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Rule 497(e)
Registration No. 33-21489
File No. 811-5545
THE KEYPREMIER PENNSYLVANIA
MUNICIPAL BOND FUND LOGO
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3435 Stelzer Road
Columbus, Ohio 43219
For current yield, purchase,
and redemption information,
call (800) 766-3960.
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The Sessions Group (the "Group") is an open-end management investment company.
The Group includes The KeyPremier Pennsylvania Municipal Bond Fund (the "Fund"),
which is a non-diversified portfolio of the Group. The Trustees of the Group
have divided the Fund's beneficial ownership into an unlimited number of
transferable units called shares (the "Shares").
Martindale Andres & Company, Inc., West Conshohocken, Pennsylvania (the
"Adviser"), which is a wholly owned subsidiary of Keystone Financial, Inc.
("Keystone"), acts as the investment adviser to the Fund.
The Fund seeks (1) income, which is exempt from federal income tax and
Pennsylvania state income tax, although such income may be subject to the
federal alternative minimum tax when received by certain Shareholders, and (2)
preservation of capital. The Fund will invest, under normal market conditions,
at least 80% of its net assets in Exempt Securities (as defined below).
The Fund's net asset value per share will fluctuate as the value of its
portfolio changes in response to changing market prices, market rates of
interest and/or other factors.
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS"),
Columbus, Ohio, acts as the Fund's administrator and distributor. BISYS Fund
Services, Inc., Columbus, Ohio, an affiliate of BISYS, acts as the Fund's
transfer agent (the "Transfer Agent") and performs certain fund accounting
services for the Fund.
Additional information about the Fund and the Group, contained in a Statement
of Additional Information, has been filed with the Securities and Exchange
Commission and is available upon request without charge by writing to the Fund
at its address or by calling the Fund at the telephone number shown above. The
Statement of Additional Information bears the same date as this Prospectus and
is incorporated by reference in its entirety into this Prospectus.
This Prospectus sets forth concisely the information about the Fund and the
Group that a prospective investor ought to know before investing. Investors
should read this Prospectus and retain it for future reference.
THE SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, THE ADVISER, KEYSTONE OR ANY OF THEIR AFFILIATES. SUCH SHARES ARE
NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY, AND AN INVESTMENT IN THE FUND
INVOLVES CERTAIN INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is July 9, 1996, as supplemented as of December 6,
1996.
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PROSPECTUS SUMMARY
SHARES OFFERED: Units of beneficial interest ("Shares") of the Fund, one
separate portfolio of The Sessions Group, an Ohio business trust (the "Group").
OFFERING PRICE: The public offering price of the Fund is equal to the net
asset value per share plus a sales charge of 4.5% of the public offering price,
reduced on investments of $100,000 or more (See "How to Purchase and Redeem
Shares--Sales Charges"). Under certain circumstances, the sales charge may be
eliminated (See "How to Purchase and Redeem Shares--Sales Charge Waivers").
MINIMUM PURCHASE: $1,000 minimum initial investment with $25 minimum
subsequent investments. Such minimum initial investment is reduced for investors
using the Auto Invest Plan described herein and for employees of the Adviser and
its affiliates.
TYPE OF COMPANY: The Fund is a series of an open-end, management investment
company. The Fund is a non-diversified fund.
INVESTMENT OBJECTIVES: (1) Income which is exempt from federal income tax
and Pennsylvania state income tax, although such income may be subject to the
federal alternative minimum tax when received by certain Shareholders, and (2)
preservation of capital.
INVESTMENT POLICIES: Under normal market conditions, the Fund will invest
at least 80% of its net assets in municipal securities issued by or on behalf of
the Commonwealth of Pennsylvania or any county, political subdivision or
municipality thereof, including any agency, board, authority or commission of
any of the foregoing, and debt obligations issued by the Government of Puerto
Rico, which generate interest income which is exempt from federal and
Pennsylvania state income taxes (but may be subject to the federal alternative
minimum tax when received by certain Shareholders).
RISK FACTORS AND SPECIAL CONSIDERATIONS: An investment in the Fund is
subject to certain risks, as set forth in detail under "Investment Objectives
and Policies--Risk Factors and Investment Techniques." As with other mutual
funds, there can be no assurance that the Fund will achieve its investment
objectives. The Fund, to the extent set forth under "Investment Objectives and
Policies," may engage in the following practices: the purchase of securities
from primarily one state, the use of repurchase agreements and reverse
repurchase agreements, entering into options and futures transactions, the short
selling of securities, the lending of portfolio securities, and the purchase of
securities on a when-issued or delayed-delivery basis.
INVESTMENT ADVISER: Martindale Andres & Company, Inc. (the "Adviser").
DIVIDENDS: Dividends from net income are declared and generally paid
monthly. Net realized capital gains are distributed at least annually.
DISTRIBUTOR: BISYS Fund Services Limited Partnership d/b/a BISYS Fund
Services ("BISYS").
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FEE TABLE
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price).......... 4.50%
ESTIMATED ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees After Voluntary Fee Waiver1.......................................... 0%
12b-1 Fees........................................................................... None
Other Expenses2...................................................................... .29
----
Estimated Total Fund Operating Expenses After Voluntary Fee Waiver1.................. .29%
====
</TABLE>
Example You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
- ------ -------
<S> <C>
$ 48 $54
---- ---
</TABLE>
The purpose of the above table is to assist a potential purchaser of Shares of
the Fund in understanding the various costs and expenses that an investor in the
Fund will bear directly or indirectly. Such expenses do not include any fees
charged by the Adviser or any of its affiliates to its customer accounts which
may have invested in Shares of the Fund. See "Management of the Group" and
"General Information" for a more complete discussion of the Shareholder
transaction expenses and annual operating expenses of the Fund. The foregoing
example should not be considered a representation of past or future expenses.
Actual expenses may be greater or less than those shown.
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1 The Adviser has agreed with the Group to waive all of its investment advisory
fees through December 31, 1996. Absent such voluntary fee waiver, Management
Fees and Estimated Total Fund Operating Expenses would be 0.60% and 0.89%,
respectively.
2 "Other Expenses" are estimated for the current fiscal year.
