money
Market, Mid Cap Growth, U.S. Government Income and Michigan Municipal Bond Funds
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 Funds may invest in separately traded interest and
principal component parts of the U.S. Treasury obligations that are issued by
banks or brokerage firms and are created by depositing U.S. Treasury obligations
into a special account at a custodian bank. The custodian holds the interest and
principal payments for the benefit of the registered owners of the certificates
or 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. The private
proprietary accounts underlying TIGRs, LYONs and CATS are not government
guaranteed.
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 Free 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 Municipal Securities at a specified price. Stand-by
commitments acquired by a 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. A Fund acquires stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes.
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DERIVATIVE INSTRUMENTS
The International Equity, Small Cap Value, Small Cap Growth,
Equity Growth, Tax Managed Equity, Core Equity, Equity Index, Large Cap Value,
Balanced Allocation, Total Return Advantage, Bond, Intermediate Bond, GNMA,
Limited Maturity Bond, Strategic Income Bond, Money Market, Mid Cap Growth, and
U.S. Government Income Funds may purchase certain "derivative" instruments.
Derivative instruments are instruments that derive value from the performance of
underlying securities, interest or currency exchange rates, or indices, and
include (but are not limited to) futures contracts, options, forward currency
contracts and structured debt obligations (including collateralized mortgage
obligations ("CMOs"), various floating rate instruments and other types of
securities).
Like all investments, derivative instruments involve several
basic types of risks which must be managed in order to meet investment
objectives. The specific risks presented by derivatives include, to varying
degrees, market risk in the form of underperformance of the underlying
securities, exchange rates or indices; credit risk that the dealer or other
counterparty to the transaction will fail to pay its obligations; volatility and
leveraging risk that, if interest or exchange rates change adversely, the value
of the derivative instrument will decline more than the securities, rates or
indices on which it is based; liquidity risk that the Fund will be unable to
sell a derivative instrument when it wants because of lack of market depth or
market disruption; pricing risk that the value of a derivative instrument (such
as an option) will not correlate exactly to the value of the underlying
securities, rates or indices on which it is based; extension risk that the
expected duration of an instrument may increase or decrease; and operations risk
that loss will occur as a result of inadequate systems and controls, human error
or otherwise. Some derivative instruments are more complex than others, and for
those instruments that have been developed recently, data are lacking regarding
their actual performance over complete market cycles.
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, each Fund (other than the Aggressive Allocation and Conservative
Allocation 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. 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 Free 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.
As described in their prospectus and this Statement of
Additional Information, the Aggressive Allocation and Conservative Allocation
Funds may invest their assets without limitation in Underlying Funds. See
"Aggressive Allocation Fund" and "Conservative Allocation Fund" above.
The Equity Funds and the Balanced Allocation Fund may invest
in Standard & Poor's Depositary Receipts ("SPDRs") and similar index tracking
stocks as is consistent with their investment objectives and policies. SPDRs
represent interests in the SPDR Trust, a unit investment trust that holds shares
of all the companies in the S&P 500. The SPDR Trust closely tracks the price
performance and dividend yield of the S&P 500. Other index tracking stocks are
structured similarly to SPDRs but track the price performance and dividend yield
of different indices. SPDRs and other index tracking stocks can be expected to
increase and decrease in value in proportion to increases and decreases in the
indices that they are designed to track. The volatility of different index
tracking stocks can be expected to vary in proportion to the volatility of the
particular index they track. For example, stocks that track an index comprised
of Nasdaq traded stocks, or stocks that track an index comprised of stocks of
foreign companies (such as iShares which are described below), may be expected
to fluctuate in value more widely the SPDRs (which track the S&P 500) or stocks
that track other less volatile indices. Index tracking stocks are traded
similarly to stocks of individual companies. Although an index tracking stock is
designed to provide investment performance corresponding to its index, it may
not be able to exactly replicate the performance because of trust expenses and
other factors. The SPDR Trust and trusts underlying other index tracking stocks
are structured to be regulated investment companies and may make distributions
to a Fund that may not be characterized entirely as ordinary income for tax
purposes. Such distributions will be passed through to Fund investors in the
character as received by the Fund. Because investments in SPDRs and other index
tracking stocks represent interests in unit investment trusts, such investments
are subject to the 1940 Act's limitations on investments in other investment
companies.
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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.
The International Equity Fund may also purchase iShares
(formerly, WEBS) issued by iShares, Inc. (formerly WEBS Index Fund, Inc.) and
similar securities of other issuers. iShares 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 iShares 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 iShares 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.
Shares are listed on the American Stock Exchange (AMEX), and
were initially offered to the public in 1996. The market prices of iShares are
expected to fluctuate in accordance with both changes in the net asset values of
their underlying indices and supply and demand of iShares on the AMEX. To date,
iShares have traded at relatively modest discounts and premiums to their net
asset values. However, iShares have a limited operating history, and information
is lacking regarding the actual performance and trading liquidity of iShares 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
iShares will continue to be met or will remain unchanged.
In the event substantial market or other disruptions affecting
iShares 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 iShares,
CountryBaskets or other "country funds" as part of its investment strategy.
As a shareholder of another investment company, a Fund would
bear, along with other shareholders, its pro rata portion of that company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that 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.
MUNICIPAL SECURITIES
The Ohio Tax Exempt Bond, Pennsylvania Municipal Bond,
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.
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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 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
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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 a Rating
Agency for bonds and in one of the two highest rating categories by a Rating
Agency for money market securities.
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 Appendix A.
SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN OHIO MUNICIPAL SECURITIES
As described in the Prospectuses, each of the Ohio Tax Exempt
Bond and Ohio Municipal Money Market Funds will invest most of its net assets in
Ohio Municipal Securities. The Funds are therefore susceptible to general or
particular economic, political or regulatory factors that may affect issuers of
Ohio Municipal Securities. The Funds are therefore susceptible to general or
particular economic, political or regulatory factors that may affect issuers of
Ohio Municipal Securities. The following information constitutes only a brief
summary of some of the many complex factors that may have an effect. The
information does not apply to "conduit" obligations on which the public issuer
itself has no financial responsibility. This information is derived from
official statements of certain Ohio issuers published in connection with their
issuance of securities and from other publicly available information, and is
believed to be accurate. No independent verification has been made of any of the
following information.
Generally, the creditworthiness of Ohio Municipal Securities
of local issuers is unrelated to that of obligations of the State itself, and
the State has no responsibility to make payments on those local obligations.
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There may be specific factors that at particular times apply
in connection with investment in particular Ohio Municipal Securities or in
those obligations of particular Ohio issuers. It is possible that the investment
may be in particular Ohio Municipal Securities, or in those of particular
issuers, as to which those factors apply. However, the information below is
intended only as a general summary, and is not intended as a discussion of any
specific factors that may affect any particular obligation or issuer.
Ohio is the seventh most popular state. The 1990 Census count
of 10,847,000 indicated a 0.5% population increase from 1980. The Census
estimate for 1999 was 11,256,700.
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 earlier 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 except 1999, the State rates were below the national
rates (4.3% versus 4.5% in 1998, 4.3% versus 4.2% in 1999, and with State rates
slightly higher than national rates in January, February and March 2000 but
slightly lower in April and May). The unemployment rate and its effects vary
among geographic areas of the State.
There can be no assurance that future national, regional or
state-wide economic difficulties, and the resulting impact on State or local
government finances generally, will not adversely affect the market value of
Ohio Municipal Securities held in the Funds 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
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appropriations for the entire biennium, while continuing most other
appropriations for a month. Pursuant to the general appropriations act for
the entire biennium, passed on July 11, 1991, $200 million was transferred
from the Budget Stabilization Fund (BSF, a cash and budgetary management
fund) to the GRF in FY 1992.
Based on updated results and forecasts in the course of that
FY, both in light of a continuing uncertain nationwide economic situation, there
was projected, and then timely addressed, an FY 1992 imbalance in GRF resources
and expenditures. In response, the Governor ordered most State agencies to
reduce GRF spending in the last six months of FY 1992 by a total of
approximately $184 million; the $100.4 million BSF balance and additional
amounts from certain other funds were transferred late in the FY to the GRF, and
adjustments were made in the timing of certain tax payments.
A significant GRF shortfall (approximately $520 million) was
then projected for FY 1993. It was addressed by appropriate legislative and
administrative actions, including the Governor's ordering $300 million in
selected GRF spending reductions and subsequent executive and legislative action
(a combination of tax revisions and additional spending reductions). The June
30, 1993 ending GRF fund balance was approximately $111 million, of which, as a
first step to replenishment, $21 million was deposited in the BSF.
None of the spending reductions were applied to appropriations
needed for debt service on or lease rentals relating to any State obligations.
The 1994-95 biennium presented a more affirmative financial
picture. Based on June 30, 1994 balances, an additional $260 million was
deposited in the BSF. The biennium ended June 30, 1995 with a GRF ending fund
balance of $928 million, of which $535.2 million was transferred into the BSF.
The significant GRF fund balance, after leaving in the GRF an unreserved and
undesignated balance of $70 million, was transferred to the BSF and other funds
including school assistance funds and, in anticipation of possible federal
program changes, a human services stabilization fund.
From a higher than forecast 1996-97 mid-biennium GRF fund
balance, $100 million was transferred for elementary and secondary school
computer network purposes and $30 million to a new State transportation
infrastructure fund. Approximately $400.8 million served as a basis for
temporary 1996 personal income tax reductions aggregating that amount. Of the
1996-97 biennium-ending $834.9 million GRF fund balance, $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 1998-99 biennium ending CRF balances were $1.5 billion
(cash) and $976 million (fund). Of that fund balance, $325.7 million was
transferred to school building assistance, $46.3 million to BSF, $90 million to
supply classroom computers for interactive video distance learning, and the
remaining amount to the State income tax reduction fund.
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The GRF appropriations acts for the current 2000-01 biennium
(one for all education purposes, and one for general GRF purposes) were passed
in June 1999 and promptly signed (after selective vetoes) by the Governor. Those
acts provided for total GRF biennial expenditures of over $39.8 billion.
Necessary GRF debt service and lease-rental appropriations for the entire
biennium were requested in the Governor's proposed budget and incorporated in
the appropriations bills as introduced, and were included in the bill versions
as passed by the House and Senate and in the acts as passed and signed.
From the June 30, 2000 FY ending GRF fund balance of over $855
million, transfers were made in amounts of $610 million to the income reduction
fund and $49 million to BSF. The BSF had a September 1, 2000 balance of slightly
over $1 billion.
The State's incurrence or assumption of debt without a vote of
the people is, with limited exceptions noted below, 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 16 constitutional amendments approved from 1921 to date
(the latest adopted in 1999) Ohio voters authorized the incurrence of State debt
and the pledge of taxes or excises to its payment. At June 15, 2000, almost
$1.51 billion (excluding certain highway bonds payable primarily from highway
use receipts) of this debt was outstanding or awaiting delivery. The only such
State debt currently at that date 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 ($31.3 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 $1.06 billion outstanding) and (c) up to $200 million in
general obligation bonds for parks, recreation and natural resources purposes
which may be outstanding at any one time ($135.3 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 authorizes not more
than $220 million to be issued in a fiscal year.
A constitutional amendment approved by the voters in 1999
authorizes State general obligation debt to pay costs of facilities for a system
of common schools throughout the State ($130.1 million outstanding as of June
15, 2000) and facilities for state supported and assisted institutions of higher
education ($150 million outstanding).
That 1999 amendment also provided that State general
obligation debt and other debt represented by direct obligations of the State
(including that authorized by the Ohio Public
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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.
The General Assembly has placed on the November 2000 ballot a
proposed constitutional amendment that would authorize the issuance of State
bonds for land conservation and revitalization purposes (including statewide
brownfields clean-up). For each of the two purposes, not more than $50,000,000
in principal amount may be issued in any Fiscal Year and not more than
$200,000,000 in principal amount may be outstanding in accordance with their
terms at any time. The bonds for conservation purposes would be State general
obligations, and those for revitalization purposes would be special obligations
of the State payable from revenues and receipts designated by the General
Assembly.
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
$5.1 billion of which were outstanding at June 15, 2000.
In recent years, State agencies have 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 15, 2000) to be approximately $28.5 million
(of which $23.9 million is payable from sources other than the GRF, such as
federal highway money distributions). State payments under all those agreements
are subject to biennial appropriations, with the lease terms being two years
subject to renewal if appropriations are made.
A 1990 constitutional amendment authorizes greater State and
political subdivision participation (including financing) in the provision of
housing. The General Assembly may for that purpose authorize the issuance of
State obligations secured by a pledge of all or such portion as it authorizes of
State revenues or receipts (but not by a pledge of the State's full faith and
credit).
A 1994 constitutional amendment pledges the full faith and
credit and taxing power of the State to meeting certain guarantees under the
State's tuition credit program which provides for purchase of tuition credits,
for the benefit of State residents, guaranteed to cover a specified amount when
applied to the cost of higher education tuition. (A 1965 constitutional
provision that authorized student loan guarantees payable from available State
moneys has never been implemented, apart from a "guarantee fund" approach funded
essentially from program revenues.)
State and local agencies issue obligations that are payable
from revenues from or relating to certain facilities (but not from taxes). By
judicial interpretation, these obligations are not "debt" within constitutional
provisions. In general, payment obligations under lease-purchase
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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 50% in FY 1999) of their operating moneys
from State subsidies, but are dependent on local property taxes, and in 127
districts (as of June 15, 2000) 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 and compliance with the constitutional requirement that the State
provide a "thorough and efficient system of common schools." In May 2000, the
Ohio Supreme Court in a 4-3 decision concluded, as it had in 1997, that the
State, even after crediting significant gubernatorial and legislative steps in
recent years, did not comply with that requirement. It set as general base
threshold requirements that every school district have enough funds to operate,
an ample number of teachers, sound and safe buildings, and equipment sufficient
for all students to be afforded an educational opportunity. The Court maintains
continuing jurisdiction, and has scheduled for June 2001 further review by it of
State responses to its ruling. With particular respect to funding sources, the
Supreme Court repeated its conclusion that property taxes no longer may be the
primary means of school funding in Ohio, noting that recent efforts to reduce
that historic reliance have been laudable but in the Court's view insufficient.
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 611 local school districts have
in any year required special assistance to avoid year-end deficits. A now
superseded program provided for school district cash need borrowing directly
from commercial lenders, with diversion of State subsidy distributions to
repayment if needed. Recent borrowings under this program totalled, $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.) As
of June 15, 2000, five municipalities were in "fiscal emergency" status and two
in preliminary "fiscal watch" status, and a school district "fiscal emergency"
provision was applied to 12 districts, and four 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 MUNICIPAL
SECURITIES
Potential shareholders should consider the fact that the
investment portfolio of each of the Pennsylvania Municipal Bond and Pennsylvania
Tax Exempt Money Market Fund consists primarily of securities issued by the
Commonwealth of Pennsylvania (the "Commonwealth"), its municipalities and
authorities and should realize that each Fund's performance is closely tied to
general economic conditions within the Commonwealth as a whole and to economic
conditions within particular industries and geographic areas located within the
Commonwealth.
Although the General Fund of the Commonwealth (the principal
operating fund of the Commonwealth) experienced deficits in fiscal 1990 and
1991, tax increases and spending decreases have resulted in surpluses the last
six years; as of June 30, 1998, the General Fund had a surplus of $1,364.9
million.
Pennsylvania's economy historically has been dependent upon
heavy industry, but has diversified recently into various services, particularly
into medical and health services, education and financial services. Agricultural
industries continue to be an important part of the economy, including not only
the production of diversified food and livestock products, but substantial
economic activity in agribusiness and food-related industries. Service
industries currently employ the greatest share of non-agricultural workers,
followed by the categories of trade and manufacturing. Future economic
difficulties in any of these industries could have an adverse impact on the
finances of the Commonwealth or its municipalities, and could adversely affect
the market value of the Bonds in the Pennsylvania Trust or the ability of the
respective obligors to make payments of interest and principal due on such
Bonds.
Certain litigation is pending against the Commonwealth that
could adversely affect the ability of the Commonwealth to pay debt service on
its obligations including as of June 1, 1999, suits relating to the following
matters: (i) In February 1999, a taxpayer filed a petition for review in the
Commonwealth Court of Pennsylvania asking the court to declare that Chapter 5
(relating to Sports Facilities Financing) of the Capital Facilities Debt
Enabling Act is in violation of the Pennsylvania Constitution. Commonwealth
Court denied the taxpayer's motion for a preliminary injunction and the Supreme
Court denied an appeal of such denial. The respondents have filed preliminary
objections in the nature of a demurrer, requesting the Court dismiss the case
with prejudice. Oral arguments before the Commonwealth Court regarding the
preliminary objections were scheduled for May 19, 1999, (ii) The American Civil
Liberties Union ("ACLU") filed suit in federal court demanding additional
funding for child welfare services; the Commonwealth settled a
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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, (vi) In February 1997, five residents of the City
of Philadelphia, joined by the City, the School
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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 BANC, 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 2000-2001, and from other sources 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 1.2% in 1999. The rate of unemployment is estimated to have been 3.6%
in 1999, below the national average for the sixth consecutive year. Personal
income grew at an estimated 4.5% annual rate in 1999.
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, 1999 is estimated to have been in excess of $1.1
billion.
The Michigan Constitution limits the amount of total State
revenues that can be raised from taxes and certain other sources. State revenues
(excluding federal aid and revenues for payment of principal and interest on
general obligation bonds) in any fiscal year are limited to a fixed percentage
of State personal income in the prior calendar year or the average of the prior
three calendar years, whichever is greater, and this fixed percentage equals the
percentage of the 1978-79 fiscal year state government revenues to total
calendar year 1977 State personal income (which was 9.49%). The State may raise
taxes in excess of the limit for emergencies through action by the Governor and
two-thirds of the members of each house of the Legislature.
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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, 1999,
the State had approximately $870 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. 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.
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% (since reduced to 4.3%
in 2000 and 4.2% in 2001), the cigarette tax increased from $.25 to $.75 per
pack and an additional tax of 16% of the wholesale price began to be imposed on
certain other tobacco products. A .75% real estate transfer tax became effective
January 1, 1995. Beginning in 1994, a state property tax of 6 mills began to be
imposed on all real and personal property currently subject to the general
property tax. All local school boards are authorized, with voter approval, to
levy up to the lesser of 18 mills or the number of mills levied in 1993 for
school operating purposes on nonhomestead property and nonqualified agricultural
property. Proposal A contains additional provisions regarding the ability of
local
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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, F2 by Fitch or Prime-2, MIG-2 or VMIG-2
by Moody's at the time of investment or which are of equivalent quality as
determined by the Adviser. Investments in floating rate instruments will
normally involve industrial development or revenue bonds which provide that the
investing Fund can demand payment of the obligation at all times or at
stipulated dates on short notice (not to exceed 30 days) at par plus accrued
interest. A Fund must use the shorter of the period required before it is
entitled to prepayment under such obligations or the period remaining until the
next interest rate adjustment date for purposes of determining the maturity.
Such obligations are frequently secured by letters of credit or other credit
support arrangements provided by banks. The quality of the underlying credit or
of the bank, as the case may be, must, in the opinion of the Adviser be
equivalent to the commercial paper ratings stated above. The Adviser will
monitor the earning power, cash flow and liquidity ratios of the issuers of such
instruments and the ability of an issuer of a demand instrument to pay principal
and interest on demand. Other types of tax-exempt instruments may also be
purchased as long as they are of a quality equivalent to the bond or commercial
paper ratings stated above.
PORTFOLIO TURNOVER
The portfolio turnover rate for each Fund is calculated by
dividing the lesser of purchases or sales of portfolio securities for the year
by the monthly average value of the portfolio securities. The calculation
excludes U.S. Government securities and all securities whose maturities at the
time of acquisition were one year or less. Portfolio turnover may vary greatly
from year to year as well as within a particular year, and may also be affected
by cash requirements for
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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 Aggressive Allocation, Conservative Allocation and
Strategic Income Bond Funds had not commenced operations as of the date of this
Statement of Additional and, consequently, have no portfolio turnover history.
The Balanced Allocation, U.S. Government Income and Strategic Income Bond 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
Funds' Adviser believes is a temporary disparity in the normal yield
relationship between two securities. Any such trading would increase a 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 rates market conditions, the Balanced Allocation and U.S.
Government Income Funds' portfolio turnover rates are not expected to exceed
200%, and the Strategic Income Bond Fund's portfolio turnover rate is not
expected to exceed 100% but these rates could be higher.
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;
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(c) utilities will be divided according to their
services, for example, gas, gas
transmission, electric and gas, electric,
and telephone will each be considered a
separate industry;
(d) personal credit and business credit
businesses will be considered separate
industries.
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
Funds, the Balanced Allocation Fund and the 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
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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. 3 above, the 1940
Act prohibits a Fund from issuing senior securities, except that a Fund may
borrow from banks, and may mortgage, pledge or hypothecate its assets in
connection with such borrowings, provided that immediately after any such
borrowing the Fund has 300% asset coverage for all borrowings.
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, except
that each of the Aggressive Allocation and Conservative Allocation Funds may
invest its total assets in securities of investment companies in the Armada
group of investment companies.
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 a Fund's transactions in futures contracts and related options,
options on securities or indices of securities and similar instruments, (b) a
Fund may obtain short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities, and (c) a Fund may make short sales
against-the-box (defined as the extent to which a
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Fund contemporaneously owns or has the right to obtain at no added cost
securities identical to those sold short).
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.
With respect to investment limitation No. 1 above, see
"Securities of Other Investment Companies" above for the 1940 Act's limitations
applicable to each Fund's investments in other investment companies.
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).
The Funds do not intend to acquire securities issued by the
Adviser, Sub-Adviser, Distributor and their affiliates.
NET ASSET VALUE
VALUATION OF THE MONEY MARKET FUNDS
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
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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 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.
VALUATION OF THE FIXED INCOME FUNDS AND THE TAX FREE FUNDS
The assets of the Fixed Income Funds and the Tax Free Funds are valued
for purposes of pricing sales and redemptions by an independent pricing service
("Service") approved by the Board of Trustees. When, in the judgment of the
Service, quoted bid prices for portfolio securities are readily available and
are representative of the bid side of the market, these investments are valued
at the mean between quoted bid prices (as obtained by the Service from dealers
in such securities) and asked prices (as calculated by the Service based upon
its evaluation of the market for such securities). Other investments are carried
at fair value as determined by the Service, based on methods which include
consideration of yields or prices of bonds of comparable quality, coupon,
maturity and type; indications as to values from dealers; and general market
conditions. The Service may also employ electronic data processing techniques
and matrix systems to determine value. Short-term securities are valued at
amortized cost, which approximates market value. The amortized cost method
involves valuing a security at its cost on the date of purchase and thereafter
assuming a constant amortization to maturity of the difference between the
principal amount due at maturity and cost.
VALUATION OF THE BALANCED ALLOCATION FUND AND THE EQUITY FUNDS
In determining market value, the assets in the Balanced Allocation
Fund and the Equity Funds which are traded on a recognized stock exchange are
valued at the last sale price on the securities exchange on which such
securities are primarily traded or at the last sale price on the
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national securities market. Securities quoted on the NASD National Market
System are also valued at the last sale price. Other securities traded on
over-the-counter markets are valued on the basis of their closing
over-the-counter bid prices. Securities for which there were no transactions
are valued at the average of the most recent bid and asked prices.
Investments in debt securities with remaining maturities of 60 days or less
are valued based upon the amortized cost method. Restricted securities,
securities for which market quotations are not readily available, and other
assets are valued at fair value using methods determined by or under the
supervision of the Board of Trustees. An option is generally valued at the
last sale price or, in the absence of a last sale price, the last offer
price. See "Valuation of International Equity Fund" below for a description
of the valuation of certain foreign securities held by these Funds.
VALUATION OF THE INTERNATIONAL EQUITY FUND
In determining market value, the International Equity Fund's portfolio
securities which are primarily traded on a domestic exchange are valued at the
last sale price on that exchange or, if there is no recent sale, at the last
current bid quotation. Portfolio securities which are primarily traded on
foreign securities exchanges are generally valued at the preceding closing
values of such securities on their respective exchanges, except when an
occurrence subsequent to the time a value was so established is likely to have
changed such value, then the fair value of those securities may be determined
through consideration of other factors by or under the direction of the Board of
Trustees. A security which is listed or traded on more than one exchange is
valued at the quotation on the exchange determined to be the primary market for
such security. Investments in debt securities having a remaining maturity of 60
days or less are valued based upon the amortized cost method. All other
securities are valued at the last current bid quotation if market quotations are
available, or at fair value as determined in accordance with policies
established in good faith by the Board of Trustees. For valuation purposes,
quotations of foreign securities in foreign currency are converted to U.S.
dollars equivalent at the prevailing market rate on the day of valuation. An
option is generally valued at the last sale price or, in the absence of a last
sale price, the last offer price.
Certain of the securities acquired by the International Equity Fund may
be traded on foreign exchanges or over-the-counter markets on days on which the
Fund's net asset value is not calculated. In such cases, the net asset value of
the Fund's shares may be significantly affected on days when investors can
neither purchase nor redeem shares of the Fund.
VALUATION OF THE AGGRESSIVE ALLOCATION AND CONSERVATIVE ALLOCATION FUNDS
In determining the net asset value of each of the Aggressive
Allocation and Conservative Allocation Funds, the net asset value of the
Underlying Funds' shares held by a Fund will be their net asset value at the
time of the computation.
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ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares in the Trust are sold on a continuous basis by SEI
Investments Distribution Co. (the "Distributor"), which has agreed to use
appropriate efforts to solicit all purchase orders. The issuance of shares is
recorded on the books of the Trust. To change the commercial bank or account
designated to receive redemption proceeds, a written request must be sent to an
investor's financial institution at its principal office or directly to the
Trust 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 Shares of
the Funds are sold to certain qualified investors at their net asset value
without a sales charge. Class A 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.
The Trust has authorized one or more brokers to receive
purchase and redemption orders on behalf of the Funds. Such brokers are
authorized to designate other intermediaries to receive purchase and redemption
orders on a Fund's behalf. A Fund will be deemed to have received a purchase or
redemption order when an authorized broker or the broker's authorized designee
receives the order. Orders will be priced at the net asset value next computed
after they are received by an authorized broker or the broker's authorized
designee and accepted by a Fund.
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From time to time, shares may be offered as an award in
promotions sponsored by the Distributor or other parties. The promotions may be
limited to certain classes of shareholders such as the employees of the Adviser
or its affiliates. As stated in the prospectus, the Distributor may institute
certain promotional incentive programs for dealers. Such incentive programs may
include cash incentive programs specific to NatCity Investments, Inc. under
which NatCity Investments, Inc. or its associated persons may receive cash
incentives in connection with the sale of the Funds.
For the last two fiscal years, sales loads paid by
shareholders of Class A Shares were as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED MAY 31:
FUND 2000 1999
---- ---- ----
<S> <C> <C>
Core Equity Fund....................................................... $ 43,066 $ 25,206
Equity Growth Fund..................................................... $ 62,504 $ 102,093
Equity Income Fund..................................................... $ 34,826 $ 87,943
International Equity Fund.............................................. $ 15,979 $ 11,506
Large Cap Ultra Fund(1)................................................ $ 13,501 *
Large Cap Value Fund................................................... $ 59,426 $ 44,677(2)
Mid Cap Growth Fund(1)................................................. $ 7,333 *
Small Cap Growth Fund.................................................. $ 12,023 $ 30,753
Small Cap Value Fund................................................... $ 17,231 $ 51,484
Tax Managed Equity Fund................................................ $145,508 $ 193,147
Balanced Allocation Fund............................................... $ 14,481 $ 29,030(1)
Bond Fund.............................................................. $ 3,909 $ 21,248
GNMA Fund.............................................................. $ 5,314 $ 19,732
Intermediate Bond Fund................................................. $ 1,890 $ 12,524
Limited Maturity Bond Fund............................................. $ 117 $ 965
Total Return Advantage Fund............................................ $ 2,656 $ 50,583
U.S. Government Income Fund(2)......................................... $ 175 *
Michigan Municipal Bond Fund(2)........................................ $ 1,331 *
National Tax Exempt Bond Fund.......................................... $ 0 $ 3,898
Ohio Tax Exempt Bond Fund.............................................. $ 2,234 $ 8,032
Pennsylvania Municipal Bond Fund....................................... $ 0 $ 3,797
Money Market Fund...................................................... $ 0 $ 246
</TABLE>
* Information not available.
(1) Reflects sales charges paid by shareholders of the corresponding Parkstone
Continuing Funds.