3
<PAGE> 4
PERFORMANCE INFORMATION
From time to time performance information for the Fund showing the Fund's
average annual total return, aggregate total return, yield and tax equivalent
yield may be presented in advertisements, sales literature and shareholder
reports. SUCH PERFORMANCE FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT
INTENDED TO INDICATE FUTURE PERFORMANCE. Average annual total return will be
calculated for the period since commencement of operations for the Fund and will
reflect the imposition of the maximum sales charge. Average annual total return
is measured by comparing the value of an investment in the Fund at the beginning
of the relevant period to the redeemable value of the investment at the end of
the period (assuming immediate reinvestment of any dividends or capital gains
distributions), which figure is then annualized. Aggregate total return is
calculated similarly to average annual total return except that the return
figure is aggregated over the relevant period instead of annualized. Yield will
be computed by dividing the Fund's net investment income per share earned during
a recent one-month period by the Fund's per share maximum offering price
(reduced by any undeclared earned income expected to be paid shortly as a
dividend) on the last day of the period and annualizing the result. Tax
equivalent yield of the Fund demonstrates the taxable yield necessary to produce
an after-tax yield equivalent to the yield of the Fund. The Fund may also
present its average annual total return, aggregate total return, yield, and tax
equivalent yield excluding the effect of a sales charge.
In addition, from time to time, the Fund may present its distribution rate in
supplemental sales literature and in shareholder reports, both of which must be
accompanied or preceded by a prospectus. Distribution rates will be computed by
dividing the distribution per share made by the Fund over a twelve-month period
by the maximum offering price per share at the end of that period. The
calculation of income in the distribution rate includes both income and capital
gain dividends and does not reflect unrealized gains or losses, although the
Fund may also present a distribution rate excluding the effect of capital gains
and/or a sales charge. The distribution rate differs from the yield, because it
includes capital gain dividends which are often non-recurring in nature, whereas
yield does not include such items.
Investors may also judge the performance of the Fund by comparing or
referencing it to the performance of other mutual funds with comparable
investment objectives and policies through various mutual fund or market indices
and to data prepared by various services, which indices or data may be published
by such services or by other services or publications. In addition to
performance information, general information about the Fund that appears in such
publications may be included in advertisements, sales literature and reports to
Shareholders.
Yield and total return are generally functions of market conditions, interest
rates, types of investments held, and operating expenses. Consequently, current
yields and total return will fluctuate and are not necessarily representative of
future results. Any fees charged by Keystone or by any of its affiliates,
including the Adviser, to its customer accounts which may have invested in
Shares of the Fund will not be included in performance calculations; such fees,
if charged, will reduce the actual performance from that quoted. In addition, if
the Adviser or BISYS voluntarily reduces all or part of its fees for the Fund,
as discussed below, the yield and total return for the Fund will be higher than
they would otherwise be in the absence of such voluntary fee reductions.
INVESTMENT OBJECTIVES AND POLICIES
IN GENERAL
The investment objectives of the Fund are to seek (1) income which is exempt
from federal
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income tax and Pennsylvania state income tax, although such income may be
subject to the federal alternative minimum tax when received by certain
Shareholders, and (2) preservation of capital.
The investment objectives with respect to the Fund are non-fundamental
policies and as such may be changed by the Group's trustees without the vote of
the Shareholders of the Fund. There can be no assurance that the investment
objectives of the Fund will be achieved.
Under normal market conditions, at least 80% of the net assets of the Fund
will be invested in a portfolio of obligations consisting of bonds, notes,
commercial paper and certificates of indebtedness, issued by or on behalf of the
Commonwealth of Pennsylvania, or any county, political subdivision or
municipality thereof (including any agency, board, authority or commission of
any of the foregoing), the interest on which, in the opinion of bond counsel to
the issuer, is exempt from federal and Pennsylvania income taxes (but may be
treated as a preference item for individuals for purposes of the federal
alternative minimum tax) ("Pennsylvania Exempt Securities") and in debt
obligations issued by the Government of Puerto Rico and such other governmental
entities whose debt obligations, either by law or treaty, generate interest
income which is exempt from federal and Pennsylvania state income taxes (but may
be treated as a preference item for individuals for purposes of the federal
alternative minimum tax) (together, with Pennsylvania Exempt Securities, called
"Exempt Securities"). In addition, under normal market conditions, at least 65%
of the Fund's net assets will be invested in Pennsylvania Exempt Securities. As
a matter of fundamental policy, under normal market conditions, at least 80% of
the net assets of the Fund will be invested in securities, the interest on which
is exempt from federal income tax but may be subject to the federal alternative
minimum tax when received by certain Shareholders. To the extent such securities
are not Pennsylvania Exempt Securities, the income therefrom may be subject to
Pennsylvania income taxes. With respect to the Fund's objective of preserving
capital, the Adviser will attempt to protect principal value in a rising
interest rate environment and enhance principal value in a declining interest
rate environment. Of course, there can be no assurance that the Fund will
achieve its investment objectives.
The two principal classifications of Exempt Securities which may be held by
the Fund are "general obligation" securities and "revenue" securities. General
obligation securities are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest. Revenue
securities are payable only from the revenues derived from a particular facility
or class of facilities or, in some cases, from proceeds of a special excise tax
or other specific revenue source such as the user of the facility being
financed. Private activity bonds held by the Fund are in most cases revenue
securities and are not payable from the unrestricted revenues of the issuer.
Consequently, the credit quality of private activity bonds is usually directly
related to the credit standing of the corporate user of the facility involved.
The Fund may also invest in "moral obligation" securities, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
securities is unable to meet its debt service obligations from current revenues,
it may draw on a reserve fund, the restoration of which is a moral commitment
but not a legal obligation of the state or municipality which created the
issuer.
The Fund invests in Exempt Securities which are rated at the time of purchase
within the four highest rating groups assigned by one or more appropriate
nationally recognized statistical rating organizations ("NRSROs") (e.g.,
Standard & Poor's Corporation or Moody's Investor Services, Inc.) for bonds and
within the two highest rating groups for notes, tax-ex-
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empt commercial paper, or variable rate demand obligations, as the case may be.
The Fund may also purchase Exempt Securities which are unrated at the time of
purchase but are determined to be of comparable quality by the Adviser. The
applicable Exempt Securities ratings are described in the Appendix to the
Statement of Additional Information. For a discussion of debt securities rated
within the fourth highest rating group assigned by an NRSRO, see "Risk Factors
and Investment Techniques--Medium Grade Securities" below.
The Fund may invest up to 20% of the value of its net assets in Exempt
Securities which, in the case of bonds, are rated lower than the fourth highest
rating group by an appropriate NRSRO and as low as "B" by an appropriate NRSRO.
Investments rated Ba or lower by Moody's Investors Services, Inc. ("Moody's")
and BB or lower by Standard & Poor's Corporation ("S&P") ordinarily provide
higher yields by involve greater risk because of their speculative
characteristics. Debt rated B by S&P is regarded, on balance, as predominately
speculative with respect to the capacity to pay interest and repay principal in
accordance with the terms of the obligation.
The Fund expects to maintain a dollar-weighted average portfolio maturity of
three to ten years. Within this range, the Adviser may vary the average maturity
substantially in anticipation of a change in the interest rate environment.
There is no limit as to the maturity of any individual security.
The Fund may hold uninvested cash reserves pending investment during temporary
defensive periods or if, in the opinion of the Adviser, suitable Exempt
Securities are unavailable. There is no percentage limitation on the amount of
assets which may be held uninvested. Uninvested cash reserves will not earn
income.
Under normal market conditions, at least 80% of the net assets of the Fund
will be invested in Exempt Securities. However, up to 20% of the net assets of
the Fund may be invested in taxable obligations if, for example, suitable
tax-exempt obligations are unavailable or for cash management purposes. In
addition, the Fund may invest up to 100% of its assets in such taxable
securities when deemed appropriate for temporary defensive purposes as
determined by the Adviser to be warranted due to market conditions. Such taxable
obligations consist of obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities (including U.S. Treasury securities stripped
of the unmatured interest coupons and such stripped interest coupons),
certificates of deposit, bankers' acceptances and demand and time deposits of
selected banks, securities of other investment companies, and commercial paper
meeting the Fund's quality standards (as described above) for tax-exempt
commercial paper, and such taxable obligations which may be subject to
repurchase agreements. These obligations are described further in the Statement
of Additional Information. Under such circumstances and during the period of
such investment, the Fund may not achieve its stated investment objectives.
The Fund has no limit to the extent that it may invest its net assets in
Exempt Securities, the interest income from which may be treated as a preference
item for purposes of the federal alternative minimum tax. To the extent the Fund
invests in these securities, 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. For further information relating to the
types of Exempt Securities which will be included in income subject to
alternative minimum tax, see "Additional Information--Additional Tax Information
With Respect to the Pennsylvania Bond Fund" in the Statement of Additional
Information.
Opinions relating to the validity of Exempt Securities and to the exemption of
interest thereon from federal and Pennsylvania state income taxes are normally
rendered by bond
6
<PAGE> 7
counsel to the respective issuers at the time of issuance. Neither the Fund nor
the Adviser will review the proceedings relating to the issuance of Exempt
Securities or the basis for such opinions.
Exempt Securities purchased by the Fund may include rated and unrated variable
and floating rate notes the interest on which is tax-exempt. A variable rate
note is one whose terms provide for the adjustment of its interest rate on set
dates. A floating rate note is one whose terms provide for the adjustment of its
interest rate whenever a specified interest rate changes and which, at any time,
can reasonably be expected to have a market value that approximates its par
value. Such notes are frequently not rated by credit rating agencies; however,
unrated variable and floating rate notes purchased by the Fund will be
determined by the Adviser [under guidelines established by the Group's Board of
Trustees] to be of comparable quality at the time of purchase to rated
instruments eligible for purchase under the Fund's investment policies. In
making such determinations, the Adviser will consider the earning power, cash
flow and other liquidity ratios of the issuers of such notes and will
continuously monitor their financial condition.
The Fund may also purchase floating and variable rate demand notes and bonds,
which are tax exempt obligations ordinarily having stated maturities in excess
of one year, but which permit the holder to demand payment of principal at any
time, or at specified intervals. Variable rate demand notes include master
demand notes which are obligations that permit the Fund to invest fluctuating
amounts, at varying rates of interest, pursuant to direct arrangements between
the Fund, as lender, and the borrower. These obligations permit daily changes in
the amount borrowed. Frequently, such obligations are secured by letters of
credit or other credit support arrangements provided by banks. Use of letters of
credit or other credit support arrangements will not adversely affect the
tax-exempt status of these obligations. Because these obligations are direct
lending arrangements between the lender and borrower, it is not contemplated
that such instruments generally will be traded, and there generally is no
established secondary market for these obligations, although they are redeemable
at face value, plus accrued interest. Accordingly, where these obligations are
not secured by letters of credit or other credit support arrangements, the
Fund's right to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. Each obligation purchased by the Fund will
meet the quality criteria established for the purchase of Exempt Securities. The
Adviser will consider on an ongoing basis the creditworthiness of the issuers of
the floating and variable rate demand obligations in the Fund's portfolio.
Variable and floating rate notes which either are not readily marketable or do
not have a demand feature that will permit the Fund to receive payment of the
principal within seven days after demand by the Fund will be deemed to be
illiquid securities for purposes of complying with the Fund's limitation on
investments in illiquid securities
The Fund may purchase from financial institutions participation interests in
Exempt Securities (such as industrial development bonds and municipal
lease/purchase agreements). A participation interest gives the Fund an undivided
interest in the Exempt Security in the proportion that the Fund's participation
interest bears to the total principal amount of the Exempt Security. These
instruments may have fixed, floating or variable rates of interest. If the
participation interest is unrated, it will be backed by an irrevocable letter of
credit or guarantee of a bank that the Board of Trustees has determined meets
the prescribed quality standards for banks in whose securities the Fund may
invest, or the payment obligation otherwise will be collateralized by U.S.
Government securities. For certain participation interests, the Fund will have
the right to
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<PAGE> 8
demand payment, on not more than seven days' notice, for all or any part of the
Fund's participation interest in the Exempt Security, plus accrued interest. As
to these instruments, the Fund intends to exercise its right to demand payment
only upon a default under the terms of the Exempt Security, as needed to provide
liquidity to meet redemptions, or to maintain or improve the quality of its
investment portfolio.