(2) For the period July 10, 1998 (commencement of operations) to May 31, 1999.
During the fiscal year ended May 31, 2000, contingent deferred
sales charges paid by Class B shareholders on redemptions of Class B Shares were
as follows:
<TABLE>
<CAPTION>
FUND CDSCs PAID
---- ----------
<S> <C>
Core Equity Fund....................................................... $17,826
Equity Growth Fund..................................................... $8, 350
Equity Index Fund...................................................... $0(1)
International Equity Fund.............................................. $ 69
</TABLE>
71
<PAGE>
<TABLE>
<CAPTION>
FUND CDSCs PAID
---- ----------
<S> <C>
Large Cap Ultra Fund(2)................................................ $51,816
Large Cap Value........................................................ $ 5,740
Mid Cap Growth Fund(2)................................................. $41,896
Small Cap Growth Fund.................................................. $ 2,098
Small Cap Value Fund................................................... $ 910
Tax Managed Equity Fund................................................ $46,891
Balanced Allocation Fund............................................... $ 2,585
Bond Fund.............................................................. $ 6,941
GNMA Fund.............................................................. $0(3)
Intermediate Bond Fund................................................. $ 6,191
Limited Maturity Bond Fund............................................. $0(3)
Total Return Advantage Fund............................................ $0(4)
U.S. Government Income Fund(1)......................................... $85,391
Michigan Municipal Bond Fund(1)........................................ $20,640
National Tax Exempt Bond Fund.......................................... $ 487
Money Market Fund...................................................... $ 599
</TABLE>
(1) Reflects sales charges paid by shareholders of the corresponding Parkstone
Continuing Funds.
During the fiscal year ended May 31, 2000, contingent deferred sales charges
paid by Class C shareholders on redemptions of Class B Shares were as follows:
<TABLE>
<CAPTION>
FUND CDSCs PAID
---- ----------
<S> <C>
Core Equity Fund....................................................... $0(1)
Equity Growth Fund..................................................... $0(2)
Equity Index Fund...................................................... $19(3)
International Equity Fund.............................................. $0(4)
Large Cap Value Fund................................................... $0(2)
Small Cap Growth Fund.................................................. $24(1)
Small Cap Value Fund................................................... $0(2)
Tax Managed Equity Fund................................................ $0(5)
Balanced Allocation Fund............................................... $0(6)
GNMA Fund.............................................................. $0(3)
Intermediate Bond Fund................................................. $0(7)
Limited Maturity Bond Fund............................................. $0(2)
National Tax Exempt Bond Fund.......................................... $1,000(8)
Pennsylvania Municipal Bond Fund....................................... $1,000(8)
Money Market Fund...................................................... $0
</TABLE>
(1) For the period January 20, 2000 (commencement of operations) through
May 31, 2000.
(2) For the period January 27, 2000 (commencement of operations) through
May 31, 2000.
(3) For the period January 17, 2000 (commencement of operations) through
May 31, 2000.
(4) For the period January 5, 2000 (commencement of operations) through
May 31, 2000.
(5) For the period January 10, 2000 (commencement of operations) through
May 31, 2000.
(6) For the period April 20, 2000 (commencement of operations) through
May 31, 2000.
(7) For the period May 30, 2000 (commencement of operations) through
May 31, 2000.
(8) For the period February 24, 2000 (commencement of operations) through
May 31, 2000.
72
<PAGE>
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"), the Trust may illustrate the effects of dollar cost
averaging through use of or comparison to an index such as the S&P 500 or Lehman
Intermediate Government Index.
OFFERING PRICE PER CLASS A SHARE OF THE FUND
An illustration of the computation of the offering price per
Class A Share of the Funds, based on the value of each Fund's net assets and
number of outstanding shares on May 31, 2000, are as follows:
CORE EQUITY FUND
----------------
<TABLE>
<S> <C>
Net Assets of A Shares................................................................... $4,146,601
Outstanding A Shares..................................................................... 280,201
Net Asset Value Per Share................................................................ $14.80
Sales Charge, 5.50% of
offering price (5.81% of
net asset value per share)............................................................... $.86
Offering to Public....................................................................... $15.66
EQUITY GROWTH FUND
------------------
Net Assets of A Shares................................................................... $180,000,002
Outstanding A Shares..................................................................... 6,259,636
Net Asset Value Per Share............................................................... $28.76
</TABLE>
73
<PAGE>
<TABLE>
<S> <C>
Sales Charge, 5.50% of
offering price (5.81% of
net asset value per share)............................................................... $1.67
Offering to Public....................................................................... $30.43
INTERNATIONAL EQUITY FUND
-------------------------
Net Assets of A Shares.................................................................. $3,618,163
Outstanding A Shares.................................................................... 241,735
Net Asset Value Per Share............................................................... $14.97
Sales Charge, 5.50% of
offering price (5.81% of
net asset value per share).............................................................. $.87
Offering to Public...................................................................... $15.84
LARGE CAP ULTRA FUND
--------------------
Net Assets of A Shares.................................................................. $21,549,937
Outstanding A Shares.................................................................... 1,087,565
Net Asset Value Per Share............................................................ $19.81
Sales Charge, 5.50% of
offering price (5.81% of
net asset value per share)............................................................. $1.15
Offering to Public...................................................................... $20.96
LARGE CAP VALUE FUND
--------------------
Net Assets of A Shares.................................................................. $9,070,401
Outstanding A Shares.................................................................... 566,935
Net Asset Value Per Share............................................................ $16.00
</TABLE>
74
<PAGE>
<TABLE>
<S> <C>
Sales Charge, 5.50% of
offering price (5.81% of
net asset value per share).............................................................. $.93
Offering to Public...................................................................... $16.93
EQUITY INDEX FUND
-----------------
Net Assets of A Shares.................................................................. $8,253,628
Outstanding A Shares.................................................................... 675,278
Net Asset Value Per Share............................................................ $12.22
Sales Charge, 3.75% of
offering price (3.93% of
net asset value per share).............................................................. $.48
Offering to Public...................................................................... $12.70
MID CAP GROWTH FUND
-------------------
Net Assets of A Shares.................................................................. $46,182,829
Outstanding A Shares.................................................................... 2,973,929
Net Asset Value Per Share............................................................... $15.53
Sales Charge, 5.50% of
offering price (5.80% of
net asset value per share).............................................................. $.90
Offering to Public...................................................................... $16.43
SMALL CAP GROWTH FUND
---------------------
Net Assets of A Shares.................................................................. $2,709,986
Outstanding A Shares.................................................................... 182,994
Net Asset Value Per Share............................................................ $14.81
</TABLE>
75
<PAGE>
<TABLE>
<S> <C>
Sales Charge, 5.50% of
offering price (5.81% of
net asset value per share)............................................................. $.86
Offering to Public...................................................................... $15.67
SMALL CAP VALUE FUND
--------------------
Net Assets of A Shares.................................................................. $9,727,131
Outstanding A Shares.................................................................... 658,595
Net Asset Value Per Share............................................................... $14.77
Sales Charge, 5.50% of
offering price (5.82% of
net asset value per share).............................................................. $.86
Offering to Public...................................................................... $15.63
TAX MANAGED EQUITY FUND
-----------------------
Net Assets of A Shares.................................................................. $17,372,038
Outstanding A Shares.................................................................... 1,212,239
Net Asset Value Per Share............................................................... $14.33
Sales Charge, 5.50% of
offering price (5.79% of
net asset value per share).............................................................. $.83
Offering to Public...................................................................... $15.16
BALANCED ALLOCATION FUND
------------------------
Net Assets of A Shares.................................................................. $3,965,338
Outstanding A Shares.................................................................... 339,609
Net Asset Value Per Share............................................................... $11.68
Sales Charge, 4.75% of
offering price (4.97% of
net asset value per share).............................................................. $.58
</TABLE>
76
<PAGE>
<TABLE>
<S> <C>
Offering to Public...................................................................... $12.26
BOND FUND
---------
Net Assets of A Shares.................................................................. $3,786,481
Outstanding A Shares.................................................................... 402,987
Net Asset Value Per Share............................................................... $9.40
Sales Charge, 4.75% of
offering price (5.00% of
net asset value per share).............................................................. $.47
Offering to Public...................................................................... $9.87
GNMA FUND
---------
Net Assets of A Shares.................................................................. $1,231,254
Outstanding A Shares.................................................................... 126,252
Net Asset Value Per Share............................................................... $9.75
Sales Charge, 4.75% of
offering price (5.02% of
net asset value per share).............................................................. $.49
Offering to Public...................................................................... $10.24
INTERMEDIATE BOND FUND
----------------------
Net Assets of A Shares.................................................................. $3,873,901
Outstanding A Shares.................................................................... 390,590
Net Asset Value Per Share.............................................................. $9.92
Sales Charge, 4.75% of
offering price (4.94% of
net asset value per share).............................................................. $.49
Offering to Public...................................................................... $10.41
</TABLE>
77
<PAGE>
LIMITED MATURITY BOND FUND
<TABLE>
<S> <C>
Net Assets of A Shares.................................................................. $873,064
Outstanding A Shares.................................................................... 89,671
Net Asset Value Per Share............................................................... $9.74
Sales Charge, 2.75% of
offering price (2.87% of
net asset value per share).............................................................. $.28
Offering to Public...................................................................... $10.02
TOTAL RETURN ADVANTAGE FUND
Net Assets of A Shares.................................................................. $5,035,296
Outstanding A Shares.................................................................... 531,780
Net Asset Value Per Share............................................................... $9.47
Sales Charge, 4.75% of
offering price (4.97% of
net asset value per share).............................................................. $.47
Offering to Public...................................................................... $9.94
U.S. GOVERNMENT INCOME FUND
Net Assets of A Shares.................................................................. $20,789,805
Outstanding A Shares.................................................................... 2,371,319
Net Asset Value Per Share............................................................... $8.77
Sales Charge, 4.75% of
offering price (5.02% of
net asset value per share)*............................................................. $.44
Offering to Public...................................................................... $9.21
</TABLE>
78
<PAGE>
MICHIGAN MUNICIPAL BOND FUND
<TABLE>
<S> <C>
Net Assets of A shares.................................................................. $14,798,963
Outstanding A shares.................................................................... 1,425,893
Net Asset Value Per Share............................................................... $ 10.38
Sales Charge, 4.75% of
offering price (5.00% of
net asset value per share).............................................................. $.52
Offering to Public...................................................................... $10.90
NATIONAL TAX EXEMPT BOND FUND
Net Assets of A shares.................................................................. $4,009,327
Outstanding A shares.................................................................... 420,467
Net Asset Value Per Share.............................................................. $9.54
Sales Charge, 4.75% of
offering price (5.03% of
net asset value per share).............................................................. $.48
Offering to Public...................................................................... $10.02
OHIO TAX EXEMPT BOND FUND
Net Assets of A shares.................................................................. $5,172,791
Outstanding A shares.................................................................... 494,593
Net Asset Value Per Share.............................................................. $10.46
Sales Charge, 3.00% of
offering price (3.06% of
net asset value per share).............................................................. $.32
Offering to Public...................................................................... $10.78
</TABLE>
79
<PAGE>
PENNSYLVANIA MUNICIPAL BOND FUND
<TABLE>
<S> <C>
Net Assets of A shares.................................................................. $215,881
Outstanding A shares.................................................................... 21,791
Net Asset Value Per Share.............................................................. $9.91
Sales Charge, 3.00% of
offering price (3.13% of
net asset value per share).............................................................. $.31
Offering to Public...................................................................... $10.22
</TABLE>
An illustration of the computation of the offering price per
Class A share of each of Aggressive Allocation, Conservative Allocation and the
Strategic Income Bond Funds, based on the estimated value of its net assets and
number of outstanding shares on its commencement date, is as follows:
AGGRESSIVE ALLOCATION FUND
<TABLE>
<S> <C>
Net Assets of A Shares.................................................................. $10.00
Outstanding A Shares.................................................................... 1
Net Asset Value Per Share............................................................... $10.00
Sales Charge, 4.75% of
offering price (5.00% of
net asset value per share).............................................................. $ .50
Offering to Public...................................................................... $10.50
CONSERVATIVE ALLOCATION FUND
Net Assets of A Shares.................................................................. $10.00
Outstanding A Shares.................................................................... 1
Net Asset Value Per Share............................................................... $10.00
</TABLE>
80
<PAGE>
<TABLE>
<S> <C>
Sales Charge, 4.75% of
offering price (5.00% of
net asset value per share).............................................................. $ .50
Offering to Public...................................................................... $10.50
STRATEGIC INCOME BOND FUND
Net Assets of A Shares.................................................................. $10.00
Outstanding A Shares.................................................................... 1
Net Asset Value Per Share............................................................... $10.00
Sales Charge, 4.75% of
offering price (5.00% of
net asset value per share).............................................................. $ .50
Offering to Public...................................................................... $10.50
</TABLE>
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 a 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
81
<PAGE>
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:
<TABLE>
<S> <C>
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
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
</TABLE>
82
<PAGE>
<TABLE>
<S> <C>
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
Limited Maturity Bond 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
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
</TABLE>
83
<PAGE>
<TABLE>
<S> <C>
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
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
</TABLE>
84
<PAGE>
<TABLE>
<S> <C>
Class II - Special Series 3 Class C Shares
Strategic Income Bond Fund
Class MM Class I Shares
Class MM - Special Series 1 Class A Shares
Class MM - Special Series 2 Class B Shares
Class MM - Special Series 3 Class C Shares
Aggressive Allocation Fund
Class NN Class I Shares
Class NN - Special Series 1 Class A Shares
Class NN - Special Series 2 Class B Shares
Class NN - Special Series 3 Class C Shares
Conservative Allocation Fund
Class OO Class I Shares
Class OO - Special Series 1 Class A Shares
Class OO - Special Series 2 Class B Shares
Class OO - Special Series 3 Class C Shares
</TABLE>
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 Prospectuses, the Trust's shares will be
fully paid and non-assessable. In the event of a liquidation or dissolution of
the Trust or an individual Fund, shareholders of a Fund are entitled to receive
the assets available for distribution belonging to the particular Fund, and a
proportionate distribution, based upon the relative asset values of the
respective Funds, of any general assets of the Trust not belonging to any
particular Fund which are available for distribution.
Rule 18f-2 under the 1940 Act provides that any matter
required by the 1940 Act, applicable state law, or otherwise, to be submitted to
the holders of the outstanding voting securities of an investment company such
as the Trust shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each
investment fund affected by such matter. Rule 18f-2 further provides that an
investment fund is affected by a matter unless the interests of each fund in the
matter are substantially identical or the matter does not affect any interest of
the fund. Under the Rule, the approval of an investment advisory agreement or
any change in a fundamental investment policy would be effectively acted upon
with respect to an investment fund only if approved by a majority of the
outstanding shares of such fund. However, the Rule also provides that the
ratification of the appointment of independent public accountants, the approval
of principal underwriting contracts, and the election of trustees may be
effectively acted upon by shareholders of the Trust voting together in the
aggregate without regard to a particular fund. In addition, shareholders of each
class in a particular investment fund have equal voting rights except that only
Class I Shares and Class A Shares of an investment fund will be entitled to vote
on matters submitted to a vote of shareholders (if any) relating to a
distribution plan for such shares, only Class B Shares of a Fund will be
entitled to vote on matters relating to a distribution plan with respect to
Class B Shares, and only Class C Shares of a Fund will be entitled to vote on
matters relating to a distribution plan with respect to Class C Shares.
85
<PAGE>
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
Prospectuses. 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 Internal Revenue Code of 1986, as amended (the "Code"), and
intends to qualify and continue to qualify as a regulated investment company. In
order to qualify and continue 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 Prospectuses, certain requirements
with respect to the source of its income during a taxable year. At least 90% of
the gross income of the Fund must be derived from dividends, interest, payments
with respect to securities loans, gains from the sale or other disposition of
stocks, securities or foreign currencies, and other income (including but not
limited to gains from options, futures, or forward contracts) derived with
respect to the Fund's business of investing in such stock, securities or
currencies. The Treasury Department may by regulation exclude from qualifying
income foreign currency gains which are not directly related to the Fund's
principal business of investing in stock or securities, or options and futures
with respect to stock or securities. Any income derived by the Fund from a
partnership or trust is treated as derived with respect to the Fund's business
of investing in stock, securities or currencies only to the
86
<PAGE>
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 and, potentially, state 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.
Although each 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, a
Fund may be subject to the tax laws of such states or localities.
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<PAGE>
ADDITIONAL TAX INFORMATION CONCERNING THE TAX FREE BOND FUNDS, AND THE TAX FREE
MONEY MARKET FUNDS.
As described above and in the Prospectuses, the Michigan
Municipal Bond, 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.
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<PAGE>
ADDITIONAL TAX INFORMATION CONCERNING THE OHIO TAX EXEMPT BOND AND OHIO
MUNICIPAL MONEY MARKET FUNDS
The Ohio Tax Exempt Bond and Ohio Municipal Money Market Funds
are not subject to the Ohio personal income or school district or municipal
income taxes in Ohio. The Funds are 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 Funds timely file 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 Funds 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 Funds ("Distributions") to the extent that such
Distributions are properly attributable to interest on or gain from the sale of
Ohio Municipal Securities.
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 Municipal Securities, (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 each Fund will continue to qualify as a regulated investment
company under the Code, and that at all times at least 50% of the value of the
total assets of the Fund consists of Ohio Municipal Securities or similar
obligations of other states or their subdivisions.
* * * * *
The foregoing is only a summary of some of the important tax
considerations generally affecting purchasers of shares of the Funds. No attempt
has been made to present a detailed explanation of the federal income tax
treatment of the Funds or their shareholders or of state tax treatment of the
Funds or their shareholders, and this discussion is not intended as a
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<PAGE>
substitute for careful tax planning. Accordingly potential purchasers of
shares of the Funds 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.
TRUSTEES AND OFFICERS
The business and affairs of the Trust are managed under the
direction of the Trust's Board of Trustees in accordance with the laws of the
Commonwealth of Massachusetts and the Trust's Declaration of Trust. The trustees
and executive officers of the Trust, their ages, addresses, principal
occupations during the past five years, and other affiliations are as follows:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
POSITION WITH DURING PAST 5 YEARS
NAME AND ADDRESS THE TRUST AND OTHER AFFILIATIONS
---------------- --------- ----------------------
<S> <C> <C>
Robert D. Neary Chairman of the Board and Trustee Retired Co-Chairman of Ernst & Young,
32980 Creekside Drive April 1984 to September 1993; Director,
Pepper Pike, OH 44124 Cold Metal Products, Inc., since March
Age 67 1994; Director, Strategic Distribution,
Inc., since January 1999. Trustee, The
Armada 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 48 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. President and
Trustee, The Armada Advantage Fund,
since 1998.
</TABLE>
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<PAGE>
<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 56 Bloomington Properties LLC, since
January 1981; partner, KK&D LLC, since
January 1989; partner, KK&D II LLC
(affiliated real estate companies of
Kittle's Home Furnishings Center, Inc.),
since February 1998. Trustee, The
Armada 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, The Armada
Advantage Fund, since 1998.
Richard W. Furst 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 62 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 1998;
Director, ihigh.com, Inc., (Internet
company) since 1999; Trustee, The Armada
Advantage Fund, since 1998.
Gerald L. Gherlein Trustee Retired; formerly, the Executive
3679 Greenwood Drive Vice-President and General Counsel,
Pepper Pike, OH 44124 Eaton Corporation (global
Age 62 manufacturing), from 1991 to March,
2000; Trustee, The Armada Advantage
Fund, since 1998.
</TABLE>
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<PAGE>
<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 Trustee, The Armada Advantage Fund,
Louisville, KY 40232-5900 since 1998.
Age 61
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 57
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., February
Age 42 1998 to March 1999; Corporate
Controller, FPS Services (mutual funds
servicing company), February 1993 to February
1998; Treasurer, FPS Broker Services, Inc. from
March 1993 to December 1998.
Timothy D. Barto Assistant Treasurer Vice President and Assistant Secretary,
One Freedom Valley Drive SEI Investments Mutual Funds Services
Oaks, PA 19456 and SEI Investments Distribution Co.,
Page 32 since 1999; Associate, Dechert Price &
Rhoads (law firm), 1997 to 1999; Associate,
Richter, Miller & Finn, 1994 to 1997.
</TABLE>
--------------------
*Mr. Martens is considered by the Trust to be an "interested person" 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 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.
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<PAGE>
Mr. Leven and Mr. Barto are employed by SEI Investments Mutual
Funds Services, which receives fees as Administrator to the Trust. Mr. Barto 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 and The Armada Advantage Fund
("Armada 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 two 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 following table summarizes the compensation for each of
the Trustees of the Trust for the fiscal year ended May 31, 2000:
<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, $29,634.18 $0 $0 $35,000
Chairman and Trustee
Leigh Carter, Trustee $25,400.73 $0 $0 $30,000
John F. Durkott, Trustee $25,400.73 $0 $0 $30,000
Robert J. Farling, Trustee $25,400.73 $0 $0 $30,000
Richard W. Furst, Trustee $25,400.73 $0 $0 $30,000
Gerald L. Gherlein, Trustee $25,400.73 $0 $0 $30,000
Herbert R. Martens, Jr., $0 $0 $0 $0
President and Trustee
J. William Pullen, Trustee $25,400.73 $0 $0 $30,000
</TABLE>
---------------------
* The "Fund Complex" consists of the Trust and Armada Advantage (formerly
known as The Parkstone Advantage Fund) and, until June 16, 2000, the
Parkstone Group of Funds ("Parkstone"). Each of the Trustees serves as
Trustee to both investment companies. The Trustees became trustees of
Parkstone and Armada Advantage 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
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<PAGE>
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 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.
CODE OF ETHICS
The Trust, IMC, the Sub-Adviser and the Distributor have each
adopted codes of ethics under Rule 17j-1 of the 1940 Act that (i) establish
procedures for personnel with respect to personal investing, (ii) prohibit or
restrict certain transactions that may be deemed to create a conflict of
interest between personnel and the Funds, and (iii) permit personnel to invest
in securities, including securities that may be purchased or held by the Funds.
The codes of ethics are on file with, and available from, the SEC's Public
Reference Room in Washington, D.C.
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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<PAGE>
ADVISORY, ADMINISTRATION, DISTRIBUTION, CUSTODIAN
SERVICES AND TRANSFER AGENCY AGREEMENTS
ADVISORY AGREEMENTS
IMC serves as investment adviser to the: (a) International
Equity, Small Cap Value, Small Cap Growth, Equity Index, Tax Managed Equity,
Balanced Allocation and Ohio Municipal Money Market Funds under an Advisory
Agreement dated April 9, 1998; (b) Money Market, Treasury Money Market,
Government Money Market, Tax Exempt Money Market, Pennsylvania Municipal Bond,
National Tax Exempt Bond, Intermediate Bond, GNMA, Bond, Equity Growth, Large
Cap Value, Ohio Tax Exempt Bond and Pennsylvania Municipal Money Market Funds
under an Advisory Agreement dated November 19, 1997; (c) Core Equity, Limited
Maturity Bond and Total Return Advantage Funds under an Advisory Agreement dated
March 6, 1998. Prior to such dates, National City Bank or an affiliate served as
adviser to the Funds other than the Core Equity Fund. IMC serves as investment
adviser to the Mid Cap Growth, Large Cap Ultra, U.S. Government Income, Michigan
Municipal Bond and Treasury Plus Money Market Funds under an Advisory Agreement
dated June 9, 2000. The Strategic Income Bond Fund will enter into an Advisory
Agreement with IMC effective at the time the Fund commences operations. The
Aggressive Allocation and Conservative Allocation Funds also will enter into an
Advisory Agreement with IMC effective at the time the Fund commences operations.
National Asset Management Corporation ("NAM") serves as
investment sub-adviser to the Core Equity and Total Return Advantage Funds (the
"Sub-Adviser") pursuant to a Sub-Advisory Agreement dated March 6, 1998. Prior
to June 29, 1998, NAM served as adviser to the Core Equity, Total Return
Advantage and Limited Maturity Bond (formerly, Enhanced Income) Funds. IMC is a
wholly owned subsidiary 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.
During the last three fiscal years, the Trust incurred
advisory fees as set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED MAY 31:
FUND 2000 1999 1998
---- ---- ---- ----
<S> <C> <C> <C>
Core Equity Fund ........................ $ 1,178,813 $ 947,557 $ 608,222(1)
Equity Growth Fund ...................... $11,127,549 $8,840,432 $2,395,579
Equity Index Fund ....................... $ 719,779 $ 0(2) *
International Equity Fund ............... $ 3,743,257 $1,723,308 $ 570,684(1)
Large Cap Ultra Fund(3) ................. $ 3,313,382 $3,460,325 $2,681,620
Large Cap Value Fund .................... $ 3,920,942 $3,169,439 $1,237,195
Mid Cap Growth Fund(3) .................. $ 3,834,987 $4,989,834 $6,103,574
Small Cap Growth Fund ................... $ 1,304,010 $ 611,655 $ 208,833(1)
Small Cap Value Fund .................... $ 2,991,781 $2,360,071 $1,989,606
Tax Managed Equity Fund ................. $ 2,069,464 $1,302,931 $ 0(4)
Balanced Allocation Fund ................ $ 592,684 $ 422,278(2) *
</TABLE>
95
<PAGE>
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED MAY 31:
FUND 2000 1999 1998
---- ---- ---- ----
<S> <C> <C> <C>
Bond Fund ............................... $ 3,833,002 $3,589,348 $ 574,688
GNMA Fund ............................... $ 587,315 $ 491,789 $ 395,769
Intermediate Bond Fund .................. $ 1,231,299 $1,057,813 $ 593,301
Limited Maturity Bond Fund .............. $ 304,231 $ 172,808 $ 65,970
Total Return Advantage Fund ............. $ 1,154,130 $1,105,774 $ 404,823
U.S. Government Income Fund(3) .......... $ 950,408 $ 991,623 $1,002,856
Michigan Municipal Bond Fund(3) ......... $ 1,074,133 $1,310,099 $1,267,497
National Tax Exempt Bond Fund ........... $ 341,765 $ 36,100 $ 0(4)
Ohio Tax Exempt Bond Fund ............... $ 640,475 $ 71,985 $ 0
Pennsylvania Municipal Bond Fund ........ $ 147,815 $ 78,742 $ 150,120
Government Money Market Fund ............ $ 3,949,786 $3,699,448 $2,815,875
Money Market Fund ....................... $ 9,565,355 $8,013,996 $6,126,877
Ohio Municipal Money Market Fund ........ $ 237,022 $ 103,978(5) *
Pennsylvania Tax Exempt Money Market Fund $ 200,000 $ 203,004 $ 142,220
Tax Exempt Money Market Fund ............ $ 890,875 $ 924,937 $ 742,324
Treasury Money Market Fund .............. $ 1,072,558 $ 980,380 $ 766,895
Treasury Plus Money Market Fund(3) ...... $ 864,032 $1,656,809 $1,905,446
</TABLE>
------------------------
* Not in operation during the period.
(1) For the period August 1, 1997 (commencement of operations) to May 31, 1998.
(2) For the period July 10, 1998 (commencement of operations) to May 31, 1999.
(3) Advisory fees shown in the tables above for the Large Cap Ultra, Mid Cap
Growth, Michigan Municipal Bond, U.S. Government Income and Treasury Plus
Money Market Funds were paid by to the corresponding Parkstone Continuing
Funds.
(4) For the period April 9, 1998 (commencement of operations) to May 31, 1998.
(5) For the period September 15, 1998 (commencement of operations) to May 31,
1999.