The Fund may purchase custodial receipts representing the right to receive
certain future principal and interest payments on Exempt Securities which
underlie the custodial receipts. A number of different arrangements are
possible. In a typical custodial receipt arrangement, an issuer or a third party
owner of Exempt Securities deposits such obligations with a custodian in
exchange for two classes of custodial receipts. The two classes have different
characteristics, but, in each case, payments on the two classes are based on
payments received on the underlying Exempt Securities. One class has the
characteristics of a typical auction rate security, where at specified intervals
its interest rate is adjusted, and ownership changes, based on an auction
mechanism. This class' interest rate generally is expected to be below the
coupon rate of the underlying Exempt Securities and generally is at a level
comparable to that of an Exempt Security of similar quality and having a
maturity equal to the period between interest rate adjustments. The second class
bears interest at a rate that exceeds the interest rate typically borne by a
security of comparable quality and maturity; this rate also is adjusted, but in
this case inversely to changes in the rate of interest of the first class. If
the interest rate on the first class exceeds the coupon rate of the underlying
Exempt Securities, its interest rate will exceed the rate paid on the second
class. In no event will the aggregate interest paid with respect to the two
classes exceed the interest paid by the underlying Exempt Securities. The value
of the second class and similar securities should be expected to fluctuate more
than the value of an Exempt Security of comparable quality and maturity and
their purchase by the Fund should increase the volatility of its net asset value
and, thus, its price per share. These custodial receipts are sold in private
placements. The Fund also may purchase directly from issuers, and not in a
private placement, Exempt Securities having characteristics similar to custodial
receipts. These securities may be issued as part of a multi-class offering and
the interest rate on certain classes may be subject to a cap or a floor.
The Fund may invest in zero coupon securities which are debt securities issued
or sold at a discount from their face value which do not entitle the holder to
any periodic payment of interest prior to maturity or a specified redemption
date (or cash payment date). The amount of the discount varies depending on the
time remaining until maturity or cash payment date, prevailing interest rates,
liquidity of the security and perceived credit quality of the issuer. Zero
coupon securities also may take the form of debt securities that have been
stripped of their unmatured interest coupons, the coupons themselves and
receipts or certificates representing interests in such stripped debt
obligations and coupons. The market prices of zero coupon securities generally
are more volatile than the market prices of interest-bearing securities and are
likely to respond to a greater degree to changes in interest rates than
interest-bearing securities having similar maturities and credit qualities. For
further information regarding zero coupon securities, see "Additional Tax
Information With Respect to the Pennsylvania Bond Fund" in the Statement of
Additional Information.
An increase in interest rates will generally reduce the value of the
investments in the Fund, and a decline in interest rates will generally increase
the value of those investments. Depending upon the prevailing market conditions,
the Adviser may purchase debt securities at a discount from face value, which
produces a yield greater than the coupon rate. Conversely,
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<PAGE> 9
if debt securities are purchased at a premium over face value, the yield will be
lower than the coupon rate. In making investment decisions, the Adviser will
consider many factors other than current yield, including the preservation of
capital, maturity, and yield to maturity.
The Fund may use one or more of the investment techniques described below. Use
of such techniques may cause the Fund to earn income which would be taxable to
its Shareholders.
RISK FACTORS AND INVESTMENT TECHNIQUES
Even though interest-bearing securities are investments which promise a stable
stream of income, the prices of such securities are inversely affected by
changes in interest rates and, therefore, are subject to the risk of market
price fluctuations. Certain securities that may be purchased by the Fund, such
as those with interest rates that fluctuate directly or indirectly based on
multiples of a stated index, are designed to be highly sensitive to changes in
interest rates and can subject the holders thereof to extreme reductions of
yield and possibly loss of principal. The values of fixed-income securities also
may be affected by changes in the credit rating or financial condition of the
issuing entities. The Fund's net asset value generally will not be stable and
should fluctuate based upon changes in the value of the Fund's portfolio
securities. Securities in which the Fund invests may earn a higher level of
current income than certain shorter-term or higher quality securities which
generally have greater liquidity, less market risk and less fluctuation in
market value.
Certain municipal lease/purchase obligations in which the Fund may invest may
contain "non-appropriation" clauses which provide that the municipality has no
obligation to make lease payments in future years unless money is appropriated
for such purpose on a yearly basis. Although "non-appropriation" lease/purchase
obligations are secured by the leased property, disposition of the leased
property in the event of foreclosure might prove difficult. In evaluating the
credit quality of a municipal lease/purchase obligation that is unrated, the
Adviser will consider, on an ongoing basis, a number of factors including the
likelihood that the issuing municipality will discontinue appropriating funding
for the leased property.
The Fund may employ, among others, the investment techniques described below.
Use of these techniques may give rise to taxable income. Options and futures
transactions and certain variable and floating rate securities involve so-called
"derivative securities." A derivative is generally defined as an instrument
whose value is based upon or derived from some underlying index, reference rate
(e.g., interest rates), security, commodity or other asset.
Zero Coupon Securities. Federal income tax law requires the holder of a zero
coupon security or of certain pay-in-kind bonds to accrue income with respect to
these securities prior to the receipt of cash payments. To maintain its
qualification as a regulated investment company and avoid liability for Federal
income taxes, the Fund may be required to distribute such income accrued with
respect to these securities and may have to dispose of portfolio securities
under disadvantageous circumstances in order to generate cash to satisfy these
distribution requirements.
Risks of Non-Diversification. Potential Shareholders should consider the fact
that the Fund's portfolio consists primarily of securities issued by the
Commonwealth of Pennsylvania (the "Commonwealth"), its municipalities and
authorities and should realize that the Fund's performance is closely tied to
general economic conditions within the Commonwealth as a whole and to economic
conditions within particular industries and geographic areas located within the
Commonwealth.
Although the General Fund of the Commonwealth (the principal operating fund of
the
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<PAGE> 10
Commonwealth) experienced deficits in fiscal 1990 and 1991, tax increases and
spending decreases have resulted in surpluses the last four years; as of June
30, 1994, the General Fund had a surplus of $892.9 million. The deficit in the
Commonwealth's unreserved/undesignated funds also has been eliminated, and there
was a surplus of $79.2 million as of June 30, 1994.
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 nonagricultural 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 Pennsylvania Exempt Securities in the Fund or the ability of the
respective obligors to make payments of interest and principal due on such
Securities.
Certain litigation is pending against the Commonwealth that could adversely
affect the ability of the Commonwealth to pay debt service on its obligations
including suits relating to the following matters: (i) the ACLU has filed suit
in federal court demanding additional funding for child welfare services; the
Commonwealth settled a similar suit in the Commonwealth Court of Pennsylvania
and is seeking the dismissal of the federal suit, inter alia 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. (No available
estimate of potential liability); (ii) 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 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; (iii) litigation has been 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, and the state case is in
the pre-trail stage (no available estimate of potential liability); and (iv)
Envirotest/Synterra Partners ("Envirotest") has filed suit against the
Commonwealth asserting that it sustained damages in excess of $350 million, as a
result of investments it made in reliance on a contract to conduct emissions
testing before the emission testing program was suspended. Envirotest has
entered into a Standstill Agreement with the Commonwealth pursuant to which the
parties will attempt to resolve Envirotest's claims (no available estimates of
potential liability).
Although there can be no assurance that such conditions will continue, the
Commonwealth's general obligation bonds are currently rated AA- by Standard &
Poor's and A1 by Moody's and Philadelphia's and Pittsburgh's general obligation
bonds are currently rated BBB- and BBB+ respectively by Standard & Poor's and
Baa and Baa1 respectively by Moody's.
The City of Philadelphia (the "City") experienced a series of General Fund
deficits for Fiscal Years 1988 through 1992 and, while its general financial
situation has improved, the City is still seeking a long-term solution for its
economic difficulties. The audited balance of
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the City's General Fund as of June 30, 1994 was a surplus of $15.4 million and
preliminary unaudited financial statements as of June 30, 1995 project a surplus
of approximately $59.6 million.
In recent years an authority of the Commonwealth, the Pennsylvania
Intergovernmental Cooperation Authority ("PICA"), has issued approximately $1.4
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 1995. PICA's power to issue further bonds to
finance capital projects expired on December 31, 1994. PICA may continue to
issue bonds to finance cash flow deficits until December 31, 1996, and its
authority to refund existing debt will not expire.
The Fund's classification as "non-diversified" investment companies means that
the proportion of the Fund's assets that may be invested in the securities of a
single issuer is not limited by the Investment Company Act of 1940 (the "1940
Act"). However, 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"), which requires the Fund generally to invest as of
the end of each fiscal quarter, with respect to 50% of its total assets, not
more than 5% of such assets in the obligations of a single issuer; as to the
remaining 50% of its total assets, the Fund is not so restricted. In no event,
however, may the Fund invest more than 25% of its total assets in the
obligations of any one issuer as of the end of each fiscal quarter. Since a
relatively high percentage of the Fund's assets may be invested in the
obligations of a limited number of issuers, some of which may be within the same
economic sector, the Fund's portfolio securities may be more susceptible to any
single economic, political or regulatory occurrence than the portfolio
securities of a diversified investment company.
Repurchase Agreements. Securities held by the Fund may be subject to
repurchase agreements. Under the terms of a repurchase agreement, the Fund would
acquire securities, in exchange for cash from member banks of the Federal
Deposit Insurance Corporation and/or from registered broker-dealers which the
Adviser deems creditworthy under guidelines approved by the Group's Board of
Trustees. The seller agrees to repurchase such securities at a mutually agreed
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. Securities
subject to repurchase agreements must be of the same type and quality as those
in which the Fund may invest directly. Repurchase agreements are considered to
be loans by the Fund under the 1940 Act. For further information about
repurchase agreements and the related risks, see "Investment Objectives and
Policies--Additional Information on Portfolio Instruments-- Repurchase
Agreements" in the Statement of Additional Information.
Reverse Repurchase Agreements. The Fund may borrow funds by entering into
reverse repurchase agreements in accordance with the investment restrictions
described below. Pursuant to such agreements, the Fund would sell portfolio
securities to financial institutions such as banks and broker-dealers, and agree
to repurchase them at a mutually agreed-upon date and price. At the time the
Fund enters into a reverse repurchase agreement, it will place in a segregated
custodial account assets such as U.S. Government securities or other liquid
high-grade debt securities consistent with the Fund's investment restrictions
having a value equal to the repurchase price (including accrued interest), and
will continually monitor the account to ensure that such equivalent
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<PAGE> 12
value is maintained at all times. Reverse repurchase agreements involve the risk
that the market value of the securities sold by the Fund may decline below the
price at which the Fund is obligated to repurchase the securities. Reverse
repurchase agreements are considered to be borrowings by the Fund under the 1940
Act and therefore a form of leverage. The Fund may experience a negative impact
on its net asset value if interest rates rise during the term of a reverse
repurchase agreement. The Fund generally will invest the proceeds of such
borrowings only when such borrowings will enhance the Fund's liquidity or when
the Fund reasonably expects that the interest income to be earned from the
investment of the proceeds is greater than the interest expense of the
transaction. For further information about reverse repurchase agreements, see
"Investment Objectives and Policies--Additional Information on Portfolio
Instruments--Reverse Repurchase Agreements" in the Statement of Additional
Information.
Except as otherwise disclosed to the Shareholders of the Fund, the Group will
not execute portfolio transactions through, acquire portfolio securities issued
by, make savings deposits in, or enter into repurchase or reverse repurchase
agreements with the Adviser, BISYS, or their affiliates, and will not give
preference to the Adviser's correspondents with respect to such transactions,
securities, savings deposits, repurchase agreements, and reverse repurchase
agreements.
When Issued or Delayed Delivery Securities. The Fund may purchase securities
on a when-issued or delayed-delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The Fund will engage in when-issued and delayed-delivery
transactions only for the purpose of acquiring portfolio securities consistent
with and in furtherance of its investment objectives and policies, not for
investment leverage, although such transactions represent a form of leveraging.
When-issued securities are securities purchased for delivery beyond the normal
settlement date at a stated price and yield and thereby involve a risk that the
yield obtained in the transaction will be less than those available in the
market when delivery takes place. The Fund will generally not pay for such
securities or start earning interest on them until they are received on the
settlement date. When the Fund agrees to purchase such securities, however, its
custodian will set aside cash or liquid securities equal to the amount of the
commitment in a separate account. Securities purchased on a when-issued basis
are recorded as an asset and are subject to changes in the value based upon
changes in the general level of interest rates. In when-issued and
delayed-delivery transactions, the Fund relies on the seller to complete the
transaction; the seller's failure to do so may cause the Fund to miss a price or
yield considered to be advantageous.
Medium-Grade Securities. As described above, the Fund may invest in debt
securities within the fourth highest rating group assigned by an NRSRO (e.g. BBB
or Baa by S&P and Moody's, respectively) and comparable unrated securities.
These types of debt securities are considered by Moody's to have some
speculative characteristics, and while interest payments and principal security
appears adequate for the present, such securities lack certain protective
elements or may be characteristically unreliable over any great period of time.