During the last three fiscal years, advisory fees were waived
as set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED MAY 31:
FUND 2000 1999 1998
---- ---- ---- ----
<S> <C> <C> <C>
Core Equity Fund ........................ $ 0 $ 0 $ 64,683(1)
Equity Growth Fund ...................... $ 0 $ 0 $ 0
Equity Index Fund ....................... $ 619,477 $ 503,834(2) *
International Equity Fund ............... $ 0 $ 0 $ 50,784(1)
Large Cap Ultra Fund(3) ................. $ 0 $ 0 $ 0
Large Cap Value Fund .................... $ 0 $ 0 $ 0
Mid Cap Growth Fund(3) .................. $ 0 $ 0 $ 0
Small Cap Growth Fund ................... $ 0 $ 0 $ 18,000(1)
Small Cap Value Fund .................... $ 0 $ 0 $ 0
Tax Managed Equity Fund ................. $ 0 $ 308,130 $ 173,851(4)
Balanced Allocation Fund ................ $ 0 $ 0(2) *
Bond Fund ............................... $ 0 $ 0 $ 0
GNMA Fund ............................... $ 0 $ 0 $ 0
Intermediate Bond Fund .................. $ 461,741 $ 396,680 $ 222,488
Limited Maturity Bond Fund .............. $ 86,921 $ 173,823 $ 264,973
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED MAY 31:
FUND 2000 1999 1998
---- ---- ---- ----
<S> <C> <C> <C>
Total Return Advantage Fund ............. $ 659,510 $ 634,144 $1,133,101
U.S. Government Income Fund(3) .......... $ 191,061 $ 639,043 $ 646,269
Michigan Municipal Bond Fund(3) ......... $ 134,996 $ 452,581 $ 437,864
National Tax Exempt Bond Fund ........... $ 222,217 $ 492,594 $ 62,113(4)
Ohio Tax Exempt Bond Fund ............... $ 426,963 $1,060,233 $ 649,247
Pennsylvania Municipal Bond Fund ........ $ 91,469 $ 137,798 $ 56,245
Government Money Market Fund ............ $1,579,899 $1,479,779 $1,126,349
Money Market Fund ....................... $3,827,616 $3,205,598 $2,451,233
Ohio Municipal Money Market Fund ........ $ 316,036 $ 157,160(5) *
Pennsylvania Tax Exempt Money Market Fund $ 333,324 $ 338,340 $ 237,029
Tax Exempt Money Market Fund ............ $1,189,864 $1,233,250 $ 989,768
Treasury Money Market Fund .............. $ 214,514 $ 196,076 $ 153,379
Treasury Plus Money Market Fund(3) ...... $ 0 $ 0 $ 0
</TABLE>
--------------------
* Not in operation during the period.
(1) For the period August 1, 1997 (commencement of operations) to May 31, 1998.
(2) For the period July 10, 1998 (commencement of operations) to May 31, 1998.
(3) Advisory fee waivers shown in the table above for the Large Cap Ultra, Mid
Cap Growth, Michigan Municipal Bond, U.S. Government Income and Treasury
Plus Money Market Funds applied to the corresponding Parkstone Continuing
Funds.
(4) For the period April 9, 1998 (commencement of operations) to May 31, 1998.
(5) For the period September 15, 1998 (commencement of operations) to May 31,
1999.
Subject to the supervision of the Trust's Board of Trustees,
IMC or NAM, as applicable, will provide a continuous investment program for each
Fund, including investment research and management with respect to all
securities and investments and cash equivalents in each Fund. IMC or NAM will
determine from time to time what securities and other investments will be
purchased, retained or sold by each Fund. IMC or NAM will provide the services
under this Agreement in accordance with each Fund's investment objective,
policies, and restrictions as stated in the Prospectus and resolutions of the
Trust's Board of Trustees applicable to such Fund.
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.
Unless sooner terminated, the Advisory Agreements will
continue in effect with respect to the Funds to which they relate until
September 30, 2001 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
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<PAGE>
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.
ADMINISTRATION SERVICES
The Trust has entered into a co-administration agreement with
SEI Investments Mutual Fund Services ("SIMFS") and National City Bank ("NCB"
and, together with SIMFS, the "Co-Administrators") effective as of August 1,
2000 (the "Co-Administration Agreement"), pursuant to which SIMFS and NCB have
agreed to serve as Co-Administrators to the Trust. Prior to August 1, 2000,
SIMFS served as sole administrator to the Trust pursuant to an advisory
agreement dated as of May 1, 1998 (the "SIMFS Administration Agreement"). Also
prior to August 1, 2000, NCB provided sub-administration services to the Trust
pursuant to a sub-administration agreement between SIMFS and NCB dated as of May
1, 1998 (the "Sub-Administration Agreement"). SIMFS paid NCB fees for its
services under the Sub-Administration Agreement. The Trust paid no fees directly
to NCB for sub-administration services. Prior to May 1, 1998, PFPC, Inc.
("PFPC") served as administrator and accounting agent to each Fund other than
the Tax Managed Equity and National Tax Exempt Bond Funds (for which SIMFS
served as administrator) and the Parkstone Continuing Funds. Prior to January 1,
2000, BISYS Fund Services served as administrator to the Parkstone Continuing
Funds. On January 1, 2000, SIMFS became administrator to the Parkstone
Continuing Funds. BISYS continued to provide fund accounting services to the
Parkstone Continuing Funds until April 3, 2000 when SIMFS assumed full
responsibilities as administrator.
The Co-Administrators provide a wide variety of accounting,
shareholder and administrative services to the Trust under the Co-Administration
Agreement. The Co-Administration Agreement provides that the Co-Administrators
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
Co-Administration Agreement relates, except a loss resulting from willful
misfeasance, bad faith or negligence on the part of the Co-Administrators in the
performance of their duties or from reckless disregard by them of their duties
and obligations thereunder. The Co-Administration Agreement also provides that
the Co-Administration Agreement creates no joint and/or several liability among
the Co-Administrators with respect to any loss arising out of services provided
by a specific Co-Administrator.
SIMFS, a Delaware business trust, has its principal business
offices at One Freedom Valley Drive, Oaks, Pennsylvania 19456. SEI Investments
Management Corporation, a wholly-owned subsidiary of SEI Investments Company
("SEI Investments"), is the owner of all beneficial interests in SIMFS. SEI
Investments and its affiliates, including SIMFS, are leading providers of funds
evaluation services, trust accounting systems, and brokerage and information
services to financial institutions, institutional investors, and money managers.
NCB, which is a wholly owned subsidiary of National City Corporation and an
affiliate of the Adviser, has its principal offices at 1900 East Ninth Street,
Cleveland, Ohio, 04414.
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<PAGE>
Under the Co-Administration Agreement, the Co-Administrators
are entitled to receive administration fees, computed daily and paid monthly, at
the following annual rates based on the aggregate average daily net assets of
all of the Funds:
<TABLE>
<CAPTION>
AGGREGATE PORTION ALLOCATED PORTION ALLOCATED
COMBINED AVERAGE DAILY NET ASSETS ANNUAL RATE TO SIMFS TO NCB
--------------------------------- ----------- -------- ------
<S> <C> <C> <C>
Up to $16 billion.......................... 0.070% 0.050% 0.020%
From $16 to 20 billion..................... 0.070% 0.040% 0.030%
Over $20 billion........................... 0.065% 0.035% 0.030%
</TABLE>
Under the SIMFS Administration Agreement, SIMFS was
entitled to receive administration fees, computed daily and paid monthly, at
the following annual rates based on the aggregate average daily net assets of
all of the Funds:
<TABLE>
<CAPTION>
COMBINED AVERAGE DAILY NET ASSETS ANNUAL RATE
--------------------------------- -----------
<S> <C>
Up to $18 billion.......................... 0.070%
Over $18 billion........................... 0.060%
</TABLE>
During the fiscal years ended May 31, 2000 and 1999, and the
period May 1, 1998 through May 31, 1998, the Trust paid to SIMFS administration
fees as set forth below:
<TABLE>
<CAPTION>
FUND 2000 1999 1998
---- ---- ---- ----
<S> <C> <C> <C>
Core Equity Fund ........................ $ 110,023 $ 89,073 $ 6,096(1)
Equity Growth Fund ...................... $1,038,577 $ 830,212 $ 19,814
Equity Index Fund ....................... $ 267,854 $ 100,767(2) *
International Equity Fund ............... $ 227,436 $ 116,269 $ 8,857(1)
Large Cap Ultra Fund(3) ................. $ 168,898(4) N/A N/A
Large Cap Value Fund .................... $ 365,957 $ 295,814 $ 10,576
Mid Cap Growth Fund(3) .................. $ 170,367(4) N/A N/A
Small Cap Growth Fund ................... $ 91,281 $ 45,999 $ 4,252(1)
Small Cap Value Fund .................... $ 209,426 $ 180,236 $ 16,100
Tax Managed Equity Fund ................. $ 193,152 $ 150,366 $ 15,886(5)
Balanced Allocation Fund ................ $ 55,317 $ 41,193(2) *
Bond Fund ............................... $ 487,839 $ 457,444 $ 6,901
GNMA Fund ............................... $ 74,749 $ 62,591 $ 4,405
Intermediate Bond Fund .................. $ 215,479 $ 185,117 $ 8,873
Limited Maturity Bond Fund .............. $ 60,845 $ 54,342 $ 4,081
Total Return Advantage Fund ............. $ 230,828 $ 223,081 $ 13,648
U.S. Government Income Fund(3) .......... $ 76,176(4) N/A N/A
Michigan Municipal Bond Fund(3) ......... $ 79,077(4) N/A N/A
National Tax Exempt Bond Fund ........... $ 71,780 $ 67,288 $ 8,247(5)
Ohio Tax Exempt Bond Fund ............... $ 135,856 $ 144,100 $ 9,113
Pennsylvania Municipal Bond Fund ........ $ 30,455 $ 27,560 $ 2,069
Government Money Market Fund ............ $1,105,946 $1,035,845 $ 68,224
Money Market Fund ....................... $2,677,878 $2,261,919 $ 138,647
Ohio Municipal Money Market Fund ........ $ 110,613 $ 74,228(6) *
Pennsylvania Tax Exempt Money Market Fund $ 93,331 $ 94,553 $ 5,562
Tax Exempt Money Market Fund ............ $ 416,452 $ 431,637 $ 29,782
</TABLE>
99
<PAGE>
<TABLE>
<CAPTION>
FUND 2000 1999 1998
---- ---- ---- ----
<S> <C> <C> <C>
Treasury Money Market Fund .............. $ 300,318 $ 274,506 $ 18,670
Treasury Plus Money Market Fund(3) ...... $ 106,823(4) N/A N/A
</TABLE>
-----------------------
* Not in operation during the period.
(1) For the period August 1, 1997 (commencement of operations) through May 31,
1998.
(2) For the period July 10, 1998 (commencement of operations) through May
31, 1999.
(3) Administration fees shown for the Large Cap Ultra, Mid Cap Growth, U.S.
Government Income, Michigan Municipal Bond and Treasury Plus Money Market
Funds were paid by the corresponding Parkstone Continuing Funds.
(4) For the period January 1, 2000 through May 31, 2000.
(5) For the period April 9, 1998 (commencement of operations) through May 31,
1998.
(6) For the period September 15, 1998 (commencement of operations)
through May 31, 1999.
For the fiscal years ended May 31, 2000, 1999 and 1998, SIMFS
waived no administration fees.
For the period June 1, 1997 through April 30, 1998, the Trust
paid PFPC administration and accounting fees after fee waivers as set forth
below:
<TABLE>
<CAPTION>
FUND
----
<S> <C>
Core Equity Fund ........................ $ 0(1)
Equity Growth Fund ...................... $264,998
Equity Index Fund ....................... *
International Equity Fund ............... $ 0(1)
Large Cap Value Fund .................... $148,763
Small Cap Growth Fund ................... $ 7,970(1)
Small Cap Value Fund .................... $227,796
Balanced Allocation Fund ................ *
Bond Fund ............................... $ 94,631
GNMA Fund ............................... $ 65,665
Intermediate Bond Fund .................. $135,648
Limited Maturity Bond Fund .............. $ 67,984
Total Return Advantage Fund ............. $241,258
Ohio Tax Exempt Bond Fund ............... $105,026
Pennsylvania Municipal Bond Fund ........ $ 36,010
Government Money Market Fund ............ $239,017
Money Market Fund ....................... $523,266
Ohio Municipal Money Market Fund ........ *
Pennsylvania Tax Exempt Money Market Fund $ 36,010
Tax Exempt Money Market Fund ............ $187,219
Treasury Money Market Fund .............. $ 65,115
</TABLE>
-----------------------------
* Not in operation during the period.
(1) For the period August 1, 1997 (commencement of operations) through April 30,
1998.
-100-
<PAGE>
For the period June 1, 1997 through April 30, 1998, PFPC
waived administration and accounting fees as set forth below:
<TABLE>
<CAPTION>
FUND
----
<S> <C>
Core Equity Fund.................................................. $80,647(1)
Equity Growth Fund................................................ $ 0
Equity Index Fund................................................. *
International Equity Fund......................................... $71,716(1)
Large Cap Value Fund.............................................. $ 0
Small Cap Growth Fund............................................. $17,789(1)
Small Cap Value Fund.............................................. $ 0
Balanced Allocation Fund.......................................... *
Bond Fund......................................................... $ 0
GNMA Fund......................................................... $ 0
Intermediate Bond Fund............................................ $ 0
Limited Maturity Bond Fund........................................ $ 0
Total Return Advantage Fund....................................... $ 0
Ohio Tax Exempt Bond Fund......................................... $ 0
Pennsylvania Municipal Bond Fund.................................. $ 0
Government Money Market Fund...................................... $ 0
Money Market Fund................................................. $ 0
Ohio Municipal Money Market Fund.................................. *
Pennsylvania Tax Exempt Money Market Fund......................... $ 0
Tax Exempt Money Market Fund...................................... $ 0
Treasury Money Market Fund........................................ $ 0
</TABLE>
-----------------------------
* Not in operation during the period.
(1) For the period August 1, 1997 (commencement of operations) through April 30,
1998.
For the fiscal years ended May 31, 1998 and 1999, and the
period June 1, 1999 through April 3, 2000, the Parkstone Continuing Funds paid
BISYS administration fees as follows:
<TABLE>
<CAPTION>
FUND 2000 1999 1998
---- ---- ---- ----
<S> <C> <C> <C>
Large Cap Ultra Fund.............................................. $643,324 $ 865,089 $ 670,411
Mid Cap Growth Fund............................................... $535,346 $ 997,974 $1,220,724
U.S. Government Income Fund....................................... $103,130 $ 440,724 $ 445,707
Michigan Municipal Bond Fund...................................... $249,390 $ 476,403 $ 460,912
Treasury Plus Money Market Fund................................... $246,430 $ 828,412 $ 952,742
</TABLE>
For the fiscal years ended May 31, 1998 and 1999, and the
period June 1, 1999 through April 3, 2000, BISYS waived administration fees
for the Parkstone Continuing Funds as follows:
<TABLE>
<CAPTION>
FUND 2000 1999 1998
---- ---- ---- ----
<S> <C> <C> <C>
Large Cap Ultra Fund.................................................. $ 0 $ 0 $ 0
Mid Cap Growth Fund................................................... $ 0 $ 0 $ 0
U.S. Government Income Fund........................................... $191,061 $ 103,020 $ 111,428
</TABLE>
102
<PAGE>
<TABLE>
<CAPTION>
FUND 2000 1999 1998
---- ---- ---- ----
<S> <C> <C> <C>
Michigan Municipal Bond Fund.......................................... $ 61,721 $ 230,331 $ 230,452
Treasury Plus Money Market Fund....................................... $108,862 $ 405,054 $ 476,362
</TABLE>
DISTRIBUTION PLANS AND RELATED AGREEMENT
The Distributor acts as distributor of the Fund's shares
pursuant to its Distribution Agreement with the Trust. Shares are sold on a
continuous basis.
Pursuant to Rule 12b-1 of the 1940 Act, the Trust has adopted
a Service and Distribution Plan for A and I Share Classes (the "A and I Shares
Plan"), a B Shares Distribution and Servicing Plan ("B Shares Plan"), and a C
Shares Distribution and Servicing Plan (the "C Shares Plan," and, collectively,
the "Plans") which permit the Trust to bear certain expenses in connection with
the distribution of I Shares and A Shares, B Shares, or C Shares, respectively.
As required by Rule 12b-1, the Trust's Plans and related 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 Plans
or any agreement relating to the Plans, by vote cast in person at a meeting
called for the purpose of voting on the 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 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 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 Plan that would materially increase the
distribution expenses of a class would require approval by the shareholders of
such class, but otherwise, such 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 agreements. The Plans and
related agreements 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. Costs and expenses reimbursable
under the A and I Shares Plan are (a) direct and indirect costs and expenses
incurred in connection with the advertising and marketing of a Fund's A and I
shares, including but not limited to any advertising or marketing via radio,
television, newspapers, magazines, or direct mail solicitation, and (b) direct
and indirect costs and expenses incurred in
102
<PAGE>
preparing, printing and distributing a Fund's prospectus for such shares
(except those used for regulatory purposes or for distribution to existing
shareholders) and in implementing and operating the A and I Shares Plan.
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% per annum (.65% with respect to the Aggressive Allocation and
Conservative Funds) of the average daily net assets of such class. The C Shares
Plan provides that a Fund may compensate the Distributor for distribution of
Class C shares in an amount not to exceed .75% (.65% with respect to the
Aggressive Allocation and Conservative Funds) per annum of the average daily net
assets of such shares. Payments to the Distributor under the B Shares Plan and C
Shares Plan are to be used by the Distributor to cover expenses and activities
primarily intended to result in the sale of a Fund's B shares and C shares,
respectively. Such expenses and activities may include but are not limited to:
(a) direct out-of-pocket promotional expenses incurred by the Distributor in
advertising and marketing B shares and C shares; (b) expenses incurred in
connection with preparing, printing, mailing, and distributing or publishing
advertisements and sales literature; (c) expenses incurred in connection with
printing and mailing Prospectuses and Statements of Additional Information to
other than current shareholders; (d) periodic payments or commissions to one or
more securities dealers, brokers, financial institutions or other industry
professionals, such as investment advisers, accountants, and estate planning
firms (severally, "a Distribution Organization") with respect to a Fund's B
shares or C shares beneficially owned by customers for whom the Distribution
Organization is the dealer of record or holder of record of such B shares or C
shares; (e) the direct or indirect cost of financing the payments or expenses
included in (a) and (d) above; or (e) for such other services as may be
construed, by any court or governmental agency or commission, including the SEC,
to constitute distribution services under the 1940 Act or rules and regulations
thereunder.
The Plans have been approved by the Board of Trustees, and
will continue in effect for successive one year periods provided that such
continuance is specifically approved by (1) the vote of a majority of the
trustees who are not parties to any Plan or interested persons of any such party
and who have no direct or indirect financial interest in any Plan and (2) the
vote of a majority of the entire Board of Trustees.
During the fiscal year ended May 31, 2000, the Trust paid the
Distributor the following approximate amounts under the A and I Shares Plan, B
Shares Plan and C Shares Plan for its distribution services and shareholder
service assistance:
103
<PAGE>
FISCAL YEAR 2000 DISTRIBUTION FEES
<TABLE>
<CAPTION>
PORTFOLIO DISTRIBUTION SERVICES MARKETING/ TOTAL FEES
CONSULTATION
<S> <C> <C> <C>
Core Equity Fund $15,005 $35,013 $50,018
Equity Growth Fund $208,503 $486,506 $695,009
Equity Index Fund $334 $778 $1,112
International Equity Fund $32,791 $76,511 $109,302
Large Cap Ultra Fund* $33,183 $77,426 $110,609
Large Cap Value Fund $63,195 $147,454 $210,649
Mid Cap Growth Fund* $63,405 $147,944 $211,349
Small Cap Growth Fund $14,999 $34,998 $49,997
Small Cap Value Fund $36,268 $84,624 $120,892
Tax Managed Equity Fund $32,135 $74,980 $107,115
Balanced Allocation Fund $9,661 $22,543 $32,204
Bond Fund $82,881 $193,389 $276,270
GNMA Fund $12,416 $28,970 $41,386
Intermediate Bond Fund $36,460 $85,074 $121,534
Limited Maturity Bond Fund $61 $142 $203
Total Return Advantage Fund $1,049 $2,446 $3,495
U.S. Government Income Fund* $22,855 $53,327 $76,182
Michigan Municipal Bond Fund* $17,448 $40,711 $58,159
National Tax Exempt Bond Fund $12,417 $28,974 $41,391
Ohio Tax Exempt Bond Fund $23,364 $54,517 $77,881
Pennsylvania Municipal Bond Fund $21 $48 $69
Government Money Market Fund $181,060 $422,473 $603,553
Money Market Fund $445,373 $1,039,202 $1,484,575
Ohio Municipal Money Market Fund $20,792 $48,514 $69,306
Pennsylvania Tax Exempt Money $22,633 $52,809 $75,442
Market Fund
</TABLE>
104
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO DISTRIBUTION SERVICES MARKETING/ TOTAL FEES
CONSULTATION
<S> <C> <C> <C>
Tax Exempt Money Market Fund $92,372 $215,536 $307,908
Treasury Money Market Fund $57,731 $134,704 $192,435
Treasury Plus Money Market Fund* $2,215 $5,167 $7,382
</TABLE>
*Distribution fees shown for the Large Cap Ultra, Mid Cap
Growth, U.S. Government Income, Michigan Municipal Bond and Treasury Plus Money
Market Funds were paid by the corresponding Parkstone Continuing Funds.
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
NCB, with offices at 1900 East Ninth Street, 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 each Fund;
(ii) hold and disburse portfolio securities on account of
the Funds;
(iii) collect and make disbursements of money on behalf of
the Funds;
(iv) collect and receive all income and other payments and
distributions on account of the Funds' 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 Funds' operations.
NCB 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.
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 Funds. Under its
Transfer Agency Agreement, it has agreed to:
105
<PAGE>
(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 a Shareholder Services Plan (with
respect to A Shares), the B Shares Plan, and the C Shares Plan pursuant to which
the Trust may enter into agreements with financial institutions pertaining to
the provision of administrative services to their customers who are the
beneficial owners of a Fund's A Shares, B Shares or C Shares, respectively, in
consideration for payments for such services.
The Shareholder Services Plan provides for the payment (on an annualized basis)
of up to:
(i) 0.25% for the International Equity, Small Cap Value, Small Cap Growth,
Equity Growth, Tax Managed Equity, Core Equity, Equity Index, Large Cap
Value, Aggressive Allocation, Balanced Allocation, Conservative
Allocation, Total Return Advantage, Bond, Intermediate Bond, GNMA, Mid
Cap Growth, U.S. Government Income, Large Cap Ultra, Strategic Income
Bond, Money Market, Government Money Market, Treasury Money Market and
Treasury Plus Money Market Funds;
(ii) 0.15% for the Ohio Municipal Money Market, Pennsylvania Tax Exempt
Money Market and Tax Exempt Money Market Funds; and
(iii) 0.10% for the Limited Maturity Bond, Ohio Tax Exempt Bond, Pennsylvania
Municipal Bond, National Tax Exempt Bond and Michigan Municipal Bond
Funds
of the net asset value attributable to A Shares held by a financial
institution's customers.
106
<PAGE>
The B Shares Plan provides for the payment (on an annualized
basis) of up to:
(i) 0.25% for the International Equity, Small Cap Value, Small Cap Growth,
Equity Growth, Tax Managed Equity, Core Equity, Equity Index, Large Cap
Value, Aggressive Allocation, Balanced Allocation, Conservative
Allocation, Total Return Advantage, Bond, Intermediate Bond, Limited
Maturity Bond, GNMA, Mid Cap Growth, U.S. Government Income, Large Cap
Ultra, Money Market and Strategic Income Bond Funds; and
(ii) 0.10% for the Ohio Tax Exempt, Pennsylvania Municipal Bond, National
Tax Exempt Bond and Michigan Municipal Bond Funds,
of the net asset value attributable to B Shares held by a financial
institution's customers.
The C Shares Plan provides for the payment by each Fund
authorized to offer C Shares of up to .25% (on an annualized basis) of the net
asset value attributable to C Shares held by a financial institution's
customers.
Services under the Shareholder Services Plan, B Shares Plan
and C Shares Plan may include:
(i) aggregating and processing purchase and redemption
requests from customers;
(ii) providing customers with a service that invests the
assets of their accounts in 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) providing subaccounting for customers or providing
information to the transfer agent for subaccounting;
(viii) forwarding shareholder communications; and
(ix) 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
107
<PAGE>
Funds. 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 last three fiscal years, the Trust paid brokerage
commissions as follows:
<TABLE>
<CAPTION>
FUND 2000 1999 1998
---- ---- ---- ----
<S> <C> <C> <C>
Core Equity Fund ................ $ 116,186 $ 0 $ 0(1)
Equity Growth Fund .............. $ 877,246 $1,271,614 $1,398,444
Equity Index Fund ............... $ 172,962 $ 93,484(2) *
International Equity Fund ....... $1,361,482 $ 726,464 $ 290,141(1)
Large Cap Ultra Fund(3) ......... $ 839,727 $ 414,931 $ 279,187
Large Cap Value Fund ............ $ 541,396 $ 249,890 $ 86,349
Mid Cap Growth Fund(3) .......... $1,061,836 $1,208,884 $ 599,906
Small Cap Growth Fund ........... $ 677,189 $ 503,450 $ 51,366(1)
Small Cap Value Fund ............ $1,892,956 $1,102,442 $ 780,933
Tax Managed Equity Fund ......... $ 24,414 $ 26,801 $ 0(4)
Balanced Allocation Fund ........ $ 110,235 $ 33,019(2) *
Bond Fund ....................... $ 0 $ 0 $ 0
GNMA Fund ....................... $ 0 $ 0 $ 0
Intermediate Bond Fund .......... $ 0 $ 0 $ 0
Limited Maturity Bond Fund ...... $ 0 $ 0 $ 0
Total Return Advantage Fund ..... $ 0 $ 0 $ 0
U.S. Government Income Fund(3)... $ 0 $ 0 $ 0
Michigan Municipal Bond Fund(3).. $ 0 $ 0 $ 0
National Tax Exempt Bond Fund ... $ 0 $ 0 $ 0(4)
Ohio Tax Exempt Bond Fund ....... $ 0 $ 0 $ 0
Pennsylvania Municipal Bond Fund $ 0 $ 0 $ 0
</TABLE>
------------------------------
* Not in operation during the period.
(1) For the period August 9, 1997 (commencement of operations) through May 31,
1998.
(2) For the period July 10, 1998 (commencement of operations) through May 31,
1999.
(3) Brokerage commissions shown for the Large Cap Ultra, Mid Cap Growth, U.S.
Government Income and Michigan Municipal Bond Funds were paid by the
corresponding Parkstone Continuing Funds.
(4) For the period April 9, 1998 (commencement of operations) through May 31,
1998.
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 Agreements, pursuant to Section 28(e) of the Securities Exchange Act of
1934, as amended, the Adviser is authorized to negotiate and pay higher
brokerage commissions in exchange for research services rendered by
108
<PAGE>
broker-dealers. Subject to this consideration, broker-dealers who provide
supplemental investment research to the Adviser may receive orders for
transactions by the Funds. Information so received is in addition to and not
in lieu of services required to be performed by the Adviser and does not
reduce the fees payable to the Adviser by the Funds. Such information may be
useful to the Adviser in serving both the Trust and other clients, and,
similarly, supplemental information obtained by the placement of business of
other clients may be useful to the Adviser in carrying out its obligations to
the Trust.
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, 2000, (a) the Equity Index Fund had acquired securities of:
Bear Stearns, J.P. Morgan, Lehman Brothers, Merrill Lynch, Morgan Stanley, Dean
Witter Discover and Paine Webber; (b) the Mid Cap Growth Fund had entered into
repurchase transactions with: Prudential Bache Securities; (c) the Small Cap
Growth Fund had entered into repurchase transactions with: Prudential Bache
Securities; (d) the Small Cap Value Fund had entered into repurchase
transactions with: Prudential Bache Securities; (e) the Balanced Allocation Fund
had entered into repurchase transactions with: Prudential Bache Securities; and
had acquired securities of: Credit Suisse First Boston and Prudential Bache
Securities; (f) the Bond Fund had acquired securities of: Credit Suisse First
Boston and Prudential Bache Securities; (g) the GNMA Fund had acquired
securities of: Credit Suisse First Boston; (h) the Intermediate Bond Fund had
acquired securities of: Credit Suisse First Boston, Merrill Lynch and Prudential
Bache Securities; (i) the Limited Maturity Bond Fund had acquired securities of:
Merrill Lynch; (j) the Total Return Advantage Fund had acquired securities of:
Bear Stearns, Morgan Stanley, Dean Witter Discover and Merrill Lynch; (k) the
Money Market Fund had entered into repurchase transactions with: Credit Suisse
First Boston, Prudential Bache Securities and Salomon Smith Barney; and had
acquired the securities of: Merrill Lynch; (l) the Government Money Market Fund
had entered into repurchase transactions with: Credit Suisse First Boston,
Prudential Bache Securities and Salomon Smith Barney; and (m) the Treasury Plus
Money Market Fund had entered into repurchase transactions with Goldman Sachs,
J.P.Morgan, Merrill Lynch, Morgan Stanley and Prudential Bache Securities.