Should subsequent events cause the rating of a debt security purchased by the
Fund to fall below BBB or Baa, as the case may be, the Adviser will consider
such an event in determining whether the Fund should continue to hold that
security. In no event, however, would the Fund be required to liquidate any such
portfolio security where the Fund would suffer a loss on the sale of such
security.
Short Sales. The Fund will from time to time sell securities short. Short
sales are effected when the Adviser believes that the price of a
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<PAGE> 13
particular security will decline, and involve the sale of a security which the
Fund does not own in the hope of purchasing the same security at a later date at
a lower price. When the Fund sells a security short, it will borrow the same
security from a broker or other institution to complete the sale. The Fund may
make a profit or incur a loss depending upon whether the market price of the
security sold short decreases or increases between the date of the short sale
and the date on which the Fund must replace the borrowed security. An increase
in the value of a security sold short by the Fund over the price at which it was
sold short will result in a loss to the Fund, and there can be no assurance that
the Fund will be able to close out the position at any particular time or at an
acceptable price.
All short sales must be fully collateralized, and the Fund will not sell
securities short if, immediately after and as a result of the sale, the value of
all securities sold short by the Fund exceeds 25% of its total assets.
Writing Covered Call and Put Options. The Fund may write covered call and
covered put options on securities, or futures contracts regarding securities, in
which the Fund may invest, in an effort to realize additional income. A put
option 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. A call option gives the
purchaser of the option the right to buy, and a writer has the obligation to
sell, the underlying security at the stated exercise price at any time prior to
the expiration of the option, regardless of the market price of the security.
The premium paid to the writer is consideration for undertaking the obligations
under the option contract. Put and call options purchased by the Fund will be
valued at the last sale price, or in the absence of such a price, at the mean
between bid and asked price. Such options will be listed on national securities
or futures exchanges. The Fund may write covered call options as a means of
seeking to enhance its taxable income through the receipt of premiums in
instances in which the Adviser determines that the underlying securities or
futures contracts are not likely to increase in value above the exercise price.
The Fund also may seek to earn additional taxable income through the receipt of
premiums by writing put options. Covered call options give the purchaser the
right, for a stated period, to buy the underlying securities from the Fund at a
stated price, while put options give the purchaser the right, for a stated
period, to sell the underlying securities to the Fund at a stated price. By
writing a call option, the Fund limits its opportunity to profit from any
increase in the market value of the underlying security above the exercise price
of the option; by writing a put option, the Fund assumes the risk that it may be
required to purchase the underlying security at a price in excess of its then
current market value.
When the Fund writes an option, an amount equal to the net premium (the
premium less the commission) received by the Fund is included in the liability
section of the Fund's statement of assets and liabilities as a deferred credit.
The amount of the deferred credit will be subsequently marked-to-market to
reflect the current value of the option written. The current value of the traded
option is the last sale price or, in the absence of a sale, the mean between bid
and asked price. If an option expires on the stipulated expiration date or if
the Fund enters into a closing purchase transaction, it will realize a gain (or
a loss if the cost of a closing purchase transaction exceeds the net premium
received when the option is sold) and the deferred credit related to such option
will be eliminated. If an option is exercised, the Fund may deliver the
underlying security in the open market. In either event, the proceeds of the
sale will be increased by the net premium originally received and the Fund will
realize a gain or loss.
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The Fund also may acquire "puts" with respect to Exempt Securities held in its
portfolio. A put is a right to sell a specified security (or securities) within
a specified period of time at a specified exercise price. The Fund may sell,
transfer, or assign a put only in conjunction with the sale, transfer, or
assignment of the underlying security or securities.
The amount payable to the Fund upon its exercise of a "put" is normally (i)
the Fund's acquisition cost of the Exempt Securities (excluding any accrued
interest which the Fund paid on the acquisition), less any amortized market
premium or plus any amortized market or original issue discount during the
period the Tax-Free Fund owned the securities, plus (ii) all interest accrued on
the securities since the last interest payment date during that period.
Puts may be acquired by the Fund to facilitate the liquidity of its portfolio
assets. Puts may also be used to facilitate the reinvestment of the Fund's
assets at a rate of return more favorable than that of the underlying security.
Puts may, under certain circumstances, also be used to shorten the maturity of
underlying variable rate or floating rate securities for purposes of calculating
the remaining maturity of those securities.
The Fund expects that it will generally acquire puts only where the puts are
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, the Fund may pay for puts either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to the puts (thus reducing the yield to maturity otherwise available for the
same securities).
The Fund intends to enter into puts only with dealers, banks, and
broker-dealers which, in the Adviser's opinion, present minimal credit risks.
Purchasing Options. In addition, the Fund may purchase put and call options
written by third parties covering those types of financial instruments in which
the Fund may invest to attempt to provide protection against adverse price
effects from anticipated changes in prevailing prices for such instruments. The
purchase of a put option is intended to protect the value of the Fund's holdings
in a falling market while the purchase of a call option is intended to protect
the value of the Fund's positions in a rising market.
In purchasing a call option, the Fund would be in a position to realize a gain
if, during the option period, the price of the underlying security, index or
futures contract increased by an amount in excess of the premium paid for the
call option. It would realize a loss if the price of the underlying security,
index or futures contract declined or remained the same or did not increase
during the period by more than the amount of the premium. By purchasing a put
option, the Fund would be in a position to realize a gain if, during the option
period, the price of the security, index or futures contract declined by an
amount in excess of the premium paid. It would realize a loss if the price of
the security, index or futures contract increased or remained the same or did
not decrease during that period by more than the amount of the premium. If a put
or call option purchased by the Fund were permitted to expire without being sold
or exercised, its premium would represent a realized loss to the Fund.
Futures Contracts. The Fund may purchase or sell contracts for the future
delivery of the specific financial instruments in which the Fund may invest, and
indices based upon the types of securities in which the Fund may invest
(collectively, "Futures Contracts"). The Fund may use this investment technique
as a substitute for a comparable market position in the underlying securities or
to hedge against anticipated future changes in market interest rates, which
otherwise might adversely affect either the value of the Fund's securities or
the prices of securities which the Fund intends to purchase at a later
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<PAGE> 15
date. Alternatively, the Fund may purchase or sell futures contracts to hedge
against changes in market interest rates which may result in the premature call
at par value of certain securities which the Fund has purchased at a premium.
To the extent the Fund is engaging in a futures transaction as a hedging
device, because of the risk of an imperfect correlation between securities in
the Fund's portfolio 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 if, for example, losses on the portfolio securities
exceed gains on the futures contract or losses on the futures contract exceed
gains on the portfolio securities. For futures contracts based on indices, the
risk of imperfect correlation increases as the composition of the Fund's
portfolio 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 Fund 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 future contract
has been less or greater than that of the securities. Such "over hedging" or
"under hedging" may adversely affect the Fund's net investment results if the
market does not move as anticipated when the hedge is established.
Successful use of futures by the Fund also is subject to the Adviser's ability
to predict correctly movements in the direction of the market or interest rates.
For example, if the Fund has hedged against the possibility of a decline in the
market adversely affecting the value of securities held in its portfolio and
prices increase instead, the Fund will lose part or all of the benefit of the
increased value of securities which it has hedged because it will have
offsetting losses in its futures positions. Furthermore, if in such
circumstances the Fund has insufficient cash, it may have to sell securities to
meet daily variation margin requirements. The Fund may have to sell such
securities at a time when it may be disadvantageous to do so.
An option on a futures contract gives the purchaser the right, in return for
the premium paid, to assume a position in a futures contract (a long position if
the option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option exercise period. The writer of the
option is required upon exercise to assume an offsetting futures position (a
short position if the option is a call and a long position if the option is a
put). Upon exercise of the option, the assumption of offsetting futures
positions by the writer and holder of the option will be accompanied by delivery
of the accumulated cash balance in the writer's futures margin account which
represents the amount by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract.
Call options sold by the Fund with respect to futures contracts will be
covered by, among other things, entering into a long position in the same
contract at a price no higher than the strike price of the call option, or by
ownership of the instruments underlying, or instruments the prices of which are
expected to move relatively consistently with the instruments underlying, the
futures contract. Put options sold by the Fund with respect to futures contracts
will be covered when, among other things, cash or liquid securities are placed
in a segregated account to fulfill the obligation undertaken.
The Fund may utilize municipal bond index futures to protect against changes
in the market value of the Exempt Securities in its portfolio or which it
intends to acquire. Municipal bond index futures contracts are based on an index
of long-term municipal obligations. The index assigns relative values to the
municipal obligations included in an index, and fluctuates with changes in the
market value of such municipal obligations. The contract is an agree-
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<PAGE> 16
ment pursuant to which two parties agree to take or make delivery of an amount
of cash based upon the difference between the value of the index at the close of
the last trading day of the contract and the price at which the index contract
was originally written. The acquisition or sale of a municipal bond index
futures contract enables the Fund to protect its assets from fluctuations in
rates on tax exempt securities without actually buying or selling such
securities.
Interest Rate Futures Contracts and Options on Interest Rate Futures
Contracts. The Fund may purchase and sell interest rate futures contracts and
options on interest rate futures contracts as a substitute for a comparable
market position or to hedge against adverse movements in interest rates.
To the extent the Fund has invested in interest rate futures contracts or
options on interest rate futures contracts as a substitute for a comparable
market position, the Fund will be subject to the investment risks of having
purchased the securities underlying the contract.
The Fund may purchase call options on interest rate futures contracts to hedge
against a decline in interest rates and may purchase put options on interest
rate futures contracts to hedge its portfolio securities against the risk of
rising interest rates.
If the Fund has hedged against the possibility of an increase in interest
rates adversely affecting the value of securities held in the Fund's portfolio
and rates decrease instead, the Fund will lose part or all of the benefit of the
increased value of the 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 at a time when it may be disadvantageous to do so.
These sales of securities may, but will not necessarily, be at increased prices
which reflect the decline in interest rates.
The Fund may sell call options on interest rate futures contracts to partially
hedge against declining prices of its portfolio securities. If the futures price
at expiration of the option is below the exercise price, the Fund will retain
the full amount of the option premium which provides a partial hedge against any
decline that may have occurred in the Fund's portfolio holdings. The Fund may
sell put options on interest rate futures contracts to hedge against increasing
prices of the securities which are deliverable upon exercise of the futures
contracts. If the futures price at expiration of the option is higher than the
exercise price, the Fund will retain the full amount of the option premium which
provides a partial hedge against any increase in the price of securities which
the Fund intends to purchase. If a put or call option sold by a Fund is
exercised, the Fund will incur a loss which will be reduced by the amount of the
premium it receives. Depending on the degree of correlation between changes in
the value of its portfolio securities and changes in the value of its futures
positions, the Fund's losses from existing options on futures may to some extent
be reduced or increased by changes in the value of its portfolio securities.
The Fund also may sell options on interest rate futures contracts as part of
closing purchase transactions to terminate its options positions. No assurance
can be given that such closing transactions can be effected or that there will
be a correlation between price movements in the options on interest rate futures
and price movements in the Fund's portfolio securities which are the subject of
the hedge. In addition, the Fund's purchase of such options will be based upon
predictions as to anticipated interest rate trends, which could prove to be
inaccurate.
In general, the value of futures contracts sold by the Fund to offset declines
in its portfolio securities will not exceed the total market value of the
portfolio securities to be hedged, and futures contracts purchased by the Fund
will be
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covered by a segregated account consisting of cash or liquid securities in an
amount equal to the total market value of such futures contracts, less the
initial margin deposited therefor.
When buying futures contracts and when writing put options, the Fund will be
required to segregate in a separate account cash and/or U.S. Government
securities in an amount sufficient to meets its obligations. When writing call
options, the Fund will be required to own the financial instrument or futures
contract underlying the option or segregate cash and/or U.S. Government
securities in an amount sufficient to meet its obligations under written calls.
Investment Company Securities. The Fund may also invest in the securities of
other investment companies in accordance with the limitations of the 1940 Act
and any exemptions therefrom. The Fund intends to invest in money market mutual
funds for purposes of short-term cash management. The Fund will incur additional
expenses due to the duplication of fees and expenses as a result of investing in
mutual funds. Additional restrictions on the Fund's investments in the
securities of other mutual funds are contained in the Statement of Additional
Information.
INVESTMENT RESTRICTIONS
The Fund is subject to a number of investment restrictions that may be changed
only by a vote of a majority of the outstanding Shares of the Fund (as defined
under "General Information--Miscellaneous" herein).
The Fund will not:
1. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, if at
the end of each fiscal quarter, (a) more than 5% of the Fund's total assets
(taken at current value) would be invested in such issuer (except that up to
50% of the Fund's total assets may be invested without regard to such 5%
limitation), and (b) more than 25% of its total assets (taken at current
value) would be invested in securities of a single issuer. There is no limit
to the percentage of assets that may be invested in U.S. Treasury bills,
notes, or other obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. For purposes of this limitation, 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 non-governmental user,
such non-governmental user.