The Adviser has agreed to maintain a policy and practice of
conducting its investment management activities independently of its respective
commercial departments of 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 a Fund are made independently from
those for the other Funds and for other investment companies and accounts
advised or managed by the Adviser. Such
109
<PAGE>
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
directed brokerage transactions in the following amounts and for the following
commissions: the Equity Growth Fund, $159,039,207 in transactions and $207,427
in commissions; the Small Cap Value Fund, $49,370,926 in transactions and
$144,081 in commissions; the Large Cap Value Fund, $242,237,943 in transactions
and $145,649 in commissions; the Small Cap Growth Fund, $21,711,113 in
transactions and $25,843 in commissions; the Core Equity Fund, $43,188,494 in
transactions and $52,770 in commissions; the Tax Managed Equity Fund, $1,831,251
in transactions and $1,960 in commissions; the Equity Index Fund, $31,242,436 in
transactions and $5,576 in commissions; the Balanced Allocation Fund, $4,946,375
in transactions and $349 in commissions; the International Equity Fund, $656,980
in transactions and $814 in commissions; the Large Cap Ultra Fund, $28,654,031
in transactions and $169,684 in commissions; the Mid Cap Growth Fund,
$19,805,534 in transactions and $120,993 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 financial highlights for
the Funds included in the Prospectuses and the financial statements for the
Funds contained in the Armada Funds 2000 Annual Report (the "Annual Report") and
incorporated by reference into this Statement of Additional Information have
been audited by Ernst & Young LLP, except as described below.
The financial highlights for the Armada GNMA Fund, Armada
Pennsylvania Municipal Bond Fund, and Armada Pennsylvania Tax Exempt Money
Market Fund from April 30, 1995 through May 31, 1996 included in the
Prospectuses were audited by such Funds' former independent accountants.
The financial highlights for the Armada Bond Fund included in
the Prospectuses represent the financial highlights of the Parkstone Bond Fund,
whose financial statements and performance history were adopted by the Armada
Bond Fund described on page 1 of this Statement of Additional Information. The
financial highlights for the Parkstone Bond Fund for the periods prior to the
fiscal year ended May 31, 2000 were audited by PricewaterhouseCoopers LLP,
former independent accountants to the Parkstone Group of Funds.
110
<PAGE>
The financial highlights and financial statements for the
fiscal periods ended prior to May 31, 2000, included in the Prospectuses and
the Annual Report for the Armada Bond Fund, Armada Mid Cap Growth Fund,
Armada Large Cap Ultra Fund, Armada U.S. Government Income Fund, Armada
Michigan Municipal Bond Fund and Armada Treasury Plus Money Market Fund,
which are incorporated by reference into this Statement of Additional
Information, are of each Fund's corresponding Parkstone Continuing Fund, and
were audited by PricewaterhouseCoopers LLP, Parkstone's former independent
accountants.
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, is counsel to the Trust and will
pass upon the legality of the shares offered hereby.
____________________________________, acts as special Ohio tax counsel for the
Trust and has reviewed the section of this Statement of Additional Information
entitled "Additional Tax Information concerning the Ohio Tax Exempt Bond and
Ohio Municipal Money Market Funds." ___________________________________________,
acts as special Michigan counsel for the Trust and has reviewed the sections of
the Statement of Additional Information involving matters related to the
Michigan Municipal Bond Fund.
PERFORMANCE INFORMATION
YIELD FOR THE FIXED INCOME FUNDS AND TAX FREE FUNDS
Each Fund's "yield" is calculated by dividing the Fund's net
investment income per share earned during a 30-day period (or another period
permitted by the rules of the SEC) by the net asset value per share on the last
day of the period and annualizing the result on a semi-annual basis by adding
one to the quotient, raising the sum to the power of six, subtracting one from
the result and then doubling the difference. The Fund's net investment income
per share earned during the period is based on the average daily number of
shares outstanding during the period entitled to receive dividends and includes
dividends and interest earned during the period minus expenses accrued for the
period, net of reimbursements. This calculation can be expressed as follows:
Yield = 2 [([(a-b)/cd] + 1)(6)) - 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.
111
<PAGE>
d = maximum offering price per share on the
last day of the period.
The Fixed Income Funds and Tax Free Funds calculate interest
earned on debt obligations held in their portfolios by computing the yield to
maturity of each obligation held by it based on the market value of the
obligation (including actual accrued interest) at the close of business on the
last business day of each 30-day period, or, with respect to obligations
purchased during the 30-day period, the purchase price (plus actual accrued
interest) and dividing the result by 360 and multiplying the quotient by the
market value of the obligation (including actual accrued interest) in order to
determine the interest income on the obligation for each day of the subsequent
30-day period that the obligation is in the Fund. The maturity of an obligation
with a call provision is the next call date on which the obligation reasonably
may be expected to be called or, if none, the maturity date. With respect to
debt obligations purchased by the Fund at a discount or premium, the formula
generally calls for amortization of the discount or premium. The amortization
schedule will be adjusted monthly to reflect changes in the market values of
such debt obligations.
Interest earned on tax-exempt obligations that are issued
without original issue discount and have a current market discount is calculated
by using the coupon rate of interest instead of the yield to maturity. In the
case of tax-exempt obligations that are issued with original issue discount but
which have discounts based on current market value that exceed the
then-remaining portion of the original issue discount (market discount), the
yield to maturity is the imputed rate based on the original issue discount
calculation. On the other hand, in the case of tax-exempt obligations that are
issued with original issue discount but which have discounts based on current
market value that are less than the then-remaining portion of the original issue
discount (market premium), the yield to maturity is based on the market value.
Expenses accrued for the period (variable "b" in the formula)
include all recurring fees charged by the Fund to all shareholder accounts in
proportion to the length of the base period and the Fund's mean (or median)
account size. Undeclared earned income will be subtracted from the net asset
value per share (variable "d" in the formula). Undeclared earned income is the
net investment income which, at the end of the 30-day base period, has not been
declared as a dividend, but is reasonably expected to be and is declared as a
dividend shortly thereafter. For applicable sales charges, see "Sales Charges -
Front-End Sales Charges - Class A Shares" and "Sales Charges - Contingent
Deferred Sales Charges - Class B Shares and Class C Shares" in the Prospectuses.
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.
112
<PAGE>
For the 30-day period ended May 31, 2000, the yields and, as
applicable, the tax-equivalent yields of the Class I Shares of each of the Fixed
Income Funds (except the Strategic Income Bond Fund) and the Tax Free Funds
were:
<TABLE>
<CAPTION>
TAX-EQUIVALENT
FUND YIELD YIELD
---- ----- -----
<S> <C> <C>
Bond................................................................... 7.06% *
GNMA................................................................... 5.97% *
Intermediate Bond...................................................... 7.16% *
Limited Maturity Bond.................................................. 7.27% *
Total Return Advantage................................................. 6.90% *
U.S. Government Income................................................. 6.31% *
Michigan Municipal Bond................................................ 4.50% 7.98%
National Tax Exempt Bond............................................... 4.55% 7.53%
Ohio Tax Exempt Bond................................................... 4.50% 8.40%
Pennsylvania Municipal Bond............................................ 3.87% 6.72%
</TABLE>
----------------------
* Not applicable
For the 30-day period ended May 31, 2000, the yields and, as
applicable, the tax-equivalent yields of the Class A Shares of each of the Fixed
Income Funds (other than the Strategic Income Bond Fund) and the Tax Free Funds
were:
<TABLE>
<CAPTION>
TAX-EQUIVALENT
FUND YIELD YIELD
---- ----- -----
<S> <C> <C>
Bond................................................................... 6.48% *
GNMA................................................................... 5.44% *
Intermediate Bond...................................................... 6.56% *
Limited Maturity Bond.................................................. 6.96% *
Total Return Advantage................................................. 6.33% *
U.S. Government Income................................................. 5.73% *
Michigan Municipal Bond................................................ 4.04% 7.14%
National Tax Exempt Bond............................................... 4.23% 7.00%
Ohio Tax Exempt Bond................................................... 4.27% 7.97%
Pennsylvania Municipal Bond............................................ 3.67% 6.37%
</TABLE>
----------------------
* Not applicable
For the 30-day period ended May 31, 2000, the yields and, as
applicable, the tax-equivalent yields of the Class B Shares of each of the Fixed
Income Funds (other than the Strategic Income Bond Fund) and the Tax Free Funds
were:
<TABLE>
<CAPTION>
TAX-EQUIVALENT
FUND YIELD YIELD
---- ----- -----
<S> <C> <C>
Bond................................................................... 6.11% *
GNMA................................................................... 5.01% *
Intermediate Bond...................................................... 6.19% *
</TABLE>
113
<PAGE>
<TABLE>
<CAPTION>
TAX-EQUIVALENT
FUND YIELD YIELD
---- ----- -----
<S> <C> <C>
Limited Maturity Bond.................................................. 6.28% *
Total Return Advantage................................................. 5.91% *
U.S. Government Income................................................. 5.29% *
Michigan Municipal Bond................................................ 3.50% 6.20%
National Tax Exempt Bond............................................... 3.73% 6.18%
Ohio Tax Exempt Bond................................................... ** **
Pennsylvania Municipal Bond............................................ ** **
</TABLE>
----------------------
* Not applicable
** Class B Shares not offered as of May 31, 2000.
For the 30-day period ended May 31, 2000, the yields and, as
applicable, the tax-equivalent yields of the Class C Shares of each of the Fixed
Income Funds (other than the Strategic Income Bond Fund) and the Tax Free Funds
were:
<TABLE>
<CAPTION>
TAX-EQUIVALENT
FUND YIELD YIELD
---- ----- -----
<S> <C> <C>
Bond................................................................... 6.11% *
GNMA................................................................... 5.01% *
Intermediate Bond...................................................... ** *
Limited Maturity Bond.................................................. 6.28% *
Total Return Advantage................................................. ** *
U.S. Government Income................................................. ** *
Michigan Municipal Bond................................................ ** **
National Tax Exempt Bond............................................... ** **
Ohio Tax Exempt Bond................................................... ** **
Pennslyvania Municipal Bond............................................ ** **
</TABLE>
----------------------
* Not applicable
** Class C Shares not offered as of May 31, 2000.
The tax equivalent yields provided in the tables above assumed
a 39.6% federal tax rate for each Fund; and a 6.799% Ohio tax rate for the Ohio
Tax Exempt Bond Fund; a 2.8% Pennsylvania tax rate for the Pennsylvania Tax
Exempt Bond Fund; and a 4.4% Michigan tax rate for the Michigan Municipal Bond
Fund.
114
<PAGE>
YIELDS FOR THE MONEY MARKET FUNDS
Yields for the Money Market Funds are computed by: (1) determining the
net change, exclusive of capital changes and income other than investment
income, in the value of a hypothetical pre-existing account in a Money Market
Fund having a balance of one share at the beginning of a seven-day period, for
which the yield is to be quoted, (2) dividing the net change in account value by
the value of the account at the beginning of the base period to obtain the base
period return, and (3) annualizing the results (I.E., multiplying the base
period return by (365/7)). The net change in the value of the account in each
Money Market Fund 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, and all fees that are charged by a Money
Market Fund to all shareholder accounts in proportion to the length of the base
period, other than non-recurring account and sales charges. For any account fees
that vary with the size of the account, the amount of fees charged is computed
with respect to the Money Market Fund's 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 compound yield quotation for each
Money Market Fund is computed by adding 1 to the base period return (calculated
as described above), raising the sum to a power equal to 365 divided by 7, and
subtracting 1 from the result.
The Ohio Municipal Money Market Fund, Pennsylvania Tax Exempt Money
Market and Tax Exempt Money Market Fund may calculate a "tax equivalent yield."
The tax equivalent yield is computed by dividing that portion of a Fund's yield
which is tax-exempt by one minus a stated income tax rate and adding the product
to that portion, if any, of the Fund's computed yield that is not tax-exempt.
Tax equivalent yields assume the payment of federal income taxes at a rate of
39.6%.
For the seven-day period ended May 31, 2000, the yields and effective
yields for Class A Shares of the Money Market Funds, and the tax-equivalent
yield for Class A Shares of the Tax Exempt Money Market, Ohio Municipal Money
Market and Pennsylvania Tax Exempt Money Market Funds were:
<TABLE>
<CAPTION>
TAX-
EFFECTIVE EQUIVALENT
FUND YIELD YIELD YIELD
---- ----- ----- -----
<S> <C> <C> <C>
Government Money Market................................................ 5.80% 5.97% *
Money Market........................................................... 5.96% 6.14% *
Ohio Municipal Money Market............................................ 3.69% 3.76% 6.57%
Pennsylvania Tax Exempt Money Market................................... 3.75% 3.82% 6.39%
Tax-Exempt Money Market................................................ 3.70% 3.77% 6.13%
Treasury Money Market.................................................. 5.10% 5.23% *
Treasury Plus Money Market............................................. 5.64% 5.80% *
</TABLE>
----------------------
* Not applicable
For the seven-day period ended May 31, 2000, the yield and effective
yield for Class I Shares of the Money Market Funds, and the tax-equivalent
yields for Class I Shares of the Tax-
115
<PAGE>
Exempt Money Market, Ohio Municipal Money Market and Pennsylvania Tax-Exempt
Money Market Funds were:
<TABLE>
<CAPTION>
TAX-
EFFECTIVE EQUIVALENT
FUND YIELD YIELD YIELD
---- ----- ----- -----
<S> <C> <C> <C>
Government Money Market................................................ 5.95% 6.13% *
Money Market........................................................... 6.11% 6.30% *
Ohio Municipal Money Market............................................ 3.84% 3.91% 6.84%
Pennsylvania Tax Exempt Money Market................................... 3.90% 3.98% 6.65%
Tax-Exempt Money Market................................................ 3.85% 3.92% 6.38%
Treasury Money Market.................................................. 5.25% 5.39% *
Treasury Plus Money Market............................................. 5.74% 5.90% *
</TABLE>
----------------------
* Not applicable
For the seven-day period ended May 31, 2000, the yield and
effective yield for Class B Shares of the Money Market Fund were 5.15% and
5.29%, respectively.
The tax equivalent yields provided in the tables above assumed
a 39.6% federal tax rate for each Fund; and a 6.799% Ohio tax rate for the Ohio
Municipal Money Market Fund; and a 2.8% Pennsylvania tax rate for the
Pennsylvania Tax Exempt Money Market Fund.
TOTAL RETURN
Each Fund (other than the Money Market Funds) 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:
1/n
T = [(ERV / P) - 1]
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
116
<PAGE>
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:
T = (ERV/P) - 1
The calculations of average annual total return and aggregate
total return assume the reinvestment of all dividends and capital gain
distributions on the reinvestment dates during the period and include all
recurring fees charged to all shareholder accounts, assuming an account size
equal to the Fund's mean (or median) account size for any fees that vary with
the size of the account. The maximum sales load and other charges deducted from
payments are deducted from the initial $1,000 payment (variable "P" in the
formula). The ending redeemable value (variable "ERV" in the formula) is
determined by assuming complete redemption of the hypothetical investment and
the deduction of all contingent deferred sales charges and other nonrecurring
charges at the end of the measuring period covered by the computation.
The following table shows the average annual total returns
since inception for the Funds (other than the Money Market Funds) as of May 31,
2000, both with and without deduction of any applicable sales charges:
117
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
AVERAGE ANNUAL TOTAL RETURN RETURN FROM INCEPTION
FROM INCEPTION THROUGH THROUGH 5/31/00 (WITHOUT
5/31/00 (WITH DEDUCTION OF DEDUCTION FOR
MAXIMUM SALES CHARGE) ANY SALES CHARGE) INCEPTION DATE
--------------------- ----------------- --------------
<S> <C> <C> <C>
Armada Core Equity Fund
Class A 15.81% 18.14% 08/01/97
Class B 18.41% 19.71% 01/06/98
Class C(1) -0.45% 0.55% 01/20/00
Class I N/A 18.43% 08/01/97
Armada Equity Growth Fund
Class A 15.33% 16.04% 04/15/91
Class B 18.27% 19.58% 01/06/98
Class C(1) 0.21% 1.21% 01/27/00
Class I N/A 16.55% 12/20/89
Armada Equity Index
Class A 18.52% 21.31% 10/15/98
Class B(1) -3.54% 1.46% 01/04/00
Class C(1) -4.14% -3.17% 01/17/00
Class I N/A 12.74% 07/10/98
Armada International Equity Fund
Class A 13.44% 15.72% 08/01/97
Class B 20.49% 21.77% 01/06/98
Class C(1) -4.48% -3.51% 01/05/00
Class I N/A 16.07% 08/01/97
Armada Large Cap Ultra Fund(2)
Class A 25.05% 26.70% 02/01/96
Class B 25.59% 25.80% 02/01/96
Class C * * *
Class I N/A 27.36% 12/28/95
Armada Large Cap Value Fund
Class A 12.35% 13.46% 08/22/94
Class B 2.04% 3.63% 01/06/98
Class C(1) 3.65% 4.65% 01/27/00
Class I N/A 13.89% 07/01/94
Armada Mid Cap Growth Fund(2)
Class A 16.45% 17.02% 10/31/88
Class B 17.36% 17.36% 02/04/94
Class C * * *
Class I N/A 17.11% 10/31/88
</TABLE>
118
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
AVERAGE ANNUAL TOTAL RETURN RETURN FROM INCEPTION
FROM INCEPTION THROUGH THROUGH 5/31/00 (WITHOUT
5/31/00 (WITH DEDUCTION OF DEDUCTION FOR
MAXIMUM SALES CHARGE) ANY SALES CHARGE) INCEPTION DATE
--------------------- ----------------- --------------
<S> <C> <C> <C>
Armada Small Cap Growth Fund
Class A 13.15% 15.42% 08/01/97
Class B 13.13% 14.52% 01/06/98
Class C -10.96% -10.06% 01/20/00
Class I N/A 15.72% 08/01/97
Armada Small Cap Value Fund
Class A 13.12% 14.22% 08/15/94
Class B 1.36% 2.90% 01/06/98
Class C(1) 10.86% 11.86% 01/27/00
Class I N/A 14.99% 07/26/94
Armada Tax Managed Equity Fund(3)
Class A 17.27% 17.68% 05/11/98
Class B N/A 17.57% 05/04/98
Class C(1) N/A N/A 01/10/00
Class I N/A 17.67% 04/09/98
Armada Balanced Allocation Fund
Class A 9.40% 12.36% 07/31/98
Class B 10.49% 13.51% 11/11/98
Class C(1) -2.50% -1.52% 04/20/00
Class I N/A 10.60% 07/10/98
Armada Bond Fund
Class A 6.38% 6.83% 10/31/88
Class B 3.91% 3.91% 02/04/94
Class C * * *
Class I N/A 7.02% 10/31/88
Armada GNMA Fund
Class A 4.53% 5.91% 09/11/96
Class B(1) -0.93% 4.07% 08/11/99
Class C(1) 1.16% 2.16% 01/27/00
Class I N/A 6.69% 08/10/94
Armada Intermediate Bond Fund
Class A 5.42% 5.99% 04/15/91
Class B 0.44% 1.96% 01/06/98
Class C(1) -0.78% 0.22% 05/30/00
Class I N/A 6.67% 12/20/89
Armada Limited Maturity Bond Fund
Class A 4.90% 5.42% 09/09/94
Class B(1) -2.69% 2.22% 08/11/99
Class C -0.42% 0.56% 01/27/00
Class I N/A 5.44% 07/07/94
</TABLE>
119
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
AVERAGE ANNUAL TOTAL RETURN RETURN FROM INCEPTION
FROM INCEPTION THROUGH THROUGH 5/31/00 (WITHOUT
5/31/00 (WITH DEDUCTION OF DEDUCTION FOR
MAXIMUM SALES CHARGE) ANY SALES CHARGE) INCEPTION DATE
--------------------- ----------------- --------------
<S> <C> <C> <C>
Armada Total Return Advantage Fund
Class A 5.30% 6.21% 09/06/94
Class B(1) -2.71% 2.17% 09/29/99
Class C * * *
Class I N/A 6.63% 07/07/94
Armada U.S. Government Income Fund(2)
Class A 4.81% 5.49% 11/12/92
Class B 4.46% 4.46% 02/04/94
Class C * * *
Class I N/A 5.70% 11/12/92
Armada Michigan Municipal Bond Fund(2)
Class A 4.79% 5.30% 07/02/90
Class B 2.81% 2.81% 02/04/94
Class C * * *
Class I N/A 5.48% 07/02/90
Armada National Tax Exempt Bond
Fund(4)
Class A 6.20% 6.59% 06/22/98
Class B N/A 6.50% 01/28/99
Class C(1) N/A 6.46% 02/24/00
Class I N/A 6.57% 04/09/98
Armada Ohio Tax Exempt Bond Fund
Class A 4.83% 5.18% 04/15/91
Class B * * *
Class C * * *
Class I N/A 5.22% 01/05/90
Armada Pennsylvania Municipal Bond Fund
Class A 3.28% 4.12% 09/11/96
Class B * * N/A
Class C(1) -1.05% -0.06% 02/24/00
Class I N/A 4.40% 08/10/94
</TABLE>
120
<PAGE>
N/A Not applicable.
* Share class not offered as of May 31, 2000.
(1) Share class had been in operation for less than one year as of May 31,
2000. Performance quoted is cumulative since inception.
(2) Total returns shown for the Mid Cap Growth, Large Cap Ultra, U.S.
Government Income and Michigan Municipal Bond Funds are those of the
corresponding Parkstone Continuing Funds.
(3) Includes the history of a predecessor common trust fund which commenced
operations June 30, 1984.
(4) Includes the history of a predecessor common trust fund which commenced
operations on July 31, 1984.
The following table shows the one year, five year and ten year
returns for the Funds (other than the Money Market Funds) for the respective
periods ended May 31, 2000:
<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS TEN YEARS INCEPTION DATE
-------- ---------- --------- --------------
<S> <C> <C> <C> <C>
Armada Core Equity Fund
Class A 11.98% * * 08/01/97
Class B 11.31% * * 01/06/98
Class C * * * 01/20/00
Class I 12.31% * * 08/01/97
Armada Equity Growth Fund
Class A 18.22% 23.92% * 04/15/91
Class B 17.68% * * 01/06/98
Class C * * * 01/27/00
Class I 18.49% 24.22% 16.41% 12/20/89
Armada Equity Index
Class A 9.70% * * 10/15/98
Class B * * * 01/04/00
Class C * * * 01/17/00
Class I 9.92% * * 07/10/98
Armada International Equity Fund
Class A 38.50% * * 08/01/97
Class B 37.61% * * 01/06/98
Class C * * * 01/05/00
Class I 38.90% * * 08/01/97
Armada Large Cap Ultra Fund(1)
Class A 26.66% * * 02/01/96
Class B 25.81% * * 02/01/96
Class C N/A N/A N/A N/A
Class I 27.25% * * 12/28/95
</TABLE>
121
<PAGE>
<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS TEN YEARS INCEPTION DATE
-------- ---------- --------- --------------
<S> <C> <C> <C> <C>
Armada Large Cap Value Fund
Class A -8.30% 13.51% * 08/22/94
Class B -8.77% * * 01/06/98
Class C * * * 01/27/00
Class I -7.95% 13.81% * 07/01/94
Armada Mid Cap Growth Fund(1)
Class A 51.48% 23.02% 16.26% 10/31/88
Class B 50.40% 22.13% * 02/04/94
Class C N/A N/A N/A N/A
Class I 51.90% 23.16% 16.36% 10/31/88
Armada Small Cap Growth Fund
Class A 46.49% * * 08/01/97
Class B 45.65% * * 01/06/98
Class C * * * 01/20/00
Class I 47.04% * * 08/01/97
Armada Small Cap Value Fund
Class A 12.59% 14.16% * 08/15/94
Class B 11.87% * * 01/06/98
Class C * * * 01/27/00
Class I 12.87% 14.58% * 07/26/94
Armada Tax Managed Equity Fund(2)
Class A 18.01% * * 05/11/98
Class B 16.95% * * 05/04/98
Class C * * * 01/10/00
Class I 18.06% * * 04/09/98
Armada Balanced Allocation Fund
Class A 15.48% * * 07/31/98
Class B 14.79% * * 11/11/98
Class C * * * 04/20/00
Class I 15.72% * * 07/10/98
Armada Bond Fund
Class A 0.05% 4.80% 6.74% 10/31/88
Class B -0.58% 4.03% * 02/04/94
Class C N/A N/A N/A N/A
Class I 0.35% 5.06% 6.96% 10/31/88
Armada GNMA Fund
Class A 2.33% * * 09/11/96
Class B * * * 08/11/99
Class C * * * 01/27/00
Class I 2.48% 5.85% * 08/10/94
</TABLE>
122
<PAGE>
<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS TEN YEARS INCEPTION DATE
-------- ---------- --------- --------------
<S> <C> <C> <C> <C>
Armada Intermediate Bond Fund
Class A 1.25% 4.44% * 04/15/91
Class B 0.64% * * 01/06/98
Class C * * * 05/30/00
Class I 1.50% 4.77% 6.88% 12/20/89
Armada Limited Maturity Bond Fund
Class A 3.47% 5.22% * 09/09/94
Class B * * * 08/11/99
Class C * * * 01/27/00
Class I 3.22% 5.27% * 07/07/94
Armada Total Return Advantage Fund
Class A 1.41% 5.30% * 09/06/94
Class B * * * 09/29/99
Class C N/A N/A N/A N/A
Class I 1.78% 5.63% * 07/07/94
Armada U.S. Government Income Fund(1)
Class A 1.96% 5.47% * 11/12/92
Class B 1.10% 4.68% * 02/04/94
Class C N/A N/A N/A N/A
Class I 2.26% 5.72% * 11/12/92
Armada Michigan Municipal Bond Fund(1)
Class A -0.68% 3.71% * 07/02/90
Class B -1.41% 2.94% * 02/04/94
Class C N/A N/A N/A N/A
Class I -0.42% 3.96% * 07/02/90
Armada National Tax Exempt Bond
Fund(3)
Class A -0.02% * * 06/22/98
Class B -1.05% * * 01/28/99
Class C * * * 02/24/00
Class I -0.24% * * 04/09/98
</TABLE>
123
<PAGE>
<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS TEN YEARS INCEPTION DATE
-------- ---------- --------- --------------
<S> <C> <C> <C> <C>
Armada Ohio Tax Exempt Bond Fund
Class A -0.51% 4.27% * 04/15/91
Class B N/A N/A N/A N/A
Class C N/A N/A N/A N/A
Class I -0.40% 4.30% 5.37% 01/05/90
Armada Pennsylvania Municipal Bond Fund
Class A -0.05% * * 09/11/96
Class B N/A N/A N/A N/A
Class C * * * 02/24/00
Class I -0.06% 4.08% * 08/10/94
</TABLE>
N/A Share class not offered as of May 31, 2000.
* Not in operation during the entire period.
(1) Total returns shown for the Mid Cap Growth, Large Cap Ultra, U.S.
Government Income and Michigan Municipal Bond Funds are those of the
corresponding Parkstone Continuing Funds. Not in operation during the
entire period.
(2) Does not include the history of a predecessor common trust fund which
commenced operations June 30, 1984.
(3) Does not include the history of a predecessor common trust fund which
commenced operations July 31, 1984.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to
shareholders, the performance of the Funds may be quoted and compared to that of
other mutual funds with similar investment objectives, to stock or other
relevant indices, to other investments or to rankings prepared by independent
services or other financial or industry publications that monitor the
performance of mutual funds. For example, the performance of the Funds may be
compared to data prepared by Lipper Analytical Services, Inc., a widely
recognized independent service which monitors the performance of mutual funds.
The performance of the Balanced Allocation Fund and the Equity Funds may also be
compared to data prepared by the S&P 500 Index, an unmanaged index of groups of
common stocks, the Consumer Price Index, or the Dow Jones Industrial Average, a
recognized unmanaged index of common stocks of 30 industrial companies listed on
the New York Stock Exchange. In addition, the performance of the International
Equity Fund may be compared to the Morgan Stanley Capital International Index or
the FT World Actuaries Index.
Performance data as reported in national financial
publications including, but not limited to, MONEY MAGAZINE, FORBES, BARRON'S,
THE WALL STREET JOURNAL and THE NEW YORK TIMES, or publications of a local or
regional nature may also be used in comparing the performance of the Funds. The
Money Market Funds may also be compared to the average yields reported by the
BANK RATE MONITOR for money market deposit accounts offered by the 50 leading
banks and thrift institutions in the top five standard metropolitan statistical
areas.
124
<PAGE>
Performance data will be calculated separately for each class
of shares of the Funds.
The performance of the Funds will fluctuate and any quotation
of performance should not be considered as representative of the future
performance of the Funds. Since yields fluctuate, yield data cannot necessarily
be used to compare an investment in a Fund's shares with bank deposits, savings
accounts and similar investment alternatives which often provide an agreed or
guaranteed fixed yield for a stated period of time. Shareholders should remember
that performance data are generally functions of the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any additional fees charged by institutions with respect to
accounts of customers that have invested in shares of a Fund will not be
included in performance calculations.
The portfolio managers of the Funds and other investment
professionals may from time to time discuss in advertising, sales literature or
other material, including periodic publications, various topics of interest to
shareholders and prospective investors. The topics may include but are not
limited to the advantages and disadvantages of investing in tax-deferred and
taxable investments; Fund performance and how such performance may compare to
various market indices; shareholder profiles and hypothetical investor
scenarios; the economy; the financial and capital markets; investment strategies
and techniques; investment products; and tax, retirement and investment
planning.
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.
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.
125
<PAGE>
As of December 3, 2000, the following persons owned of
record 5 percent or more of the shares of the Funds of the Trust:
<TABLE>
<CAPTION>
CORE EQUITY FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS B SHARES) SHARES OWNED
<S> <C> <C>
First Clearing Corporation 6,793.4780 5.27%
A/C 8406-2776
Trionix Research Lab Inc.
8037 Bavaria Road
Twinsburg, OH 44087-2261
</TABLE>
<TABLE>
<CAPTION>
CORE EQUITY FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS C SHARES) SHARES OWNED
<S> <C> <C>
SEI Trust Company CUST 290.2010 28.54%
Rollover IRA
John T. Botkins
26688 Lake of the Falls Blvd
Olmsted Falls, OH 44138-2609
First Clearing Corporation 192.3080 18.92%
A/C 2121-4057
Patricia Ann Cartmille &
Denise C. Costilow JT TEN
14351 Concord Trl
Middleburg Hts, OH 44130-7065
Bill Bartley 161.4180 15.88%
476 Baldwin Heights Cir
Howard, OH 43028-9505
SEI Trust Company CUST 154.0240 15.15%
IRA of FBO Donald J Rankin JR
3175 Lake Rockwell Rd.
Ravenna, OH 44266-8020
SEI Trust Company CUST 152.2540 14.98%
IRA of FBO Anna M Rankin
3175 Lake Rockwell Rd.
Ravenna, OH 44266-8020
</TABLE>
126
<PAGE>
<TABLE>
<CAPTION>
CORE EQUITY FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS I SHARES) SHARES OWNED
<S> <C> <C>
C/O National City Bank 7,783,686.3270 89.88%
Shelden & Co
Trust Mutual Funds
PO Box 94777
Cleveland, OH 44101-4777
Sheldon & Co. TTEE 536,307.2200 6.19%
c/o National City Bank
Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
</TABLE>
<TABLE>
<CAPTION>
EQUITY GROWTH FUND
(CLASS A SHARES) OUTSTANDING SHARES PERCENTAGE OF FUND
SHARES OWNED
<S> <C> <C>
State Street Bank & Trust TTEE 4,587,031.1210 75.24%
FBO First Energy Corp.
Savings Plan
DTD 7/1/98
105 Rosemont Ave. WES/IN
Westwood, MA 02090-2318
</TABLE>
<TABLE>
<CAPTION>
EQUITY GROWTH FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS C SHARES) SHARES OWNED
<S> <C> <C>
First Clearing Corporation 1,077.5650 10.50%
A/C 7081-0852
Ridgway Community Nurses Srvcs
ATTN: Lori MacDonald
20 North Broad Street
Ridgway, PA 15853-1002
First Clearing Corporation 589.6640 5.74%
A/C 4858-4008
Mary S. Kowtun IRA
FCC as Custodian
6417 Rousseau Drive
Parma, OH 44129-6306
First Clearing Corporation 645.2610 6.37%
A/C 4089-7903
Hart Road Pathology SC PS
FBO Dr. James Larson
1205 Main Street
Cross Plains, WI 53528-9479
</TABLE>
127
<PAGE>
<TABLE>
<S> <C> <C>
First Clearing Corporation 850.4610 8.28%
A/C 6490-8961
Homer M. Osborne IRA
FCC as Custodian
5 Patricia St
Charleroi, PA 15022-9439
First Clearing Corporation 5,057.6710 49.27%
A/C 1294-3972
Robert Henry Baker Jr IRA
FCC as Custodian
834 Georgiana St
Port Angeles, WA 98362-3512
</TABLE>
<TABLE>
<CAPTION>
EQUITY GROWTH FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS I SHARES) SHARES OWNED
<S> <C> <C>
National City Bank 13,438,241.3180 32.72%
ATTN Trust Mutual Funds
PO Box 94984
Cleveland, OH 44101-4984
Sheldon & Co. (Cash/Reinv) 12,110,579.558 29.48%
C/o National City Bank
ATTN: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Sheldon & Co. 6,085,232.7230 14.81%
P.O. Box 94984
ATTN: Trust Mutual Funds
Cleveland, OH 44101-4984
C/O National City Bank 8,190,088.0790 19.94%
Shelden & Co.
Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
</TABLE>
<TABLE>
<CAPTION>
EQUITY INCOME FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS C SHARES) SHARES OWNED
<S> <C> <C>
SEI Trust Company 2,992.9840 38.44%
Cust for the Rollover IRA of
Wallace Strickland
3337 E. 149th St
Cleveland, OH 44128
</TABLE>
128
<PAGE>
<TABLE>
<S> <C> <C>
First Clearing Corporation 1,985.2170 25.50%
A/C 7081-0852
Ridgway Community Nurses Srvcs
ATTN: Lori MacDonald
20 North Broad Street
Ridgway, PA 15853-1002
First Clearing Corporation 627.0870 8.05%
A/C 4858-4008
Mary S. Kowtun IRA
FCC as Custodian
6417 Rousseau Dr
Parma, OH 44129-6306
First Clearing Corporation 977.171 12.55%
A/C 7194-4927
Wayne A. Ruhlman IRA R/O
FCC as Custodian
4376 Porter Road
North Olmsted, OH 44070-2520
First Clearing Corporation 651.3880 8.37%
A/C 7974-6105
Gregory S. Spudic and
Rebecca D Spudic
10434 Starboard Way
Indianapolis, IN 46256-9514
</TABLE>
<TABLE>
<CAPTION>
EQUITY INCOME FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS I SHARES) SHARES OWNED
<S> <C> <C>
Sheldon & Co. (Reinv) 14,957,554.3190 37.25%
Attn: Trust Mutual Funds
Account #10023342
P.O. Box 94777
Cleveland, OH 44101-4777
Sheldon & Co. 8,358,106.4280 20.82%
Attn: Trust Mutual Funds
P.O. Box 94984
Cleveland, OH 44101-4984
Sheldon & Co. (Cash/Reinv) 13,010,021.5960 32.40%
c/o National City Bank
Attn: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
</TABLE>
129
<PAGE>
<TABLE>
<S> <C> <C>
National City Bank 2,280,055.4310 5.68%
ATTN Trust Mutual Funds
PO Box 94984
Cleveland, OH 44101-4984
</TABLE>
<TABLE>
<CAPTION>
EQUITY INDEX FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS A SHARES) SHARES OWNED
<S> <C> <C>
First Clearing Corporation 44,175.9560 6.42%
A/C 6956-888
Dr. Frank Radosevich IRA
FCC as Custodian
5632 N. Isabell
Peoria, IL 61614-4135
</TABLE>
<TABLE>
<CAPTION>
EQUITY INDEX FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS B SHARES) SHARES OWNED
<S> <C> <C>
S & H Machine Product Inc. PSP 4,671.1440 6.36%
Stanimir M. Vitkovic
6180 West Smith Road
Medina, OH 44256-8949
First Clearing Corporation 8,076.7870 11.00%
A/C 8406-2776
Trionix Research Lab Inc
8037 Bavaria Road
Twinsburg, OH 44087-2261
First Clearing Corporation 4,033.0590 5.49%
A/C 5236-4538
James T. Lange IRA R/O
FCC as Custodian
5197 E. Farnhurst
Lyndhurst, OH 44124-1237
First Clearing Corporation 7,213.0090 9.83%
A/C 3672-7085
Kevin J Gray TTEE
FBO Kevin J Gray Trust
410 Ryder Road
Toledo, OH 43607-3106
First Clearing Corporation 3,988.690 5.43%
A/C 8887-2618
Paul Yacobian IRA
FCC as Custodian
6759 Winward Hills
Brecksville, OH 44141-2469
</TABLE>
130
<PAGE>
<TABLE>
<CAPTION>
EQUITY INDEX FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS C SHARES) SHARES OWNED
<S> <C> <C>
First Clearing Corporation 7,996.0360 21.91%
A/C 5911-3463
Lyman F. Narten IRA R/O
FCC as Custodian
15155 Heritage Lane
Chagrin Falls, OH 44022-2674
First Clearing Corporation 3,304.8000 9.06%
A/C 8645-8446
Ronald W. Watt
127 Public Sq #5200
Cleveland, OH 44114-1216
First Clearing Corporation 1,931.0950 5.29%
A/C 6785-6053
John Potochick
10889 Gordon Drive
Parma, OH 44130-5142
First Clearing Corporation 2,661.3760 7.29%
A/C 6835-6607
Betty J. Powers IRA R/O
FCC as Custodian
9838 Burton Dr.
Twinsburg, OH 44087-3206
First Clearing Corporation 9,624.5000 26.37%
A/C 4509-9613
Industrial Power Systems, Inc.
ATTN: Ron Keister &
410 Ryder Road
Toledo, OH 43607-3106
</TABLE>
<TABLE>
<CAPTION>
EQUITY INDEX FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS I SHARES) SHARES OWNED
<S> <C> <C>
Sheldon & Co. (Reinv) 6,262,138.0200 23.45%
Attn: Trust Mutual Funds
Account #1023342
P.O. Box 94777
Cleveland, OH 44101-4777
Sheldon & Co. TTEE 1,875,012.9660 7.02%
C/O National City Bank
Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
</TABLE>
131
<PAGE>
<TABLE>
<S> <C> <C>
Sheldon & Co. (Cash/Reinv) 1,622,303.4820 6.08%
c/o National City Bank
Attn: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
National City Bank 16,055,917.1500 60.14%
ATTN Trust Mutual Funds
PO Box 94984
Cleveland, OH 44101-4984
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS C SHARES) SHARES OWNED
<S> <C> <C>
First Clearing Corporation 1,141.8370 8.59%
A/C 8327-1306
Janyce K White SEP IRA
FCC As Custodian
P.O. Box 831
Logansport, IN 46947-0831
First Clearing Corporation 2,774.0320 20.87%
A/C 2125-0724
Keven Crawford IRA
FCC as Custodian
216 Ledgewood Dr.
Fond Du Lac, WI 54935-7621
Winamac, IN 46996
First Clearing Corporation 692.6090 5.21%
A/C 1147-1851
Michael C Anderson
4301 East Market
PO Box 179
Logansport, IN 46947-0179
First Clearing Corporation 670.8570 5.05%
A/C 7081-0852
Ridgway Community Nurses Srvcs
ATTN: Lori MacDonald
20 North Broad Street
Ridgway, PA 15853-1002
First Clearing Corporation 1,360.5290 10.24%
A/C 8645-8446
Ronald W Watt
127 Public Sq #5200
Cleveland, OH 44114-1216
</TABLE>
132
<PAGE>
<TABLE>
<S> <C> <C>
First Clearing Corporation 1,259.5110 9.48%
A/C 4824-4290
John P Klingbeil &
Georgann Klingbeil
26924 Westwood Lane
Olmsted Falls, OH 44138-1159
First Clearing Corporation 1,196.3010 9.00%
A/C 6604-3812
Janet M. Reed IRA
FCC as Custodian
330 Haney Avenue
Logansport, IN 46947-2118
First Clearing Corporation 1,261.1050 9.49%
A/C 1294-3972
Robert Henry Baker Jr IRA
FCC as Custodian
834 Georgiana St
Port Angeles, WA 98362-3512
First Clearing Corporation 1,066.5620 8.03%
A/C 2144-8605
Thomas L Curry JR IRA R/O
FCC as Custodian
20571 Ellacott Pkway #527
Cleveland, OH 44128-4457
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS I SHARES) SHARES OWNED
<S> <C> <C>
Sheldon & Co. (Reinv) 18,617,165.8250 37.06%
Attn: Trust Mutual Funds
Account #100023342
P.O. Box 94777
Cleveland, OH 44101-4777
Sheldon & Co. TTEE 19,135,075.7480 38.09%
C/o National City Bank
Trust Mutual Fds
P.O. Box 94984
Cleveland, OH 44101-4984
National City Bank 8,665,159.7300 17.25%
C/o Sheldon & Co.
Trust Mutual Fds
P.O. Box 94777
Cleveland, OH 44101-4777
</TABLE>
133
<PAGE>
<TABLE>
<CAPTION>
LARGE CAP ULTRA FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS A SHARES) SHARES OWNED
<S> <C> <C>
Soy Capital AG Services & Trust Co 67,438.6020 6.77%
455 N. Main Street
Decatur, IL 62523-1103
</TABLE>
<TABLE>
<CAPTION>
LARGE CAP ULTRA FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS C SHARES) SHARES OWNED
<S> <C> <C>
First Clearing Corporation 116.3080 40.18%
A/C 1208-9952
Arzon & Fior Profit Sharing PL
Mayra Arzon & Carlos Fior TTEE
101 Benton Dr
Decatur, IL 62526-1407
Elk County Tool & Die Inc. 29.7450 10.27%
David J Gleixner
121 Timberline Rd.
St. Mary's, PA 15857
Robin D Haffa Cust 26.6520 9.21%
FBO Taylor N Haffa Wilson UTMA-O
7690 Manor Dr
Mentor, OH 44060-3357
Elk County Tool & Die Inc 24.7880 8.56%
Craig S Schloder
RR # 1, Box 313A
Emporium, PA 15834
</TABLE>
<TABLE>
<CAPTION>
LARGE CAP ULTRA FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS I SHARES) SHARES OWNED
<S> <C> <C>
Sheldon & Co (Reinv) 5,814,720.5280 42.84%
ATTN: Trust Mutual Funds
Account #10023342
P.O. Box 94777
Cleveland, OH 44101-4777
Sheldon & Co TTEE 4,728,011.0160 34.83%
C/o National City Bank
Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
</TABLE>
134
<PAGE>
<TABLE>
<S> <C> <C>
National City Bank 1,365,667.7990 10.06%
C/O Sheldon & Co
Trust Mutual Fds
PO Box 94777
Cleveland, OH 44101-4777
National City Bank 1,106,163.0820 8.15%
ATTN Trust Mutual Funds
PO Box 94984
Cleveland, OH 44101-4984
</TABLE>
<TABLE>
<CAPTION>
MID CAP GROWTH FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS C SHARES) SHARES OWNED
<S> <C> <C>
First Clearing Corporation 680.2720 27.85%
A/C 4195-9354
Dennis Holderfield IRA R/O
FCC as Custodian
5889 Ruple PKWY
Brookpark, OH 44142-1038
First Clearing Corporation 222.4200 9.11%
A/C 1888-7267
Gail J Bryan
William George Bryan JT Ten
6755 State Route 5
Ravenna, OH 44266-9205
First Clearing Corporation 218.2400 8.93%
A/C 3956-2416
William N Hackeny IRA R/O
FCC as Custodian
6720 Newton Falls Rd
Ravenna, OH 44266-8731
SEI Trust Company 178.0200 7.29%
Cust for the IRA of
FBO Donald J Rankin Jr
3175 Lake Rockwell Rd.
Ravenna, OH 44266-8731
SEI Trust Company 175.9780 7.20%
Cust for the IRA of
FBO Anna M Rankin
3175 Lake Rockwell Rd.
Ravenna, OH 44266-8731
</TABLE>
135
<PAGE>
<TABLE>
<S> <C> <C>
First Clearing Corporation 152.8900 6.26%
A/C 1208-9952
Arzon & Fior Profit Sharing Pl
Mayra Arzon & Carlos Fiol TTEE
101 Benton Dr.
Decatur, IL 62526-1407
SEI Trust Company 149.1260 6.11%
Cust for the Rollover IRA of
John T Botkins
26688 Lake of the Falls Blvd
Olmsted Falls, OH 44138-2609
SEI Trust Company CUST 136.1470 5.57%
Roth Contribution IRA
Benjamin Yanto
5621 Liberty Creek Dr. West
Indianapolis, IN 46254-1037
</TABLE>
<TABLE>
<CAPTION>
MID CAP GROWTH FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS I SHARES) SHARES OWNED
<S> <C> <C>
National City Bank 6,091,394.1860 35.66%
ATTN Trust Mutual Funds
PO Box 94984
Cleveland, OH 44101-4984
Sheldon & Co (Reinv) 5,349,131.5420 31.31%
ATTN: Trust Mutual Funds
Account #10023342
P.O. Box 94777
Cleveland, OH 44101-4777
Sheldon & Co TTEE 3,815,098.4710 22.33%
C/o National City Bank
ATTN: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
National City Bank 1,550,005.6760 9.07%
C/O Sheldon & Co
Trust Mutual Funds
PO Box 94777
Cleveland, OH 44101-4777
</TABLE>
136
<PAGE>
<TABLE>
<CAPTION>
SMALL CAP GROWTH FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS C SHARES) SHARES OWNED
<S> <C> <C>
First Clearing Corporation 1,041.3380 10.78%
A/C 7081-0852
Ridgeway Community Nurses Srvcs
ATTN: Lori MacDonald
20 North Broad Street
Ridgway, PA 15853-1002
First Clearing Corporation 643.8910 6.67%
A/C 7194-4927
Wayne A. Ruhlman IRA R/O
FCC as Custodian
4376 Porter Road
North Olmsted, OH 44070-2520
First Clearing Corporation 1,311.1030 13.57%
A/C 4089-7903
Hart Road Pathology SC PS
FBO Dr. James Larson
1205 Main Street
Cross Plains, WI 53528-9479
First Clearing Corporation 780.1900 8.08%
A/C 4089-7905
Hart Road Pathology SC PS
FBO Dr. James Larson
1205 Main Street
Cross Plains, WI 53528-9479
First Clearing Corporation 1,270.6570 13.16%
A/C 1294-3972
Robert Henry Baker Jr IRA
FCC as Custodian
834 Georgiana St
Port Angeles, WA 98362-3512
First Clearing Corporation 1,590.3310 16.47%
A/C 3978-1578
William H Hassall IRA
FCC as Custodian
207 Guy St
Walbridge, OH 43465-1126
Brian Goedken 647.1490 6.70%
Jill Goedken
PO Box 5184
145 Casablanca
Doha Qatar
</TABLE>
137
<PAGE>
<TABLE>
<CAPTION>
SMALL CAP GROWTH FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS I SHARES) SHARES OWNED
---------------------
<S> <C> <C>
Sheldon & Co (Reinv) 6,665,508.9360 28.19%
Attn: Trust Mutual Funds
Acccount #10023342
P.O. Box 94777
Cleveland, OH 44101-4777
Sheldon & Co. TTEE 7,940,907.2990 33.59%
c/o National City Bank
Trust Mutual Fds
P.O. Box 94984
Cleveland, OH 44101-4984
National City Bank 3,985,519.1210 16.86%
c/o Sheldon & Co
Trust Mutual FDS
P.O. Box 94777
Cleveland, OH 44101-4777
SMALL CAP VALUE FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS B SHARES) SHARES OWNED
--------------------
First Clearing Corporation 2,918.6850 5.35%
A/C 5072-0540
Judith E. Lewis IRA R/O
FCC as Custodian
1800 W. Wallings Road
Broadview Hts., OH 44147-1137
SMALL CAP VALUE FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS C SHARES) SHARES OWNED
--------------------
First Clearing Corporation 798.9290 16.18%
A/C 7081-0852
Ridgway Community Nurses Srvcs
ATTN: Lori MacDonald
20 North Broad Street
Ridgway, PA 15853-1002
First Clearing Corporation 1,282.8840 25.98%
A/C 4089-7903
Hart Road Pathology SC PS
FBO Dr. James Larson
1205 Main St
Cross Plains, WI 53528-9479
</TABLE>
138
<PAGE>
<TABLE>
<S> <C> <C>
First Clearing Corporation 762.5910 15.44%
A/C 4089-7905
Hart Road Pathology SC PS
FBO Dr. James Larson
1205 Main St
Cross Plains, WI 53528-9479
First Clearing Corporation 1,647.2200 33.36%
A/C 6490-8961
Homer M. Osborne IRA
FCC as Custodian
5 Patricia St.
Charleroi, PA 15022-9439
First Clearing Corporation 311.1390 6.30%
A/C 4195-9354
Dennis Holderfield IRA R/O
FCC as Custodian
5889 Ruple Pkwy
Brookpark, OH 44142-1038
SMALL CAP VALUE FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS I SHARES) SHARES OWNED
--------------------
Sheldon & Co. (Reinv) 9,465,755.1750 38.30%
Attn: Trust Mutual Funds
Account #100023342
P.O. Box 94777
Cleveland, OH 44101-4777
Sheldon & Co. 7,604,080.4220 30.77%
P.O. Box 94984
ATTN: Trust Mutual Funds
Cleveland, OH 44101-4984
Sheldon & Co. (Cash/Reinv) 3,125,168.9130 12.65%
C/o National City Bank
ATTN: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4984
TAX MANAGED EQUITY OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS A SHARES) SHARES OWNED
------------------
NFSC FEBO #Z41-257923 79,923.4880 5.80%
Allison P. Vanhartesveldt
3141 N. Quincy St.
Arlington, VA 22207-4144
</TABLE>
139
<PAGE>
<TABLE>
<CAPTION>
TAX MANAGED EQUITY FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS C SHARES) SHARES OWNED
-----------------------
<S> <C> <C>
First Clearing Corporation 3,925.7670 7.60%
A/C 2809-5755
Florence Dixon
P.O. Box 119
Cooksburg, PA 16217-0119
First Clearing Corporation 7,793.4590 15.08%
A/C 8650-9893
Maryla F. White
1313 Lance Drive
Louisville, KY 40216-3930
First Clearing Corporation 3,199.8580 6.19%
A/C 5810-3405
Margaret M Meder
6513 Denison Blvd.
Parma Hts, OH 44130-4104
First Clearing Corporation 2,932.5510 5.68%
A/C 3281-7977
Edward Folkman
Carol Folkman
7897 Oakhurst Drive
Brecksville, OH 44141-1123
First Clearing Corporation 7,331.3780 14.19%
A/C 6108-1699
Kenneth A. Otto &
Merilee W. Otto
1710 Rood Point Road
Muskegon, MI 49441-4849
First Clearing Corporation 2,795.2480 5.41%
A/C 6960-1719
Piertro Ragone Trust
Domenico Ragone TTEE
3321 Friar Drive
Parma, OH 44134-5518
First Clearing Corporation 2,768.1660 5.36%
A/C 5311-9558
Linda M. Lupear
2919 N County Rd 425 E
Danville, IN 46122-8383
</TABLE>
140
<PAGE>
<TABLE>
<CAPTION>
TAX MANAGED EQUITY FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS I SHARES) SHARES OWNED
-----------------------
<S> <C> <C>
Sheldon & Co TTEE 8,372,373.1960 48.27%
C/O National City Bank
Trust Mutual Fds
P.O. Box 94777
Cleveland, OH 44101-4777
Sheldon & Co. TTEE 8,344,283.9110 48.11%
C/O National City Bank
P.O. Box 94777
ATTN: Trust Mutual Funds
Cleveland, OH 44101-4777
BALANCED ALLOCATION FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS C SHARES) SHARES OWNED
------------------------
SEI Trust Company 116.3840 37.06%
Cust for the IRA of
FBO Karen Sherer
2113 Wilkes Way
Lexington, KY 40505-4847
SEI Trust Company Cust 188.0050 59.87%
Roth Contribution IRA
Thomas D. Keller
14422 Orchard Park Avenue
Cleveland, OH 44111-2115
BALANCED ALLOCATION FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS I SHARES) SHARES OWNED
------------------------
National City Bank 13,200,114.5940 73.22%
ATTN Trust Mutual Funds
PO Box 94984
Cleveland, OH 44101-4984
Sheldon & Co. TTEE 984,813.8900 5.46%
C/o National City Bank
P.O. Box 94777
Cleveland, OH 44101-4777
Sheldon & Co. (Reinv) 3,611,497.4940 20.03%
Attn: Trust Mutual Funds
Account #10023342
P.O. Box 94777
Cleveland, OH 44101-4777
</TABLE>
141
<PAGE>
<TABLE>
<CAPTION>
BOND FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS A SHARES) SHARES OWNED
----------------
<S> <C> <C>
Soy Capital AG Services & Trust Co 144,892.3840 14.52%
455 N Main St
Decatur IL 62523-1103
BOND FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS C SHARES) SHARES OWNED
----------------
First Clearing Corporation 3,717.0620 99.70%
A/C 7081-0852
Ridgway Community Nurses Srvcs
ATTN: Lori MacDonald
20 North Broad Street
Ridgway, PA 15853-1002
BOND FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS I SHARES) SHARES OWNED
----------------
Sheldon & Co. (Cash/Reinv) 34,996,402.4960 37.44%
c/o National City Bank
Attn: Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
C/O National City Bank 24,962,304.6580 26.70%
Shelden & Co
Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Sheldon & Co. 19,816,156.6120 21.20%
P.O. Box 94984
Attn: Trust Mutual Funds
Cleveland, OH 44101-4777
National City Bank 12,830,608.8700 13.73%
Attn: Trust Mutual Funds
P.O. Box 94984
Cleveland, OH 44101-4984
</TABLE>
142
<PAGE>
<TABLE>
<CAPTION>
GNMA FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS A SHARES) SHARES OWNED
----------------
<S> <C> <C>
Schweizer Dipple Inc 401K Plan 9,960.1680 7.27%
Dennis J Clark, Sr.
ATTN; Lynn E. Ulrich
Personal and Confidential
7227 Division Street
Oakwood Village, OH 44146-5405
Helen M Weyer 7,518.6270 5.49%
James N Weyer JR JTTEN
2600 Mohawk Drive
White Oak, PA 15131-3121
Post & Co A/C #356678 7,454.9640 5.44%
C/O The Bank of New York
ATTN: Mutual Funds/Reorg Dept
P.O. Box 1066 Wall St Sta
New York, NY 10286
GNMA FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS B SHARES) SHARES OWNED
----------------
First Clearing Corporation 4,240.3700 28.06%
A/C 6379-0631
Jane Obodzinski
1205 Brookpark Raod
Cleveland, OH 44109-5827
Shore West Construction 401(k) Plan 2,232.4920 14.77%
Kenneth M. Sokol
Attn: Barbara Beyer
Personal and Confidential
23826 Lorain Rd
North Olmsted, OH 44070-2226
Shore West Construction 401(k) Plan 1,801.4790 11.92%
Audrey M. Sokol
Attn: Barbara Beyer
Personal and Confidential
23826 Lorain Rd
North Olmsted, OH 44070-2226
First Clearing Corporation 2,086.9540 13.81%
A/C 5810-3405
Margaret M. Meder
6513 Dennison Blvd.
Parma Heights, OH 44130-4104
</TABLE>
143
<PAGE>
<TABLE>
<S> <C> <C>
First Clearing Corporation 1,037.1070 6.86%
A/C 2054-0408
Clifton Christian Church
ATTN: Elliott Morris
131 Vernon Avenue
Louisville, KY 40206-2036
First Clearing Corporation 1,593.6440 10.54%
A/C 4176-6737
Doris J Hoel IRA
FCC as Custodian
13646 Crestway Dr.
Brookpark, OH 44142-2656
First Clearing Corporation 1,128.4240 7.47%
A/C 7782-3187
Robert L Scarbro IRA R/O
FCC as Custodian
4763 Brookhigh Dr
Brooklyn, OH 44144-3158
GNMA FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS C SHARES) SHARES OWNED
----------------
First Clearing Corporation 1,557.6670 18.36%
A/C 7081-0852
Ridgway Community Nurses Srvcs
ATTN: Lori MacDonald
20 North Broad Street
Ridgway, PA 15853-1002
First Clearing Corporation 4,843.4360 57.08%
A/C 5810-3405
Margaret M Meder
6513 Dennison Blvd
Parma Heights, OH 44130-4104
First Clearing Corporation 1,017.6670 11.99%
A/C 8763-2694
Stanley Woo SEP IRA
FCC as Custodian
3448 W 99th St
Cleveland, OH 44102-4614
First Clearing Corporation 1,056.1080 12.45%
A/C 4568-3896
Robert A Joyce IRA
FCC as Custodian
4709 Wetzel Avenue
Cleveland, OH 44109-5351
</TABLE>
144
<PAGE>
<TABLE>
<CAPTION>
GNMA FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS I SHARES) SHARES OWNED
----------------
<S> <C> <C>
C/o National City Bank 1,323,510.0270 10.47%
Shelden & Co.
Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Sheldon & Co. TTEE 8,598,231.0440 68.03%
C/O National City Bank
Trust Mutual Funds
P.O. Box 94984
Cleveland, OH 44101-4984
National City Bank 2,639,076.1060 20.88%
C/O Sheldon & Co.
Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
INTERMEDIATE BOND FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS B SHARES) SHARES OWNED
----------------------
First Clearing Corporation 16,295.0320 11.54%
A/C 1202-4114
Eugene Arrigoni IRA
FCC as Custodian
4101 Grady Smith Road
Loganville, GA 30052-3650
INTERMEDIATE BOND FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS C SHARES) SHARES OWNED
----------------------
SEI Trust Company 4,723.0330 27.11%
Cust for the Rollover IRA of
Wallace Strickland
3337 E 149th Street
Cleveland, OH 44120-4237
</TABLE>
145
<PAGE>
<TABLE>
<S> <C> <C>
First Clearing Corporation 12,690.6140 72.83%
A/C 1294-3972
Robert Henry Baker Jr IRA
FCC as Custodian
834 Georgiana St
Port Angeles, WA 98362-3512
INTERMEDIATE BOND FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS I SHARES) SHARES OWNED
----------------------
Sheldon & Co. (Reinv) 3,658,371.0290 10.53%
Attn: Trust Mutual Funds
Account #10023342
P.O. Box 94984
Cleveland, OH 44101-4984
Sheldon & Co. 13,014,311.6550 37.44%
P.O. Box 94984
Attn: Trust Mutual Funds
Cleveland, OH 44101-4984
Sheldon & Co. 11,439,258.4100 32.91%
Attn: Trust Mutual Funds
P.O. Box 94984
Cleveland, OH 44101-4984
SEI Trust Company 4,597,431.4160 13.23%
Attn: Mutual Fund Adminstrator
One Freedom Valley Drive
Oaks, PA 19456
LIMITED MATURITY BOND FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS A SHARES) SHARES OWNED
--------------------------
Soy Capital AG Services & Trust Co 68,030.6270 12.21%
455 N. Main St
Decatur IL 62523-1103
LIMITED MATURITY BOND FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS B SHARES) SHARES OWNED
--------------------------
Shore West Construction 401(k) Plan 4,476.2620 6.14%
Gary Scothon
Attn: Barbara Beyer
Personal and Confidential
23826 Lorain Rd
North Olmsted, OH 44070-2226
</TABLE>
146
<PAGE>
<TABLE>
<S> <C> <C>
First Clearing Corporation 4,412.9010 6.06%
A/C 4753-9962
Larry D. Kiefer IRA R/O
FCC as Custodian
RR 2 Box 118
Gridley, IL 61744-9304
First Clearing Corporation 4,257.0810 5.84%
A/C 6379-0631
Jane F. Obodzinski
1205 Brookpark Road
Cleveland, OH 44109-5827
First Clearing Corporation 3,960.7070 5.44%
A/C 4296-9582
C Edward Howerton
4721 Willowbrook Lane
Decatur, IL 62521-4266
Truck Equipment & Bod Co., Inc. 3,838.9080 5.27%
Robert White
3343 Shelby Street
Indianapolis, IN 46227
LIMITED MATURITY BOND FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS C SHARES) SHARES OWNED
--------------------------
First Clearing Corporation 1,530.2970 99.31%
A/C 7081-0852
Ridgway Community Nurses Svcs
Attn: Lori MacDonald
20 North Broad Street
Ridgway, PA 15853-1002
LIMITED MATURITY BOND FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS I SHARES) SHARES OWNED
--------------------------
Sheldon & Co. 9,173,107.8300 48.06%
Future Quest
c/o National City Bank
Attn: Trust Mutual Funds/01-999999774
P.O. Box 94984
Cleveland, OH 44101-4984
Sheldon & Co. (Reinv) 6,909,245.4720 36.20%
Future Quest
c/o National City Bank
Attn: Trust Mutual Funds/01-999999774
P.O. Box 94777
Cleveland, OH 44101-4777
</TABLE>
147
<PAGE>
<TABLE>
<S> <C> <C>
National City Bank 1,300,508.4830 6.81%
ATTN: Trust Mutual Funds
PO Box 94984
Cleveland, OH 44101-4984
Sheldon & Co. TTEE 1,237,430.7020 6.48%
Future Quest
c/o National City Bank
Attn: Trust Mutual Funds/01-999999774
P.O. Box 94777
Cleveland, OH 44101-4777
TOTAL RETURN ADVANTAGE FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS A SHARES) SHARES OWNED
---------------------------
First Clearing Corporation 28,812.4870 23332.04%
A/C 3563-2971
Eric a Glende Jr IRA
FCC as Custodian
1029 Brainard Rd
Highland Hts OH 44143-3109
TOTAL RETURN ADVANTAGE FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS B SHARES) SHARES OWNED
---------------------------
First Clearing Corporation 2,461.0470 68.49%
A/C 3816-3066
Claude Hall IRA
FCC as Custodian
416 Skylark Drive
Winchester, KY 40391-2902
First Clearing Corporation 1,033.0580 28.75%
A/C 4155-6883
Rheta P Histed
Tod Franklin T Histed
2525 N Alamando Rd
Coleman, MI 48618-9732
TOTAL RETURN ADVANTAGE FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS C SHARES) SHARES OWNED
---------------------------
SEI Trust Company 155.4480 93.57%
Cust for the SEP IRA of
Eugene T Nahra
1616 Jacqueline Dr
Parma OH 44134-6848
</TABLE>
148
<PAGE>
<TABLE>
<S> <C> <C>
SEI Investments Co 10.6910 6.43%
Attn: Rob Silverstri
One Freedom Valley Drive
Oaks, PA 19456
TOTAL RETURN ADVANTAGE FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS I SHARES) SHARES OWNED
---------------------------
Sheldon & Co. (Reinv) 17,613,338.8630 47.90%
Attn: Trust Mutual Funds
P.O. Box 94984
Cleveland, OH 44101-4984
Sheldon & Co. 8,284,854.4310 22.53%
P.O. Box 94777
Attn: Trust Mutual Funds
Cleveland, OH 44101-4777
Sheldon & Co. TTEE 7,073,714.8530 19.24%
C/O National City Bank
P.O. Box 94777
Attn: Trust Mutual Funds
Cleveland, OH 44101-4777
U.S. GOVERNMENT INCOME FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS A SHARES) SHARES OWNED
---------------------------
Soy Capital AG Services & Trust Co 172,917.8990 10.36%
455 N. Main Street
Decatur, IL 62523-1103
U.S. GOVERNMENT INCOME FUND
(CLASS C SHARES)
---------------------------
First Clearing Corporation 1,734.7030 99.34%
A/C 3978-1578
William H Hassall IRA
FCC as Custodian
207 Guy St
Walbridge, OH 43465-1126
</TABLE>
149
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT INCOME FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS I SHARES) SHARES OWNED
---------------------------
<S> <C> <C>
Sheldon & Co. TTEE 10,717,184.1270 72.60%
c/o National City Bank
Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
Sheldon & Co. (Reinv) 1,538,268.5670 10.42%
Attn: Trust Mutual Funds
Account #10023342
P.O. Box 94777
Cleveland, OH 44101-4777
National City Bank 1,277,521.5170 8.65%
Attn: Trust Mutual Funds
P.O. Box 94984
Cleveland, OH 44101-4984
National City Bank 1,083,663.6450 7.34%
c/o Sheldon & Co.
Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
MICHIGAN MUNICIPAL BOND FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS B SHARES) SHARES OWNED
----------------------------
First Clearing Corporation 15,485.1100 9.88%
A/C 1474-8811
Marion E. Belloni
27715 Alger Lane
Madison Heights, MI 48071-4523
First Clearing Corporation 10,006.6300 6.39%
A/C 6338-8396
Betty May Nicholas
866 Dursley
Bloomfield, MI 48304-2010
First Clearing Corporation 9,496.6760 6.06%
A/C 8304-7634
Emily T. Wheeler TTEE
Emily T. Wheeler Trust
1632 Tawas Beach Road
East Tawas, MI 48730-9330
</TABLE>
150
<PAGE>
<TABLE>
<S> <C> <C>
First Clearing Corporation 9,155.7770 5.84%
A/C 6852-6451
Marylee A. Roven &
Sheryl C Roven
13644 Wesley
Southgate, MI 48195-1719
MICHIGAN MUNICIPAL BOND FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS C SHARES) SHARES OWNED
----------------------------
SEI Investments Co 9.4880 100.0%
ATTN Rob Silvestri
1 Freedom Valley Road
Oaks, PA 19456
MICHIGAN MUNICIPAL BOND FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS I SHARES) SHARES OWNED
----------------------------
Sheldon & Co. (Reinv) 1,497,626.6090 10.70%
Attn: Trust Mutual Funds
Account #10023342
P.O. Box 94777
Cleveland, OH 44101-4777
Sheldon & Co. TTEE 12,243,525.9380 87.52%
c/o National City Bank
Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
NATIONAL TAX EXEMPT BOND FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS A SHARES) SHARES OWNED
-----------------------------
First Clearing Corporation 359,748.3510 49.76%
A/C 1143-7442
Bill Anest
400 S. Curran
Grayslake, IL 60030-9202
First Clearing Corporation 57,646.3570 7.97%
A/C 1750-2503
Edward B Brandon &
Phyllis P Brandon JTWROS
Lakepoint Office Parkt Ste 470
3201 Enterprise Parkway
</TABLE>
151
<PAGE>
<TABLE>
<CAPTION>
NATIONAL TAX EXEMPT BOND FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS B SHARES) SHARES OWNED
<S> <C> <C>
Harlan Hawkins & 13,420.2570 27.72%
Mark Hawkins TTEE
U/A DTD May 21, 1992
Cecil C Hawkins Trust
4412 George Ave
Cortland IL 60112
LPL Financial Service 6,054.9190 12.51%
AC 1476-8134
9785 Towne Centre Drive
San Diego, CA 92121-1968
First Clearing Corporation 5,271.1630 10.89%
A/C 5482-0768
Theodore R. McDonald &
Rose Ann McDonald
7712 St. Bernard Ct.
Louisville, KY 40291-2462
First Clearing Corporation 4,702.5410 9.71%
A/C 2099-9089
James E. Chenault &
Judith E. Chenault
8609 Cool Brook Ct.
Louisville, KY 40291-1501
First Clearing Corporation 2,728.1460 5.63%
A/C 3132-5861
Anne B Farkas and
Robert S Farkas
279 S Oakland Ave
Sharon, PA 16146-4049
First Clearing Corporation 2,634.0810 5.44%
A/C 6708-7889
Dorothy K Riley TTEE
Dorothy and Lester Riley Trust
5 Locust Hl
Crawfordsville, IN 47933-3347
Theodore H Stein 2,508.4190 5.18%
And Dolores A Stein JTWROS
153 Kingsbridge
Bristol TN 37620-2957
</TABLE>
152
<PAGE>
<TABLE>
<CAPTION>
NATIONAL TAX EXEMPT BOND FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS C SHARES) SHARES OWNED
<S> <C> <C>
First Clearing Corporation 9,336.0860 99.89%
A/C 2146-8768
P Brian Coleman
RR #1
PO Box 254
Flemingsburg, KY 41041-0254
</TABLE>
<TABLE>
<CAPTION>
NATIONAL TAX EXEMPT BOND FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS I SHARES) SHARES OWNED
<S> <C> <C>
Sheldon & Co. TTEE 13,033,539.5790 82.53%
c/o National City Bank
Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
National City Bank 1,874,216.7010 11.87%
c/o Sheldon & Co.
Trust Mutual Funds
P.O. Box 94777
Cleveland, OH 44101-4777
</TABLE>
<TABLE>
<CAPTION>
OHIO TAX EXEMPT BOND FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS A SHARES) SHARES OWNED
<S> <C> <C>
Evern Securities 28,219.4520 5.53%
C/O BNY Clearing Services Cust FBO
FFC Ellen Stirn MAVEC S/D IRA UA
A/C OL58-4485-3981
111 E. Kilbourn Ave
Milwaukee, WI 53202-6611
First Clearing Corporation 52,435.1170 10.28%
A/C 1528-5380
David J. Beverly &
Pamela C. Beverly
1128 Laguna Drive
Huron, OH 44839-2605
First Clearing Corporation 46,966.2530 9.21%
A/C 1548-8990
William D. Bird
7617 Bellflower Rd
Mentor, OH 44060-3950
153
<PAGE>
First Clearing Corporation 67,710.0370 13.27%
A/C 3198-9668
Harry E. Figgie Jr Trust
Harry E Figgie JR TTEE
37001 Shaker Blvd
Chagrin Falls OH 44022-6643
First Clearing Corporation 25,632.9820 5.03%
A/C 3208-8766
Nancy F Figgie Trust
Nancy F Figgie TTEE
37001 Shaker Blvd
Chagrin Falls OH 44022-6643
</TABLE>
<TABLE>
<CAPTION>
OHIO TAX EXEMPT BOND FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS C SHARES) SHARES OWNED
<S> <C> <C>
First Clearing Corporation 1,673.7580 29.14%
A/C 2936-8883
Samuel J Durham, MD
AMA Account
1005 Country View Lane, Apt. 13G
Toledo, OH 43615-8306
First Clearing Corporation 4,059.6660 70.69%
A/C 3027-4828
William G Ely
1309 Shanley Drive
Columbus, OH 43224-2066
</TABLE>
<TABLE>
<CAPTION>
OHIO TAX EXEMPT BOND FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS I SHARES) SHARES OWNED
<S> <C> <C>
Sheldon and Co. (Cash) 12,814,782.3710 85.79%
National City Bank
Trust Mutual Funds - 5312
P.O. Box 94984
Cleveland, OH 44101-4984
Sheldon and Co. (Cash/Reinv) 1,533,773.1700 10.27%
National City Bank
Trust Mutual Funds-5312
P.O. Box 94777
Cleveland, OH 44101-4777
</TABLE>
154
<PAGE>
<TABLE>
<CAPTION>
PENNSYLVANIA MUNICIPAL BOND FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS A SHARES) SHARES OWNED
<S> <C> <C>
National Financial Services Corp 5,225.5540 19.35%
FBO Gary S Lengel
Bin #TGA 100897
200 Liberty St #FL
New York, NY 10281-1003
First Clearing Corporation 10,262.7520 38.00%
FBO Sara Zimmer
ACCT # 8963-5901
PO Box 1357
Richmond, VA 23218-1357
First Clearing Corporation 8,587.1490 31.80%
A/C 7618-3716
Helga A. Suhr
750 Sharter Dr #E-11
Longs, SC 29568
First Clearing Corporation 2,287.2830 8.47%
A/C 4267-7452
John M. Hankey
2430 Renton Road
Pittsburgh, PA 15239-1227
</TABLE>
<TABLE>
<CAPTION>
PENNSYLVANIA MUNICIPAL BOND FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS C SHARES) SHARES OWNED
<S> <C> <C>
SEI Investments Co 10.0900 100.00%
ATTN Rob Silvestri
1 Freedom Valley Road
Oaks, PA 19456
</TABLE>
<TABLE>
<CAPTION>
PENNSYLVANIA MUNICIPAL BOND FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS I SHARES) SHARES OWNED
<S> <C> <C>
Sheldon and Co 4,138,253.9570 94.64%
P.O. Box 94984
Attn: Trust Mutual Funds
Cleveland, OH 44101-4984
</TABLE>
155
<PAGE>
<TABLE>
<CAPTION>
GOVERNMENT MONEY MARKET FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS A SHARES) SHARES OWNED
<S> <C> <C>
National City MI/IL 232,792,000.0000 37.63%
FBO Corporate Sweep Customer
Cash Management Operations
770 W. Broad Street Loc. 16-0347
Columbus, OH 43222-1419
Pennsylvania 252,914,000.0000 40.89%
FBO Corporate Autosweep Customers
c/o National City Bank of PA
300 Fourth Street 2-191
Pittsburgh, PA 15222-2003
Wheat First Securities 69,785,630.6200 11.28%
P.O. Box 6629
Glen Allen, VA 23058-6629
National City Bank 38,353,000.0000 6.20%
FBO PCG/Retail Sweep Customer
770 W Broad Street Loc 16-0347
Columbus, OH 43222-1419
</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT MONEY MARKET FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS I SHARES) SHARES OWNED
<S> <C> <C>
National City Bank 401,708,317.1500 28.96%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 West 150th Street
Cleveland, OH 44135-1389
National City Bank 270,009,630.2800 19.47%
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 216094,642.8300 15.58%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
156
<PAGE>
National City Bank 166,067,539.4800 11.97%
Operations Center
Attn: Trust Operations Funds
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 103,597,450.1400 7.47%
Money Market Unit/Loc 5312
4100 W. 150th St
Cleveland, OH 44135-1389
National City Bank 120,901,254.5900 8.65%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS A SHARES) SHARES OWNED
<S> <C> <C>
National City MI/IL 143,282,000.000 7.85%
FBO Corporate Sweep Customer
Cash Management Operations
770 W. Broad Street Loc. 16-0347
Columbus, OH 43222-1419
Pennsylvania 319,952,000.0000 17.52%
FBO Corporate Autosweep Customers
C/o National Bank of PA
300 Fourth Street 2-191
Pittsburgh, PA 15222-2003
Wheat First Securities 806,433,054.7400 44.16%
P.O. Box 6629
Glen Allen, VA 23058-6629
National City Bank 332,558,000.0000 18.21%
FBO PCG/Retail Sweep Customer
770 W. Broad St. Location 16-0347
Columbus, OH 43222-1419
</TABLE>
157
<PAGE>
<TABLE>
<CAPTION>
MONEY MARKET FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS B SHARES) SHARES OWNED
<S> <C> <C>
Truck Equipment & Body Co Inc 44,213.3200 7.17%
Larry Anderson
3343 Shelby Street
Indianapolis, IN 46227
First Clearing Corporation 57,814.8800 9.38%
A/C 7335-5550
Roger L. Schafer IRA
FCC as Custodian
3945 7th St.
New Kensington, PA 15068-7205
First Clearing Corporation 48,639.3000 7.89%
A/C 6145-1911
Jerry Nienstedt SEP IRA
FCC as Custodian
906 W Eleven Mile
Madison Hgts, MI 48071-3104
First Clearing Corporation 91,946.54 14.91%
A/C 2065-0386
Carborundum Grinding Wheel Co
Savings Plan
1011 E. Front Street
P.O Box 759
S & H Machine Product Inc PSP 38,208.2400 6.20%
Stanimir M Vitkovic
6180 West Smith Rd
Medina, OH 44256
</TABLE>
158
<PAGE>
<TABLE>
<CAPTION>
MONEY MARKET FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS C SHARES) SHARES OWNED
<S> <C> <C>
SEI Investments Co. 100.1800 66.66%
ATTN: Rob Silvestri
One Freedom Valley Road
Oaks, PA 19456
Mary V Williams 50.1100 33.34%
3662 Hildana Rd.
Shaker Hts, OH 44120-5070
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS I SHARES) SHARES OWNED
<S> <C> <C>
National City Bank 724,427,168.5600 26.05%
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 296,422,191.5000 9.59%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 255,001,302.5200 8.25%
Operations Center
Attn: Trust Operations Funds
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 561,688,309.0200 18.17%
Money Market Unit/Loc 5312
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 315,523,519.5700 10.21%
Operations Center
ATTN: Trust Operations Funds
3rd Floor Norht Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
159
<PAGE>
National City Bank 309,623,445.1200 10.15%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 243,175,128.0940 7.87%
ATTN Trust Mutual Funds
PO Box 94984
Cleveland, OH 44101-4984
</TABLE>
<TABLE>
<CAPTION>
OHIO MUNICIPAL MONEY MARKET FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS A SHARES) SHARES OWNED
<S> <C> <C>
National City Bank 2,804,285.0000 6.80%
FBO PCG/Retail Sweep Customer
770 W. Broad Street, Location 16-0347
Columbus, OH 43222-1419
National City Bank 36,061,384.0300 87.50%
FBO PCG/Retail Sweep Customers
770 W. Broad Street, Location 16-0347
Columbus, OH 43222-1419
</TABLE>
<TABLE>
<CAPTION>
OHIO MUNICIPAL MONEY MARKET FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS I SHARES) SHARES OWNED
<S> <C> <C>
National City Bank 81,081,344.3800 50.90%
Trust Operations
Operations Center
3rd Floor North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 33,960,501.0400 21.32%
Trust Operations
Operations Center
3rd Floor North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 24,904,420.4000 15.63%
Operations Center
3rd Floor North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
160
<PAGE>
National City Bank 8,734,407.6000 5.48%
Trust Operations
Operations Center
3rd Floor North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
</TABLE>
<TABLE>
<CAPTION>
PENNSYLVANIA TAX EXEMPT MONEY MARKET OUTSTANDING SHARES PERCENTAGE OF FUND
FUND CLASS (A SHARES) SHARES OWNED
<S> <C> <C>
Pennsylvania 24,262,000.0000 36.18%
FBO Corporate Autosweep Customers
c/o National City Bank of PA
300 Fourth Street 2-191
Pittsburgh, PA 15222-2003
Pennsylvania 38,913,989.1900 58.02%
National City Bank of Pennsylvania
FBO PCG/Retail Sweep Customers
Cash Management Operations
770 W. Broad Street 16-0347
Columbus, OH 43222-1419
</TABLE>
<TABLE>
<CAPTION>
PENNSYLVANIA TAX EXEMPT MONEY MARKET OUTSTANDING SHARES PERCENTAGE OF FUND
FUND CLASS (I SHARES) SHARES OWNED
<S> <C> <C>
National City Bank 117,549,841.3300 98.68%
Trust Operations
Operations Center
3rd Floor North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
</TABLE>
<TABLE>
<CAPTION>
TAX EXEMPT MONEY MARKET FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS A SHARES) SHARES OWNED
<S> <C> <C>
National City MI/IL 20,067,000.0000 8.22%
FBO Corporate PCG/Retail Sweep Cust
Cash Management Operations
770 W. Broad Street LOC 16-0347
Columbus, OH 43222-1419
National City MI/IL 12,656,280.8500 5.19%
FBO Corporate PCG/Retail Sweep Customer
Cash Management Operations
770 W. Broad Street LOC 16-0347
Columbus, OH 43222-1419
161
<PAGE>
First Clearing Corporation 114,143,922.3700 46.80%
P.O. Box 6629
Glen Allen, VA 23058-6629
Indiana 14,256,351.9800 5.84%
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 40,249,291.9000 16.50%
FBO PCG/Retail Sweep Customer
770 W. Broad Street, Location 16-0347
Columbus, OH 43222-1419
National City Bank 24,731,000.0000 10.14%
FBO PCG/Retail Sweep Customer
770 W. Broad Street, Location 16-0347
Columbus, OH 43222-1419
</TABLE>
<TABLE>
<CAPTION>
TAX EXEMPT MONEY MARKET FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS I SHARES) SHARES OWNED
<S> <C> <C>
National City Bank 120,734,675.3200 25.09%
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 70,734,560.4900 14.70%
Operations Center
ATTN: Trust Operations Funds
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 66,316,832.1300 13.78%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 38,372,475.0800 7.97%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
162
<PAGE>
National City Bank 91,907,185.7700 19.10%
Money Market Unit/Loc. 5312
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 27,847,895.0600 5.79%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
</TABLE>
<TABLE>
<CAPTION>
TREASURY MONEY MARKET FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS A SHARES) SHARES OWNED
<S> <C> <C>
National City Bank MI/IL 35,837,000.0000 63.75%
FBO Corporate Sweep Customer
Cash Management Operations
770 W. Broad St. Location 16-0347
Columbus, OH 43222-1419
Wheat First Securities 12,361,087.6900 21.99%
P.O. Box 6629
Glen Allen, VA 23058-6629
National City Bank 3,158,062.1100 5.62%
FBO PCG/Retail Sweep Customer
770 W. Broad St. Location 16-0347
</TABLE>
<TABLE>
<CAPTION>
TREASURY MONEY MARKET FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS I SHARES) SHARES OWNED
<S> <C> <C>
National City Bank 109,968,281.0400 31.91%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 59,691,219.3100 17.32%
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 45,623,939.9100 13.24%
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
163
<PAGE>
National City Bank 34,453,817.8800 10.00%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
National City Bank 31,024,181.0600 9.00%
Money Market Unit/Loc. 5312
4100 W 150th St
Cleveland, OH 44135-1389
National City Bank 18,288,085.2800 5.31%
Trust Operations
Operations Center
3rd Floor, North Annex
4100 W. 150th Street
Cleveland, OH 44135-1389
</TABLE>
<TABLE>
<CAPTION>
TREASURY PLUS MONEY MARKET FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS A SHARES) SHARES OWNED
<S> <C> <C>
Sarasota Sailing Squadron Inc 84,912.8600 13.55%
PO Box 1927
Sarasota, FL 34230-1927
Sarasota Sailing Squadron Inc 44,071.3800 7.03%
PO Box 1927
Sarasota, FL 34230-1927
The Bank of New York 482,733.4000 77.04%
TRST FOA CCMT Series 1995-2
Attn: Craig Phildius
101 Barclay Street 12E
New York, NY 10286-0099
</TABLE>
<TABLE>
<CAPTION>
TREASURY PLUS MONEY MARKET FUND OUTSTANDING SHARES PERCENTAGE OF FUND
(CLASS I SHARES) SHARES OWNED
<S> <C> <C>
National City Bank 175,169,700.4700 88.11%
Money Market Unit / Loc 5312
4100 W. 150th Street
Cleveland, OH 44135-1389
</TABLE>
164
<PAGE>
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" - An obligation rated "CCC" is currently vulnerable to
nonpayment, and is dependent upon favorable business, financial and economic
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
A-1
<PAGE>
"CC" - An obligation rated "CC" is currently highly vulnerable
to nonpayment.
"C" - An obligation rated "C" is currently highly vulnerable
to nonpayment. 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.
- "r" - The `r' highlights obligations that Standard & Poor's
believes may have significant noncredit risks. Examples of such obligations are
securities with 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. Indicates that no rating has been requested, that there
is insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular obligation as a matter of policy.
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.
A-2
<PAGE>
"Baa" - Bonds are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba" - Bonds are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
"B" - Bonds generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
"Caa" - Bonds are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
"Ca" - Bonds represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
"C" - Bonds are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Con. (...) - Bonds for which the security depends on 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. The parenthetical rating denotes probable
credit stature upon completion of construction or elimination of the basis of
the 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 long-term ratings used by Fitch:
"AAA" - Securities 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
adversely affected by foreseeable events.
A-3
<PAGE>
"AA" - Securities 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 foreseeable
events.
"A" - Securities 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" - Securities considered to be investment grade and of
good 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" - Securities 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" - Securities 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" and "C" - Securities 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.
"DDD," "DD" and "D" - Securities 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 of 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.
A-4
<PAGE>
NOTES TO FITCH LONG-TERM AND SHORT-TERM RATINGS:
- To provide more detailed indications of credit quality, the
Fitch ratings from and including "AA" to "CCC" and "FI" may be modified by the
addition of a plus (+) or minus (-) sign to denote relative standing within
these major rating categories.
- `NR' indicates that Fitch does not rate the issuer or issue
in question.
- `Withdrawn': A rating is withdrawn when Fitch deems the
amount of information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.
- RatingWatch: Ratings are placed on RatingWatch 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. RatingWatch is typically resolved
over a relatively short period.
A Rating Outlook indicates the direction a rating is likely to
move over a one to two-year period. Outlooks may be positive, stable or
negative. A positive or negative Rating Outlook does not imply a rating change
is inevitable. Similarly, companies whose outlooks are "stable" could be
upgraded or downgraded before an outlook moves to positive or negative if
circumstances warrant such an action. Occasionally, Fitch may be unable to
identify the fundamental trend. In these cases, the Rating Outlook may be
described as evolving.
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 & 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-5
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"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.
LOCAL CURRENCY AND FOREIGN CURRENCY RISKS:
Country risk considerations are a standard part of Standard &
Poor's analysis for credit ratings on any issuer or issue. Currency of repayment
is a key factor in this analysis. An obligor's capacity to repay foreign
obligations may be lower than its capacity to repay obligations in its local
currency due to the sovereign government's own relatively lower capacity to
repay external versus domestic debt. These sovereign risk considerations are
incorporated in the debt ratings assigned to specific issues. Foreign currency
issuer ratings are also distinguished from local currency issuer ratings to
identify those instances where sovereign risks make them different for the same
issuer.
Moody's commercial paper ratings are opinions of the ability
of issuers to honor senior financial obligations and contracts. These
obligations have an original maturity not exceeding 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
A-6
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characteristics cited above but to a lesser degree. Earnings trends and
coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected
by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effect of industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime
rating categories.
Fitch 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, and thus places greater emphasis on the
liquidity necessary to meet financial commitments in a timely manner. The
following summarizes the rating categories used by Fitch for short-term
obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This
designation indicates a satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
"F3" - Securities possess fair credit quality. This
designation indicates that the capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.
"B" - Securities possess speculative credit quality. This
designation indicates minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
"C" - Securities possess high default risk. This designation
indicates capacity for meeting financial commitments which is highly uncertain
and 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:
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"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.
MUNICIPAL NOTE RATINGS
A Standard & Poor's note 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 a
very strong capacity to pay debt service are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit risk
and long-term risk. The following summarizes the ratings by Moody's Investors
Service, Inc. for short-term notes:
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<PAGE>
"MIG-1"/"VMIG-1" - This designation denotes superior credit
quality. Excellent protection afforded by established cash flows, highly
reliable liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - This designation denotes strong credit
quality. Margins of protection are ample although not so large as in the
preceding group.
"MIG-3"/"VMIG-3" - This designation denotes acceptable credit
. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
"SG" - This designation denotes speculative-grade credit
quality. Debt instruments in this category lack sufficient margins of
protection.
Fitch uses 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 & 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.
A-9
<PAGE>
"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.
"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.
A-10
<PAGE>
"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:
"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.
A-11
<PAGE>
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.
A-12
<PAGE>
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
B-1
<PAGE>
realizes a loss. Similarly, the closing out of a futures contract purchase is
effected by the Fund entering into a futures contract sale. If the offsetting
sale price exceeds the purchase price, the Fund realizes a gain, and if the
purchase price exceeds the offsetting sale price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction
environment on the floors of several exchanges -- principally, the Chicago Board
of Trade, the Chicago Mercantile Exchange and the New York Futures Exchange. The
Fund would deal only in standardized contracts on recognized exchanges. Each
exchange guarantees performance under contract provisions through a clearing
corporation, a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering
various financial instruments including long-term United States Treasury Bonds
and Notes; Government National Mortgage Association (GNMA) modified pass-through
mortgage backed securities; three-month United States Treasury Bills; and
ninety-day commercial paper. The Fund may trade in any interest rate futures
contracts for which there exists a public market, including, without limitation,
the foregoing instruments.
EXAMPLE OF FUTURES CONTRACT SALE. The Fund may engage in an
interest rate futures contract sale to maintain the income advantage from
continued holding of a long-term bond while endeavoring to avoid part or all of
the loss in market value that would otherwise accompany a decline in long-term
securities prices. Assume that the market value of a certain security held by
the Fund tends to move in concert with the futures market prices of long-term
United States Treasury bonds ("Treasury bonds"). The adviser wants to fix the
current market value of this fund security until some point in the future.
Assume the fund security has a market value of 100, and the adviser believes
that because of an anticipated rise in interest rates, the value will decline to
95. The Fund might enter into futures contract sales of Treasury bonds for a
equivalent of 98. If the market value of the fund security does indeed decline
from 100 to 95, the equivalent futures market price for the Treasury bonds might
also decline from 98 to 93.
In that case, the five point loss in the market value of the
fund security would be offset by the five point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
The adviser could be wrong in its forecast of interest rates
and the equivalent futures market price could rise above 98. In this case, the
market value of the fund securities, including the fund security being
protected, would increase. The benefit of this increase would be reduced by the
loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above
example might incur a loss (which might be reduced by a offsetting transaction
prior to the settlement date). In each transaction, transaction expenses would
also be incurred.
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
B-2
<PAGE>
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.
B-3
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INDEX FUTURES CONTRACTS
GENERAL. A bond or stock index assigns relative values to the
bonds or stocks included in the index which fluctuates with changes in the
market values of the bonds or stocks included. Some stock index futures
contracts are based on broad market indexes, such as the Standard & Poor's
Ratings Group 500 or the New York Stock Exchange Composite Index. In contrast,
certain exchanges offer futures contracts on narrower market indexes or indexes
based on an industry or market segment, such as oil and gas stocks.
Futures contracts are traded on organized exchanges regulated
by the Commodity Futures Trading Commission. Transactions on such exchanges are
cleared through a clearing corporation, which guarantees the performance of the
parties to each contract.
The Fund may sell index futures contracts in order to offset a
decrease in market value of its fund securities that might otherwise result from
a market decline. The Fund may do so either to hedge the value of its fund as a
whole, or to protect against declines, occurring prior to sales of securities,
in the value of the securities to be sold. Conversely, the Fund may purchase
index futures contracts in anticipation of purchases of securities. A long
futures position may be terminated without a corresponding purchase of
securities.
In addition, the Fund may utilize index futures contracts in
anticipation of changes in the composition of its fund holdings. For example, in
the event that the Fund expects to narrow the range of industry groups
represented in its holdings it may, prior to making purchases of the actual
securities, establish a long futures position based on a more restricted index,
such as an index comprised of securities of a particular industry group. The
Fund may also sell futures contracts in connection with this strategy, in order
to protect against the possibility that the value of the securities to be sold
as part of the restructuring of the fund will decline prior to the time of sale.
B-4
<PAGE>
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.
B-5
<PAGE>
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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<PAGE>
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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<PAGE>
OPTIONS ON FUTURES CONTRACTS
The Fund may purchase and write options on the futures
contracts described above. A futures option gives the holder, in return for the
premium paid, the right to buy (call) from or sell (put) to the writer of the
option a futures contract at a specified price at any time during the period of
the option. Upon exercise, the writer of the option is obligated to pay the
difference between the cash value of the futures contract and the exercise
price. Like the buyer or seller of a futures contract, the holder, or writer, of
an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing an option of the same series,
at which time the person entering into the closing transaction will realize a
gain or loss. The Fund will be required to deposit initial margin and variation
margin with respect to put and call options on futures contracts written by it
pursuant to brokers' requirements similar to those described above. Net option
premiums received will be included as initial margin deposits.
Investments in futures options involve some of the same
considerations that are involved in connection with investments in futures
contracts (for example, the existence of a liquid secondary market). In
addition, the purchase or sale of an option also entails the risk that changes
in the value of the underlying futures contract will not correspond to changes
in the value of the option purchased. Depending on the pricing of the option
compared to either the futures contract upon which it is based, or upon the
price of the securities being hedged, an option may or may not be less risky
than ownership of the futures contract or such securities. In general, the
market prices of options can be expected to be more volatile than the market
prices on the underlying futures contract. Compared to the purchase or sale of
futures contracts, however, the purchase of call or put options on futures
contracts may frequently involve less potential risk to the Fund because the
maximum amount at risk is the premium paid for the options (plus transaction
costs). The writing of an option on a futures contract involves risks similar to
those risks relating to the sale of futures contracts.
OTHER MATTERS
Accounting for futures contracts will be in accordance with
generally accepted accounting principles.
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FORM N-1A
PART C - OTHER INFORMATION
ITEM 23. EXHIBITS.
(a) Declaration of Trust dated January 28, 1986 is incorporated
herein by reference to Exhibit (a) to Post-Effective Amendment
No. 48 to Registrant's Registration Statement on Form N-1A (File
Nos. 33-488/811-4416) filed on October 6, 1999 ("PEA No. 48").
1. Amendment No. 1 to Declaration of Trust is incorporated
herein by reference to Exhibit a(1) to PEA No. 48.
2. Amendment No. 2 to Declaration of Trust is incorporated
herein by reference to Exhibit a(2) to PEA No. 48.
3. Certificate of Classification of Shares reflecting the
creation of Class A, Class B, Class C, Class D, Class E
and Class F Shares of beneficial interest as filed with
the Office of the Secretary of State of Massachusetts on
September 30, 1985 is incorporated herein by reference to
Exhibit a(3) to Post-Effective Amendment No. 47 to
Registrant's Registration Statement on Form N-1A (File
Nos. 33-488/811-4416) filed on September 10, 1999 ("PEA
No. 47").
4. Certificate of Classification of Shares reflecting the
creation of the Tax Exempt Portfolio (Trust) as filed
with the Office of Secretary of State of Massachusetts on
October 16, 1989 is incorporated herein by reference to
Exhibit 1(c) to Post-Effective Amendment No. 26 to
Registrant's Registration Statement filed on May 15, 1996
("PEA No. 26").
5. Certificate of Classification of Shares reflecting the
creation of Special Series 1 in the Money Market,
Government Money Market, Treasury Money Market, Tax
Exempt Money Market, Equity Growth, Bond and Ohio Tax
Exempt Bond Funds as filed with the Office of Secretary
of State of Massachusetts on December 11, 1989 is
incorporated herein by reference to Exhibit 1(d) to PEA
No. 26.
6. Certificate of Classification of Shares reflecting the
creation of Special Series 1 in the Money Market,
Government Money Market, Treasury Money, Tax Exempt Money
Market, Equity
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Growth, Bond and Ohio Tax Exempt Bond Funds as filed with
the Office of the Secretary of State of Massachusetts on
September 12, 1990 is incorporated herein by reference to
Exhibit 1(e) to PEA No. 26.
7. Certificate of Classification of Shares reflecting the
creation of Class L and Class L-Special Series 1 shares,
Class M and Class M-Special Series 1 shares, Class N and
Class N-Special Series 1 shares, Class O and Class
O-Special Series 1 shares, and Class P and Class
P-Special Series 1 shares representing interests in the
National Tax Exempt Bond Fund, Equity Income Fund, Small
Cap Value Fund (formerly known as the Mid Cap Regional
Fund), Limited Maturity Bond (formerly known as the
Enhanced Income Fund) and Total Return Advantage Fund,
respectively, as filed with the Office of Secretary of
State of Massachusetts on June 30, 1994 is incorporated
herein by reference to Exhibit 1(e) to PEA No. 26.
8. Certificate of Classification of Shares reflecting the
creation of Class Q and Class Q-Special Series 1 shares,
Class R and Class R-Special Series 1 shares, Class S and
Class S-Special Series 1 shares, and Class T and Class
T-Special Series 1 shares representing interests in the
Pennsylvania Tax Exempt Money Market Fund, Bond Fund
(formerly known as the Intermediate Government Fund),
GNMA Fund and Pennsylvania Municipal Bond Fund,
respectively, as filed with the Office of the Secretary
of State of Massachusetts on September 10, 1996 is
incorporated herein by reference to Exhibit 1(g) to
Post-Effective Amendment No. 33 to Registrant's
Registration Statement filed on April 11, 1997 ("PEA No.
33").
9. Certificate of Classification of Shares reflecting the
creation of Class U and Class U-Special Series 1 shares,
Class V and Class V-Special Series 1 shares and Class W
and Class W-Special Series 1 shares representing
interests in the International Equity, Equity Index and
Core Equity Funds, respectively, as filed with the Office
of the Secretary of State of Massachusetts on June 27,
1997 is incorporated herein by reference to Exhibit 1(h)
to Post-Effective Amendment No. 35 to Registrant's
Registration Statement filed on July 22, 1997 ("PEA No.
35").
10. Certificate of Classification of Shares reflecting the
creation of Class X and Class X-Special Series 1 shares
and Class Y and Class Y-Special Series 1 shares
representing interests in the Small Cap Growth Fund and
Real Return Advantage Fund, respectively, as filed with
the Office of the Secretary of State of Massachusetts on
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June 27, 1997 is incorporated herein by reference to
Exhibit 1(i) to PEA No. 35.
11. Certificate of Classification of Shares reflecting the
creation of Special Series 2 Shares representing
interests in the Money Market, Government Money Market,
Treasury Money Market, Tax-Exempt Money Market, Equity
Growth, Equity Income, Small Cap Value (formerly known as
the Mid Cap Regional), Limited Maturity Bond (formerly
known as the Enhanced Income), Total Return Advantage,
Intermediate Bond (formerly known as the Fixed Income),
Ohio Tax-Exempt Bond, National Tax-Exempt Bond,
Pennsylvania Tax-Exempt Money Market, Bond (formerly
known as the "Intermediate Government Fund), GNMA,
Pennsylvania Municipal Bond, International Equity, Equity
Index, Core Equity, Small Cap Growth and Real Return
Advantage Funds, as filed with the Office of the
Secretary of State of Massachusetts on December 29, 1997
and with the City of Boston, Office of the City Clerk on
December 26, 1997, is incorporated herein by reference to
Exhibit 1(j) to Post- Effective Amendment No. 44 to
Registrant's Registration Statement filed on September
18, 1998 ("PEA No 44").
12. Certificate of Classification of Shares reflecting the
creation of Class Z, Class Z - Special Series 1 and Class
Z - Special Series 2, Class AA, Class AA - Special Series
1 and Class AA - Special Series 2 Shares representing
interests in the Tax Managed Equity and Balanced
Allocation Funds, respectively, as filed with the Office
of the Secretary of State of Massachusetts and with the
City of Boston, Office of the City Clerk on July 13, 1998
is incorporated herein by reference to Exhibit 1(k) to
PEA No. 44.
13. Certificate of Classification of Shares reflecting the
creation of Class BB and Class BB - Special Series 1
shares in the Ohio Municipal Money Market Fund, as filed
with the Office of the Secretary of State and with the
City of Boston, Office of the City Clerk on September 15,
1998, is incorporated herein by reference to Exhibit 1(k)
to Post-Effective Amendment No. 43 to Registrant's
Registration Statement filed on September 15, 1998 ("PEA
No. 43").
14. Certificate of Classification of Shares reflecting the
creation of Special Series 3 Shares representing
interests in 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, Ohio Tax Exempt, Pennsylvania Municipal,
National Tax Exempt, Mid Cap Growth, Large Cap
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<PAGE>
Ultra, U.S. Government Income, Michigan Municipal Bond
and Money Market Funds is incorporated herein by
reference to Exhibit a(14) to Post-Effective Amendment
No. 53 to Registrant's Registration Statement filed on
September 29, 2000 ("PEA No. 53").
15. Certificate of Classification of Shares representing
interests in the Treasury Plus Money Market, U.S.
Government Income, Mid Cap Growth and Michigan Municipal
Bond Funds is incorporated herein by reference to Exhibit
a(15) to PEA No. 53.
16. Certificate of Classification of Shares reflecting the
creation of Class MM, Class MM-Special Series 1, Class
MM-Special Series 2 and Class MM-Special Series 3 Shares
representing interests in the Strategic Income Bond Fund
is incorporated herein by reference to Exhibit a(16) to
PEA No. 53.
17. Certificate of Classification of Shares reflecting the
creation of Class NN, Class NN-Special Series 1, Class
NN-Special Series 2, Class NN-Special Series 3, Class OO,
Class OO-Special Series 1, Class OO-Special Series 2 and
Class OO-Special Series 3 shares representing interests
in the Aggressive Allocation and Conservative Allocation
Funds.
(b) Code of Regulations as approved and adopted by Registrant's
Board of Trustees on January 28, 1986 is incorporated herein by
reference to Exhibit (b) to PEA No. 48.
1. Amendment No. 1 to Code of Regulations is incorporated
herein by reference to Exhibit b(1) to PEA No. 48.
2. Amendment No. 2 to Code of Regulations as approved and
adopted by Registrant's Board of Trustees on July 17,
1997 is incorporated herein by reference to Exhibit 2(b)
to PEA No. 35.
3. Amendment No. 3 to Code of Regulations as adopted by
Registrant's Board of Trustees on August 5, 1998 is
incorporated herein by reference to Exhibit b(3) to
Post-Effective Amendment No. 52 to Registrant's
Registration Statement filed on July 18, 2000 ("PEA No.
52").
4. Amendment No. 4 to Code of Regulations as adopted by
Registrant's Board of Trustees on July 17, 1997 is
incorporated herein by reference to Exhibit b(4) to PEA
No. 52.
(c) See Article V, Section 5.1, and Article V, Section 5.4, of
Registrant's Declaration of Trust, which is incorporated herein
by reference as Exhibit (a) to PEA No. 48.
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<PAGE>
(d) 1. Advisory Agreement for the Money Market, Treasury Money
Market, Government Money Market, Tax Exempt Money Market,
Pennsylvania Tax Exempt Money Market, National Tax Exempt
Bond, Intermediate Bond, GNMA, Bond, Equity Growth,
Equity Income, Small Cap Value, Ohio Tax Exempt Bond and
Pennsylvania Municipal Bond Funds between Registrant and
National City Bank, dated November 19, 1997 is
incorporated herein by reference to Exhibit 5(a) to PEA
No. 44.
2. Interim Advisory Agreement for the Limited Maturity Bond
(formerly known as the Enhanced Income) and Total Return
Advantage Funds between Registrant and National Asset
Management Corporation dated March 6, 1998 is
incorporated herein by reference to Exhibit 5(b) to PEA
No. 44.
3. Interim Advisory Agreement for the Core Equity Fund
between Registrant and National Asset Management
Corporation dated March 6, 1998 is incorporated herein by
reference to Exhibit 5(c) to PEA No. 44.
4. New Advisory Agreement for the Core Equity, Limited
Maturity Bond (formerly known as the Enhanced Income) and
Total Return Advantage Funds between Registrant and
National City Bank dated March 6, 1998 is incorporated
herein by reference to Exhibit 5(d) to PEA No. 44.
5. Sub-Advisory Agreement for the Core Equity and Total
Return Advantage Funds between National City Bank and
National Asset Management Corporation dated March 6, 1998
is incorporated herein by reference to Exhibit 5(e) to
PEA No. 44.
6. Advisory Agreement for the International Equity, Small
Cap Value, Small Cap Growth, Equity Index, Real Return
Advantage, Tax Managed Equity, Balanced Allocation and
Ohio Municipal Money Market Funds between Registrant and
National City Bank dated April 9, 1998 is incorporated
herein by reference to Exhibit 5(m) Post-Effective
Amendment No. 43 filed on July l, 1998 ("PEA No. 42").
7. Assumption Agreement between National City Bank, National
City Investment Management Company, Armada Funds,
National Asset Management Corporation and SEI Fund
Resources, dated August 5, 1998, is incorporated herein
by reference to Exhibit h(8) to Post-Effective Amendment
No. 46 to Registrant's Registration Statement filed on
July 15, 1999 ("PEA No. 46").
8. Advisory Agreement for the Mid Cap Growth, Large Cap
Ultra, U.S. Government Income, Michigan Municipal Bond
and Treasury
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<PAGE>
Plus Money Market Funds between Registrant and National
City Investment Management Company dated June 9, 2000 is
incorporated herein by reference to Exhibit d(8) to PEA
No. 53.
9. Form of Advisory Agreement for the Strategic Income Bond
Fund between Registrant and National City Investment
Management Company is incorporated herein by reference to
Exhibit d(9) to PEA No. 52.
10. Form of Advisory Agreement for the Aggressive Allocation
and Conservative Allocation Funds between Registrant and
National City Investment Management Company.
(e) Distribution Agreement between Registrant and SEI
Investments Distribution Co., dated May 1, 1998 is
incorporated herein by reference to Exhibit (6) to PEA
No. 44.
(f) None.
(g) 1. Custodian Services Agreement between Registrant and
National City Bank, dated November 7, 1994 is
incorporated herein by reference to Exhibit g(1) to PEA
No. 48.
2. Sub-Custodian Agreement between National City Bank and
The Bank of California, National Association, dated
November 7, 1994 is incorporated herein by reference to
Exhibit g(2) to PEA No. 48.
3. Amended Exhibit A, dated June 16, 2000, to the Custodian
Services Agreement between Registrant and National City
Bank, dated November 7, 1994 is incorporated herein by
reference to Exhibit g(3) to PEA No. 52.
(h) 1. Co-Administration Agreement among Registrant, SEI
Investments Mutual Funds Services and National City Bank,
dated August 15, 2000, effective as of August 1, 2000.
2. Transfer Agency and Service Agreement (the "Transfer
Agency Agreement") between Registrant and State Street
Bank and Trust Company, dated March 1, 1997, is
incorporated herein by reference to Exhibit 9(d) to PEA
No. 33.
3. Form of Addendum No. 1 to Amended and Restated Transfer
Agency and Dividend Disbursement Agreement between
Registrant and State Street Bank and Trust Company is
incorporated herein by reference to Exhibit 9(d) to PEA
No. 41.
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<PAGE>
4. Letter amendment, dated March 26, 1999, to Transfer
Agency and Service Agreement between Registrant and State
Street Bank and Trust Company, dated March 1, 1997 is
incorporated herein by reference to Exhibit No. h(7) to
PEA No. 52.
5. Amendment dated June 16, 2000 to Transfer Agency and
Service Agreement dated March 1, 1997 between Registrant
and State Street Bank and Trust Company is incorporated
herein by reference to Exhibit h(5) to PEA No. 53.
6. Shareholder Services Plan adopted by the Board of
Trustees on February 15, 1997, as revised on November 21,
2000.
7. Form of Servicing Agreement is incorporated herein by
reference to Exhibit h(9) to PEA No. 52.
8. Assumption Agreement between National City Bank, National
City Investment Management Company, Armada Funds,
National Asset Management Corporation and SEI Fund
Resources, dated August 5, 1998 is incorporated herein by
reference to Exhibit h(8) to PEA No. 46.
(i) Opinion of Drinker Biddle and Reath LLP as counsel to Registrant
is incorporated herein by reference to Exhibit (i) to PEA No.
53.
(j) 1. Consent of Drinker Biddle & Reath LLP.
2. Consent of Ernst & Young LLP.
3. Consent of PricewaterhouseCoopers LLP.
(k) None.
(l) 1. Purchase Agreement between Registrant and McDonald &
Company Securities, Inc. dated January 28, 1986 is
incorporated herein by reference to Exhibit l(1) to PEA
No. 48.
2. Purchase Agreement between Registrant and McDonald &
Company Securities, Inc. with respect to the Tax Exempt
Money Market Portfolio dated July 19, 1988 is
incorporated herein by reference to Exhibit l(2) to PEA
No. 48.
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<PAGE>
3. Purchase Agreement between Registrant and McDonald &
Company Securities, Inc. with respect to the Tax Exempt
Money Market Portfolio (Trust), dated October 17, 1989 is
incorporated herein by reference to Exhibit l(3) to PEA
No. 48.
4. Purchase Agreement between Registrant and McDonald &
Company Securities, Inc. with respect to the Equity
Growth Portfolio and Bond Portfolio, dated December 20,
1989 is incorporated herein by reference to Exhibit l(4)
to PEA No. 48.
5. Purchase Agreement between Registrant and McDonald &
Company Securities, Inc. with respect to the Ohio Tax
Exempt Bond Portfolio, dated January 5, 1990 is
incorporated herein by reference to Exhibit l(5) to PEA
No. 48.
6. Purchase Agreement between Registrant and Allmerica
Investments, Inc. with respect to the Limited Maturity
Bond Fund (formerly known as the Enhanced Income Fund),
dated July 5, 1994 is incorporated herein by reference to
Exhibit 1(6) to PEA No. 48.
7. Purchase Agreement between Registrant and Allmerica
Investments, Inc. with respect to the Equity Income
Portfolio, dated June 30, 1994 is incorporated herein by
reference to Exhibit l(7) to PEA No. 48.
8. Purchase Agreement between Registrant and Allmerica
Investments, Inc. with respect to the Small Cap Value
Fund (formerly known as the Mid Cap Regional Equity
Portfolio), dated July 25, 1994 is incorporated herein by
reference to Exhibit l(8) to PEA No. 48.
9. Purchase Agreement between Registrant and Allmerica
Investments, Inc. with respect to the Total Return
Advantage Fund, dated July 5, 1994 is incorporated herein
by reference to Exhibit l(9) to PEA No. 48.
10. Purchase Agreement between Registrant and Allmerica
Investments, Inc. with respect to the National Tax Exempt
Bond Fund is incorporated herein by reference to
Exhibit l(10) to PEA No. 48.
11. Purchase Agreement between Registrant and 440 Financial
Distributors, Inc. with respect to the Pennsylvania Tax
Exempt Money Market Fund, dated September 6, 1996, is
incorporated herein by reference to Exhibit 13(j) to PEA
No. 33.
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<PAGE>
12. Purchase Agreement between Registrant and 440 Financial
Distributors, Inc. with respect to the Intermediate
Government Money Market Fund, dated September 6, 1996, is
incorporated herein by reference to Exhibit 13(k) to PEA
No. 33.
13. Purchase Agreement between Registrant and 440 Financial
Distributors, Inc. with respect to the GNMA Fund, dated
September 6, 1996, is incorporated herein by reference to
Exhibit 13(l) to PEA No. 33.
14. Purchase Agreement between Registrant and 440 Financial
Distributors, Inc. with respect to the Pennsylvania
Municipal Bond Fund, dated September 6, 1996, is
incorporated herein by reference to Exhibit 13(m) to PEA
No. 33.
15. Purchase Agreement between Registrant and SEI Investments
Distribution Co. with respect to the Core Equity Fund is
incorporated herein by reference to Exhibit 13(n) to PEA
No. 36.
16. Purchase Agreement dated August 1, 1997 between
Registrant and SEI Investments Distribution Co. with
respect to the International Equity Fund (Class U -
Special Series 1) is incorporated herein by reference to
Exhibit l(16) to PEA No. 52.
17. Purchase Agreement between Registrant and SEI Investments
Distribution Co. with respect to the Equity Index Fund is
incorporated herein by reference to Exhibit 1(17) to PEA
No. 53.
18. Form of Purchase Agreement between Registrant and SEI
Investments Distribution Co. with respect to the Real
Return Advantage Fund is incorporated herein by reference
to Exhibit 13(q) to PEA No. 33.
19. Purchase Agreement between Registrant and SEI Investments
Distribution Co. with respect to the Small Cap Growth
Fund is incorporated herein by reference to Exhibit 13(r)
to PEA No. 36.
20. Purchase Agreement between Registrant and SEI Investments
Distribution Co. with respect to Special Series 2 shares
for each Fund is incorporated herein by reference to
Exhibit 1(20) to PEA No. 53.
21. Purchase Agreement between Registrant and SEI Investments
Distribution Co. with respect to the Balanced Allocation
Fund is incorporated herein by reference to Exhibit l(21)
to PEA No. 53.
22. Purchase Agreement dated September 14, 1998 between
Registrant and SEI Investments Distribution Co. with
respect to the Ohio
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<PAGE>
Municipal Money Market Fund (Class BB and Class BB -
Special Series 1) is incorporated herein by reference to
Exhibit l(22) to PEA No. 52.
23. Purchase Agreement dated April 9, 1998 between Registrant
and SEI Investments Distribution Co. with respect to the
Tax Managed Equity Fund (Class Z, Class Z - Special
Series 1 and Class Z - Special Series 2) and the National
Tax-Exempt Fund (Class L, Class L - Special Series 1 and
Class L - Special Series 2) is incorporated herein by
reference to Exhibit l(23) to PEA No. 52.
24. Purchase Agreement dated August 1, 1997 between
Registrant and SEI Investments Distribution Co. with
respect to the International Equity Fund (Class U) is
incorporated herein by reference to Exhibit l(24) to PEA
No. 52.
25. Purchase Agreement dated January 2, 1998 between
Registrant and SEI Investments Distribution Co. with
respect to Special Series 2 shares of the Money Market,
Small Cap Value, Equity Growth, Equity Income, Small Cap
Growth, International Equity, Core Equity, Intermediate
Bond and Bond Funds is incorporated herein by reference
to Exhibit l(25) to PEA No. 52.
26. Purchase Agreement dated January 11, 2000 between
Registrant and SEI Investments Distribution Co. with
respect to Special Series 2 shares of the Equity Index,
Total Return Advantage, Enhanced Income and GNMA Funds
and Special Series 3 Shares of the Money Market, Small
Cap Value, Equity Growth, Equity Income, Small Cap
Growth, International Equity, Core Equity, Tax Managed
Equity, Equity Index, Enhanced Income, Total Return
Advantage, GNMA, Intermediate Bond, Bond, National
Tax-Exempt Bond, Ohio Tax-Exempt Bond and Pennsylvania
Municipal Bond Funds is incorporated herein by reference
to Exhibit 1(26) to PEA No. 53.
27. Form of Purchase Agreement between Registrant and SEI
Investments Distribution Co. with respect to the
Strategic Income Bond Fund (Class MM, Class MM - Special
Series 1, Class MM - Special Series 2 and Class MM -
Special Series 3) is incorporated herein by reference to
Exhibit l(26) to PEA No. 52.
28. Form of Purchase Agreement between Registrant and SEI
Investments Distribution Co. with respect to the
Aggressive Allocation and Conservative Allocation Funds.
(m) 1. Service and Distribution Plan for the A (formerly,
Retail) and I (formerly, Institutional) Share Classes is
incorporated herein by reference to Exhibit 15(a) to PEA
No. 38.
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<PAGE>
2. C Shares Distribution and Servicing Plan is incorporated
herein by reference to Exhibit m(3) to PEA No. 47.
(n) None.
(o) Revised Plan Pursuant to Rule 18f-3 for Operation of a
Multi-Class System, as revised November 21, 2000.
(p) 1. Code of Ethics of Armada Funds is incorporated herein by
reference to Exhibit p(1) to PEA No. 53.
2. Code of Ethics of SEI Investments Distribution Co is
incorporated herein by reference to Exhibit p(2) to PEA No. 52.
3. Code of Ethics of National City Investment Management
Company is incorporated herein by reference to Exhibit p(3) to
PEA No. 53.
4. Code of Ethics of National Asset Management Corporation is
incorporated herein by reference to Exhibit p(4) to PEA No. 53.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Registrant is controlled by its Board of Trustees.
ITEM 25. INDEMNIFICATION.
Indemnification of Registrant's principal underwriter, custodian and
transfer agent against certain losses is provided for, respectively, in Article
6 of the Distribution Agreement, incorporated by reference as Exhibit (e)
hereto, and Sections 12 and 6, respectively, of the Custodian Services and
Transfer Agency Agreements, incorporated by reference as Exhibits g(1) and h(4)
hereto. In Article 6 of the Distribution Agreement, the Trust agrees to
indemnify and hold harmless the Distributor and each of its directors and
officers and each person, if any, who controls the Distributor within the
meaning of Section 15 of the 1933 Act against any loss, liability, claim,
damages or expense (including the reasonable cost of investigating or defending
any alleged loss, liability, claim, damages or expense and reasonable counsel
fees and disbursements incurred in connection therewith), arising by reason of
any person acquiring any Shares, based upon the ground that the registration
statement, prospectus, Shareholder reports or other information filed or made
public by the Trust (as from time to time amended) included an untrue statement
of a material fact or omitted to state a material fact required to be stated or
necessary in order to make the statements made not misleading. However, the
Trust does not agree to indemnify the Distributor or hold it harmless to the
extent that the statements or omission was made in reliance upon, and in
conformity with, information furnished to the Trust by or on behalf of the
Distributor.
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<PAGE>
In addition, Section 9.3 of Registrant's Declaration of Trust dated
January 28, 1986, incorporated by reference as Exhibit (a) hereto, provides as
follows:
9.3 INDEMNIFICATION OF TRUSTEES, REPRESENTATIVES AND EMPLOYEES. The
Trust shall indemnify each of its Trustees against all liabilities and
expenses (including amounts paid in satisfaction of judgments, in
compromise, as fines and penalties, and as counsel fees) reasonably
incurred by him in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal, in which
he may be involved or with which he may be threatened, while as a
Trustee or thereafter, by reason of his being or having been such a
Trustee EXCEPT with respect to any matter as to which he shall have
been adjudicated to have acted in bad faith, willful misfeasance, gross
negligence or reckless disregard of his duties, PROVIDED that as to any
matter disposed of by a compromise payment by such person, pursuant to
a consent decree or otherwise, no indemnification either for said
payment or for any other expenses shall be provided unless the Trust
shall have received a written opinion from independent legal counsel
approved by the Trustees to the effect that if either the matter of
willful misfeasance, gross negligence or reckless disregard of duty, or
the matter of bad faith had been adjudicated, it would in the opinion
of such counsel have been adjudicated in favor of such person. The
rights accruing to any person under these provisions shall not exclude
any other right to which he may be lawfully entitled, PROVIDED that no
person may satisfy any right of indemnity or reimbursement hereunder
except out of the property of the Trust. The Trustees may make advance
payments in connection with the indemnification under this Section 9.3,
PROVIDED that the indemnified person shall have provided a secured
written undertaking to reimburse the Trust in the event it is
subsequently determined that he is not entitled to such
indemnification.
The Trustees shall indemnify representatives and employees of the Trust
to the same extent that Trustees are entitled to indemnification
pursuant to this Section 9.3.
Section 12 of Registrant's Custodian Services Agreement provides as
follows:
12. INDEMNIFICATION. The Trust, on behalf of each of the Funds, agrees
to indemnify and hold harmless the Custodian and its nominees from all
taxes, charges, expenses, assessments, claims and liabilities
(including, without limitation, liabilities arising under the 1933 Act,
the 1934 Act, the 1940 Act, the CEA, and any state and foreign
securities and blue sky laws, and amendments thereto), and expenses,
including (without limitation) reasonable attorneys' fees and
disbursements, arising directly or indirectly from any action which the
Custodian takes or does not take (i) at the request or on the direction
of or in reliance on the advice of the Fund or (ii) upon Oral or
Written Instructions. Neither the Custodian, nor any of its nominees,
shall be indemnified against any liability to the Trust or to its
shareholders (or any expenses incident to such liability) arising out
of the Custodian's or its nominees' own willful misfeasance,
C-12
<PAGE>
bad faith, negligence or reckless disregard of its duties and
obligations under this Agreement.
In the event of any advance of cash for any purpose made by the
Custodian resulting from Oral or Written Instructions of the Trust, or
in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or
liabilities in respect of the Trust or any Fund in connection with the
performance of this Agreement, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful
misconduct, any Property at any time held for the account of the
relevant Fund or the Trust shall be security therefor.
Section 6 of Registrant's Transfer Agency Agreement provides as
follows:
6. INDEMNIFICATION
6.1 The Bank shall not be responsible for, and the Fund shall on
behalf of the applicable Portfolio indemnify and hold the Bank
harmless from and against, any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liability arising
out of or attributable to:
(a) All actions of the Bank or its agents or subcontractors
required to be taken pursuant to this Agreement, provided
that such actions are taken in good faith and without
negligence or willful misconduct.
(b) The Fund's lack of good faith, negligence or willful
misconduct which arise out of the breach of any
representation or warranty of the Fund hereunder.
(c) The reliance on or use by the Bank or its agents or
subcontractors of information, records, documents or
services which (i) are received by the Bank or its agents
or subcontractors, and (ii) have been prepared, maintained
or performed by the Fund or any other person or firm on
behalf of the Fund including but not limited to any
previous transfer agent or registrar.
(d) The reliance on, or the carrying out by the Bank or its
agents or subcontractors of any instructions or requests of
the Fund on behalf of the applicable Portfolio.
(e) The offer or sale of Shares in violation of any requirement
under the federal securities laws or regulations or the
securities laws or regulations of any state that such
Shares be registered in such state or in violation of any
stop order or other determination or ruling by any federal
agency or any state with respect to the offer or sale of
such Shares in such state.
C-13
<PAGE>
(f) The negotiations and processing of checks made payable to
prospective or existing Shareholders tendered to the Bank
for the purchase of Shares, such checks are commonly known
as "third party checks."
6.2 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to
any matter arising in connection with the services to be
performed by the Bank under this Agreement, and the Bank and its
agents or subcontractors shall not be liable and shall be
indemnified by the Fund on behalf of the applicable Portfolio for
any action taken or omitted by it in reliance upon such
instructions or upon the opinion of such counsel (provided such
counsel is reasonably satisfactory to the Fund). The Bank, its
agents and subcontractors shall be protected and indemnified in
acting upon any paper or document, reasonably believed to be
genuine and to have been signed by the proper person or persons,
or upon any instruction, information, data, records or documents
provided the Bank or its agents or subcontractors by machine
readable input, telex, CRT data entry or other similar means
authorized by the Fund, and shall not be held to have notice of
any change of authority of any person, until receipt of written
notice thereof from the Fund. The Bank, its agents and
subcontractors shall also be protected and indemnified in
recognizing stock certificates which are reasonably believed to
bear the proper manual or facsimile signatures of the officers of
the Fund, and the proper countersignature of any former transfer
agent or former registrar, or of a co-transfer agent or
co-registrar.
6.3 In the event either party is unable to perform its obligations
under the terms of this Agreement because of acts of God,
strikes, equipment or transmission failure or damage reasonably
beyond its control, or other causes reasonably beyond its
control, such party shall not be liable for damages to the other
for any damages resulting from such failure to perform or
otherwise from such causes.
6.4 In order that the indemnification provisions contained in this
Section 6 shall apply, upon the assertion of a claim for which
the Fund may be required to indemnify the Bank, the Bank shall
promptly notify the Fund of such assertion, and shall keep the
Fund advised with respect to all developments concerning such
claim. The Fund shall have the option to participate with the
Bank in the defense of such claim or to defend against said
claim in its own name or in the name of the Bank. The Bank shall
in no case confess any claim or make any compromise in any case
in which the Fund may be required to indemnify the Bank except
with the Fund's prior written consent.
Registrant has obtained from a major insurance carrier a directors' and
officers' liability policy covering certain types of errors and omissions. In no
event will Registrant indemnify any of its trustees, officers, employees or
agents against any liability to which such
C-14
<PAGE>
person would otherwise be subject by reason of his willful misfeasance, bad
faith or gross negligence in the performance of his duties, or by reason of his
reckless disregard of the duties involved in the conduct of his office or under
his agreement with Registrant. Registrant will comply with Rule 484 under the
Securities Act of 1933 and Release No. 11330 under the Investment Company Act of
1940 in connection with any indemnification.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a trustee, officer, or controlling person of Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
trustee, officer, or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
(a) Investment Adviser: National City Investment Management Company
("IMC")
IMC performs investment advisory services for Registrant and certain
other investment advisory customers. IMC is an indirect wholly owned subsidiary
of National City Corporation (the "Corporation"). In 1998, the Corporation
consolidated its mutual fund investment management operations under IMC, a
registered investment adviser. As of August 5, 1998, IMC assumed National City
Bank's rights, responsibilities, liabilities and obligations under its Advisory
Agreements with the Registrant relating to each of the Funds, its Sub-Advisory
Agreement with National Asset Management Corporation relating to the Core Equity
Fund and the Total Return Advantage Fund, and its Sub-Administration Agreement
with SEI Fund Resources relating to each of the Funds, which Sub-Administration
Agreement is no longer in effect. As of August 1, 1998, Wellington Management
Company LLP (the "sub-adviser") ceased serving as the sub-adviser to the Small
Cap Growth Fund under a sub-advisory agreement with National City Bank and the
Small Cap Growth Team of IMC began making the investment decisions for the Fund.
To the knowledge of Registrant, none of the directors or officers of
IMC, except those set forth below, is or has been, at any time during the past
two calendar years, engaged in any other business, profession, vocation or
employment of a substantial nature, except that certain directors and officers
also hold various positions with, and engage in business for, the Corporation,
which owns all the outstanding stock of National City Bank of Michigan/Illinois
(formerly, First of America Bank, N.A.), which in turn owns all the outstanding
stock of IMC, or other subsidiaries of the Corporation. Set forth below are the
names and principal businesses of the directors and certain of the senior
executive officers of IMC who are engaged in any other business, profession,
vocation or employment of a substantial nature.
C-15
<PAGE>
NATIONAL CITY INVESTMENT MANAGEMENT COMPANY
<TABLE>
<CAPTION>
Position with
National
City Investment
Management Other Business Type of
Name Company Connections Business
---- --------------- -------------- --------
<S> <C> <C> <C>
Kathleen T. Barr Managing Director National City Bank Bank affiliate
of Proprietary
Mutual Funds
Michael Minnaugh Chairman of the National City Bank Bank affiliate
Board
Joseph C. Penko Vice President National City Bank Bank affiliate
and Treasurer
and Director of
Compliance and Finance
Donald L. Ross President, Chief National City Bank Bank affiliate
Investment Officer
and Managing Director
Sandra I. Kiely Managing Director National City Bank Bank affiliate
and Chief Administrative
Officer
Timothy F. McDonough Managing Director National City Bank Bank affiliate
of Client Services
</TABLE>
(b) Sub-Investment Adviser: National Asset Management Corporation
("NAM").
NAM performs sub-investment advisory services for the Registrant's
Total Return Advantage and Core Equity Funds. NAM is an investment adviser
registered under the Investment Advisers Act of 1940 (the "Advisers Act").
To the knowledge of Registrant, none of the directors or officers of
NAM, except those set forth below, is or has been at any time during the past
two calendar years engaged in any other business, profession, vocation or
employment of a substantial nature. Set forth below
C-16
<PAGE>
are the names and principal business of the directors and certain of the senior
executive officers of NAM who are engaged in any other business, profession,
vocation, or employment of a substantial nature.
NATIONAL ASSET MANAGEMENT CORPORATION
<TABLE>
<CAPTION>
Position with Other
National Asset Business Type of
Name Management Connections Business
---- ---------- ----------- --------
<S> <C> <C> <C>
William F. Chandler Founder and Principal
Carl W. Hafele CEO and Principal None
Michael C. Heyman Principal None
David B. Hiller Principal None
Stephen G. Mullins Principal None
Larry J. Walker Principal None
John W. Ferreby Principal None
Catherine R. Stodghill Principal None
Erik N. Evans Principal None
Brent A. Bell Principal None
Randall T. Zipfel COO and Principal None
Matt Bevin Principal None
Dave Chick Principal None
Mark Lattis Principal None
</TABLE>
ITEM 27. PRINCIPAL UNDERWRITER.
(a) Furnish the name of each investment company (other than
the Registrant) for which each principal underwriter currently
distributing securities of the Registrant also acts as a principal
underwriter, distributor or investment advisor.
C-17
<PAGE>
Registrant's distributor, SEI Investments Distribution Co. (the
"Distributor"), acts as distributor for:
SEI Daily Income Trust
SEI Liquid Asset Trust
SEI Tax Exempt Trust
SEI Index Funds
SEI Institutional Managed Trust
SEI Institutional International Trust
The Advisors' Inner Circle Fund
The Pillar Funds
CUFUND
STI Classic Funds
First American Funds, Inc.
First American Investment Funds, Inc.
The Arbor Fund
The PBHG Funds, Inc.
The Achievement Funds Trust
Bishop Street Funds
STI Classic Variable Trust
ARK Funds
Huntington Funds
SEI Asset Allocation Trust
TIP Funds
SEI Institutional Investments Trust
First American Strategy Funds, Inc
HighMark Funds
Armada Funds
PBHG Insurance Series Fund, Inc.
The Expedition Funds
Alpha Select Funds
Oak Associates Funds
The Nevis Fund, Inc.
CNI Charter Funds
The Armada Advantage Fund
Amerindo Funds Inc.
Huntington VA Funds
Friends Ivory Funds
SEI Insurance Products Trust
Pitcairn Funds
First Omaha Funds
Johnson Family Funds, Inc.
Millennium Funds, Inc.
ishares Inc.
ishares Trust
C-18
<PAGE>
The Distributor provides numerous financial services to investment
managers, pension plan sponsors, and bank trust departments. These
services include portfolio evaluation, performance measurement and
consulting services ("Funds Evaluation") and automated execution,
clearing and settlement of securities transactions ("MarketLink").
(b) Furnish the information required by the following table
with respect to each director, officer or partner of each principal
underwriter named in the answer to Item 21 of Part B. Unless otherwise
noted, the principal business address of each director or officer is
Oaks, PA 19456.
<TABLE>
<CAPTION>
Position and Office Positions and Offices
Name With Underwriter With Registrant
---- ---------------- ---------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman of the Board of Directors --
Richard B. Lieb Director, Executive Vice President --
Carmen V. Romeo Director --
Mark J. Held President & Chief Operating Officer --
Dennis J. McGonigle Executive Vice President --
Robert M. Silvestri Chief Financial Officer & Treasurer --
Leo J. Dolan, Jr. Senior Vice President --
Carl A. Guarino Senior Vice President --
Jack May Senior Vice President --
Hartland J. McKeown Senior Vice President --
Kevin P. Robins Senior Vice President --
Patrick K. Walsh Senior Vice President --
Wayne M. Withrow Senior Vice President --
Robert Aller Vice President --
Todd Cipperman Senior Vice President & General Counsel --
Robert Crudup Vice President & Managing Director --
Richard A. Deak Vice-President & Assistant Secretary --
Barbara Doyne Vice President --
Jeff Drennen Vice President --
Scott W. Dellorfano Vice-President & Managing Secretary --
Vic Galef Vice President & Managing Director --
Lydia A. Gavalis Vice President & Assistant Secretary --
Greg Gettinger Vice President & Assistant --
C-19
<PAGE>
<CAPTION>
Position and Office Positions and Offices
Name With Underwriter With Registrant
---- ---------------- ---------------
<S> <C> <C>
Secretary
Kathy Heilig Vice President --
Jeff Jacobs Vice President --
Samuel King Vice President --
Kim Kirk Vice President & Managing Director --
John Krzeminski Vice President & Managing Director --
Christine M. McCullough Vice President & Assistant Secretary --
Carolyn McLaurin Vice President & Managing Director --
John D. Anderson Vice President & Managing Director --
Mark Nagle Vice President --
Joanne Nelson Vice President --
Cynthia M. Parrish Vice President & Secretary
Rob Redican Vice President --
Maria Rinehart Vice President --
Daniel Spaventa Vice President --
Steven A. Gardner Vice President & Managing Secretary --
Lori L. White Vice President & Assistant Secretary --
Timothy D. Barto Vice President & Assistant Secretary Assistant Treasurer
William E. Zitelli, Jr. Vice President & Assistant Secretary --
Scott C. Fanatico Vice President & Managing Director --
John Kirk Vice President & Managing Director --
Alan H. Lauder Vice President & Managing Director --
Paul Lonergan Vice President & Managing Director --
Steve Smith Vice President --
Kathryn L. Stanton Vice President --
</TABLE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
(a) National City Investment Management Company ("IMC"), 1900 East
Ninth Street, Cleveland, Ohio, 44114-3484; and National City
Bank, Trust Operations, 4100 West 150th Street, Cleveland, Ohio
44135; (records
C-20
<PAGE>
relating to their functions as investment adviser and
custodian); National City Bank, Columbus Plaza, 155 E. Broad
Street, Columbus, Ohio 43251 (records relating to IMC's former
function as investment adviser to the predecessor Parkstone
Group of Funds); and National Asset Management Corporation,
101 South Fifth Street, Louisville, KY 40202 (records relating
to its function as sub-adviser to the Core Equity and Total
Return Advantage Funds).
(b) SEI Investments Distribution Co., One Freedom Valley Drive,
Oaks, Pennsylvania 19456 (records relating to its function as
distributor, accounting agent and administrator).
(c) Drinker Biddle & Reath LLP, One Logan Square, 18th and Cherry
Streets, Philadelphia, Pennsylvania 19103-6996 (Registrant's
Declaration of Trust, Code of Regulations and Minute Books).
(d) State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110 (records relating to its function
as transfer agent).
ITEM 29. MANAGEMENT SERVICES.
Inapplicable.
ITEM 30. UNDERTAKINGS.
None.
C-21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, Registrant has duly caused
this Post-Effective Amendment No. 54 to its Registration Statement to be signed
on its behalf by the undersigned, thereto duly authorized, in the City of
Philadelphia, Commonwealth of Pennsylvania, on the 15th day of December, 2000.
ARMADA FUNDS
Registrant
*Robert D. Neary
---------------------------------
Trustee and Chairman of the Board
Robert D. Neary
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 54 to Registrant's Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ John H. Leven Treasurer December 15, 2000
--------------------
John H. Leven
*John F. Durkott Trustee December 15, 2000
--------------------
John F. Durkott
*Robert J. Farling Trustee December 15, 2000
--------------------
Robert J. Farling
*Richard W. Furst Trustee December 15, 2000
--------------------
Richard W. Furst
*Gerald Gherlein Trustee December 15, 2000
--------------------
Gerald Gherlein
*Herbert Martens President and Trustee December 15, 2000
--------------------
Herbert Martens
* Robert D. Neary Trustee and Chairman December 15, 2000
-------------------- of the Board
Robert D. Neary
* J. William Pullen Trustee December 15, 2000
--------------------
J. William Pullen
*By: /s/ W. Bruce Mcconnel
---------------------
W. Bruce McConnel
Attorney-in-Fact
C-22
<PAGE>
ARMADA FUNDS
CERTIFICATE OF SECRETARY
The following resolution was duly adopted by the Board of Trustees of
Armada Funds on May 11, 2000 and remains in effect on the date hereof:
FURTHER RESOLVED, that the officers of Armada and the Group required to
execute amendments to Armada's and the Group's Registration Statements be, and
hereby are, authorized to execute a Power of Attorney appointing Herbert R.
Martens, Jr. and W. Bruce McConnel, III, and either of them, their true and
lawful attorney or attorneys, to execute in their name, place and stead, any and
all amendments to the Registration Statements, and all instruments necessary or
incidental in connection therewith, and to file the same with the Securities and
Exchange Commission; and either of said attorneys shall have full power of
substitution and resubstitution; and to do in the name and on behalf of said
officers, in any and all capacities, every act whatsoever requisite or necessary
to be done in the premises, as fully and to all intents and purposes as each or
any of said officers might or could do in person.
ARMADA FUNDS
By: /S/ W. BRUCE MCCONNEL
---------------------
W. Bruce McConnel
Secretary
Dated: December 15, 2000
<PAGE>
ARMADA FUNDS
POWER OF ATTORNEY
Know All Men by These Presents, that the undersigned, Robert D. Neary,
hereby constitutes and appoints Herbert R. Martens, Jr. and W. Bruce McConnel,
III, his true and lawful attorneys, to execute in his name, place, and stead, in
his capacity as Trustee or officer, or both, of Armada Funds, the Registration
Statement and any amendments thereto and all instruments necessary or incidental
in connection therewith, and to file the same with the Securities and Exchange
Commission; and said attorneys shall have full power and authority to do and
perform in his name and on his behalf, in any and all capacities, every act
whatsoever requisite or necessary to be done in the premises, as fully and to
all intents and purposes as he might or could do in person, said acts of said
attorneys being hereby ratified and approved.
DATED: September 17, 1997
/S/ ROBERT D. NEARY
-------------------
Robert D. Neary
<PAGE>
ARMADA FUNDS
POWER OF ATTORNEY
Know All Men by These Presents, that the undersigned, John F. Durkott,
hereby constitutes and appoints Herbert R. Martens, Jr. and W. Bruce McConnel,
III, his true and lawful attorneys, to execute in his name, place, and stead, in
his capacity as Trustee or officer, or both, of Armada Funds, the Registration
Statement and any amendments thereto and all instruments necessary or incidental
in connection therewith, and to file the same with the Securities and Exchange
Commission; and said attorneys shall have full power and authority to do and
perform in his name and on his behalf, in any and all capacities, every act
whatsoever requisite or necessary to be done in the premises, as fully and to
all intents and purposes as he might or could do in person, said acts of said
attorneys being hereby ratified and approved.
DATED: September 17, 1997
/S/ JOHN F. DURKOTT
-------------------
John F. Durkott
<PAGE>
ARMADA FUNDS
POWER OF ATTORNEY
Know All Men by These Presents, that the undersigned, Richard W. Furst,
hereby constitutes and appoints Herbert R. Martens, Jr. and W. Bruce McConnel,
III, his true and lawful attorneys, to execute in his name, place, and stead, in
his capacity as Trustee or officer, or both, of Armada Funds, the Registration
Statement and any amendments thereto and all instruments necessary or incidental
in connection therewith, and to file the same with the Securities and Exchange
Commission; and said attorneys shall have full power and authority to do and
perform in his name and on his behalf, in any and all capacities, every act
whatsoever requisite or necessary to be done in the premises, as fully and to
all intents and purposes as he might or could do in person, said acts of said
attorneys being hereby ratified and approved.
DATED: September 17, 1997
/S/RICHARD W. FURST
-------------------
Richard W. Furst
<PAGE>
ARMADA FUNDS
POWER OF ATTORNEY
Know All Men by These Presents, that the undersigned, Robert J.
Farling, hereby constitutes and appoints Herbert R. Martens, Jr. and W. Bruce
McConnel, III, his true and lawful attorneys, to execute in his name, place, and
stead, in his capacity as Trustee or officer, or both, of Armada Funds, the
Registration Statement and any amendments thereto and all instruments necessary
or incidental in connection therewith, and to file the same with the Securities
and Exchange Commission; and said attorneys shall have full power and authority
to do and perform in his name and on his behalf, in any and all capacities,
every act whatsoever requisite or necessary to be done in the premises, as fully
and to all intents and purposes as he might or could do in person, said acts of
said attorneys being hereby ratified and approved.
DATED: November 19, 1997
/S/ ROBERT J. FARLING
---------------------
Robert J. Farling
<PAGE>
ARMADA FUNDS
POWER OF ATTORNEY
Know All Men by These Presents, that the undersigned, J. William
Pullen, hereby constitutes and appoints Herbert R. Martens, Jr. and W. Bruce
McConnel, III, his true and lawful attorneys, to execute in his name, place, and
stead, in his capacity as Trustee or officer, or both, of Armada Funds, the
Registration Statement and any amendments thereto and all instruments necessary
or incidental in connection therewith, and to file the same with the Securities
and Exchange Commission; and said attorneys shall have full power and authority
to do and perform in his name and on his behalf, in any and all capacities,
every act whatsoever requisite or necessary to be done in the premises, as fully
and to all intents and purposes as he might or could do in person, said acts of
said attorneys being hereby ratified and approved.
DATED: September 17, 1997
/S/ J. WILLIAM PULLEN
----------------------
J. William Pullen
<PAGE>
ARMADA FUNDS
POWER OF ATTORNEY
Know All Men by These Presents, that the undersigned, Herbert R.
Martens, Jr., hereby constitutes and appoints W. Bruce McConnel, III, his true
and lawful attorney, to execute in his name, place, and stead, in his capacity
as Trustee or officer, or both, of Armada Funds, the Registration Statement and
any amendments thereto and all instruments necessary or incidental in connection
therewith, and to file the same with the Securities and Exchange Commission; and
said attorney shall have full power and authority to do and perform in his name
and on his behalf, in any and all capacities, every act whatsoever requisite or
necessary to be done in the premises, as fully and to all intents and purposes
as he might or could do in person, said acts of said attorney being hereby
ratified and approved.
DATED: September 17, 1997
/S/ HERBERT R. MARTENS, JR.
---------------------------
Herbert R. Martens, Jr.
<PAGE>
ARMADA FUNDS
POWER OF ATTORNEY
Know All Men by These Presents, that the undersigned, Gerald L.
Gherlein, hereby constitutes and appoints Herbert R. Martens, Jr. and W. Bruce
McConnel, III, his true and lawful attorneys, to execute in his name, place, and
stead, in his capacity as Trustee or officer, or both, of Armada Funds, the
Registration Statement and any amendments thereto and all instruments necessary
or incidental in connection therewith, and to file the same with the Securities
and Exchange Commission; and said attorneys shall have full power and authority
to do and perform in his name and on his behalf, in any and all capacities,
every act whatsoever requisite or necessary to be done in the premises, as fully
and to all intents and purposes as he might or could do in person, said acts of
said attorneys being hereby ratified and approved.
DATED: September 17, 1997
/S/ GERALD L. GHERLEIN
----------------------
Gerald L. Gherlein
<PAGE>
EXHIBIT INDEX
(a)(17) Certificate of Classification of Shares with respect to the
Aggressive Allocation Fund and the Conservative Allocation Fund.
(d)(10) Form of Advisory Agreement for the Aggressive Allocation and
Conservative Allocation Funds between Registrant and National City
Investment Management Company.
(h)(1) Co-Administration Agreement among Registrant, SEI Investments
Mutual Funds Services and National City Bank dated August 15,
2000, effective as of August 1, 2000.
(h)(6) Revised Shareholder Services Plan adopted by the Board of Trustees
on February 15, 1997, as revised on November 21, 2000.
(j)(1) Consent of Drinker Biddle & Reath LLP.
(j)(2) Consent of Ernst & Young LLP.
(j)(3) Consent of PricewaterhouseCoopers LLP.
(l)(28) Form of Purchase Agreement between Registrant and SEI Investments
Distribution Co. with respect to the Aggressive Allocation Fund
and Conservative Allocation Fund.
(o) Revised Plan Pursuant to Rule 18f-3 for Operation of a Multi-Class
System, as revised on November 21, 2000.