2. Borrow money or issue senior securities except as and to the extent
permitted by the 1940 Act or any rule, order or interpretation thereunder.
3. Make loans, except that the Fund may purchase or hold debt instruments
and lend portfolio securities in accordance with its investment objectives and
policies, make time deposits with financial institutions and enter into
repurchase agreements.
The following additional investment restriction may be changed without the
vote of a majority of the outstanding Shares of the Fund: the Fund will not
purchase or otherwise acquire any security, if, as a result, more than 15% of
its net assets would be invested in securities that are illiquid. For purposes
of this investment restriction, illiquid securities include securities which are
not readily marketable and repurchase agreements with maturities in excess of
seven days.
VALUATION OF SHARES
The net asset value of the Fund is determined and its Shares are priced as of
the close of regular trading on the New York Stock Exchange (the "Exchange")
(generally 4:00 p.m. Eastern time) on each Business Day
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of the Fund. The time at which the Shares of the Fund is priced is hereinafter
referred to as the "Valuation Time." A "Business Day" of the Fund is a day on
which the Exchange is open for trading and any other day (other than a day on
which no Shares of the Fund are tendered for redemption and no order to purchase
any Shares of the Fund is received) during which there is sufficient trading in
portfolio instruments such that the Fund's net asset value per share might be
materially affected. The Exchange will not be open in observance of the
following holidays: New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas. Net asset value per
share for purposes of pricing purchases and redemptions is calculated by
dividing the value of all securities and other assets belonging to the Fund,
less the liabilities charged to the Fund, by the number of the Fund's
outstanding Shares.
The net asset value per share for the Fund will fluctuate as the value of the
investment portfolio of the Fund changes.
The portfolio securities in the Fund for which market quotations are readily
available are valued based upon their current available prices in the principal
market in which such securities normally are traded. Unlisted securities for
which market quotations are readily available are valued at such market values.
Other securities, including restricted securities and other securities for which
market quotations are not readily available, and other assets are valued at fair
value by the Adviser under procedures established by, and under the supervision
of the Group's Board of Trustees. Securities may be valued by an independent
pricing service approved by the Group's Board of Trustees. Investments in debt
securities with remaining maturities of 60 days or less may be valued based upon
the amortized cost method.
HOW TO PURCHASE
AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by the Group's distributor,
BISYS (the "Distributor"). The principal office of the Distributor is 3435
Stelzer Road, Columbus, Ohio 43219. If you wish to purchase Shares, telephone
the Group at (800) 766-3960.
PURCHASES OF SHARES
Shares may be purchased through procedures established by the Distributor in
connection with the requirements of qualified accounts maintained by or on
behalf of certain persons ("Customers") by the Adviser, its affiliates or its
correspondent entities (collectively, "Entities"). These procedures may include
instructions under which a Customer's account is "swept" automatically no less
frequently than weekly and amounts in excess of a minimum amount agreed upon by
the Entity and the Customer are invested by the Distributor in Shares of the
Fund, depending upon the type of the Customer's account and/or the instructions
of the Customer.
Shares of the Fund sold to the Entities acting in a fiduciary, advisory,
custodial, agency, or other similar capacity on behalf of Customers will
normally be held of record by the Entities. With respect to Shares of the Fund
so sold, it is the responsibility of the particular Entity to transmit purchase
or redemption orders to the Distributor and to deliver federal funds for
purchase on a timely basis. Beneficial ownership of Shares will be recorded by
the Entities and reflected in the account statements provided by the Entities to
Customers.
Investors may also purchase Shares of the Fund by completing and signing an
Account Registration Form and mailing it, together with a check (or other
negotiable bank draft or money order) in at least the minimum initial purchase
amount, payable to the Fund, to The
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KeyPremier Funds, P.O. Box 182707, Columbus, Ohio 43218-2707. Subsequent
purchases of Shares of the Fund may be made at any time by mailing a check (or
other negotiable bank draft or money order) payable to the Group, to the above
address.
If an Account Registration Form has been previously received by the Group,
investors may also purchase Shares by wiring funds to the Fund's custodian.
Prior to wiring any such funds and in order to ensure that wire orders are
invested promptly, investors must call the Group at (800) 766-3960 to obtain
instructions regarding the bank account number into which the funds should be
wired and other pertinent information.
Shares of the Fund are purchased at the net asset value per share (see
"Valuation of Shares") next determined after receipt by the Distributor, its
agents or broker-dealers with whom it has an agreement of an order in good form
to purchase Shares plus any applicable sales charge as described below.
Purchases of Shares of the Fund will be effected only on a Business Day (as
defined in "Valuation of Shares") of the Fund.
For an order for the purchase of Shares of the Fund that is placed through a
broker-dealer, the applicable public offering price will be the net asset value
as so determined (plus any applicable sales charge), but only if the
broker-dealer receives the order and transmits it to the Distributor prior to
the Valuation Time for that day. The broker-dealer is responsible for
transmitting such orders by the Valuation Time. If the broker-dealer fails to do
so, the investor's right to that day's closing price must be settled between the
investor and the broker-dealer. If the broker-dealer receives the order after
the Valuation Time for that day, the price will be based on the net asset value
determined as of the Valuation Time for the next Business Day.
MINIMUM INVESTMENT
Except as otherwise discussed below under "Auto Invest Plan," the minimum
investment is $1,000 for the initial purchase of Shares of the Fund by an
investor and $25 for subsequent purchases of Shares of the Fund. The initial
minimum investment amount is also reduced to $250 for employees of the Adviser,
Keystone or any of their affiliates.
Depending upon the terms of a particular Customer's account, the Entities or
their affiliates may charge a Customer account fees for automatic investment and
other cash management services provided in connection with an investment in the
Fund. Information concerning these services and any charges will be provided by
the Entities. This Prospectus should be read in conjunction with any such
information received from the Entities or their affiliates.
The Fund reserves the right to reject any order for the purchase of its Shares
in whole or in part, including purchases made with foreign checks and third
party checks not originally made payable to the order of the investor.
Every Shareholder will receive a confirmation of each new transaction in his
or her account, which will also show the total number of Shares owned by the
Shareholder and the number of Shares being held in safekeeping by the Transfer
Agent for the account of the Shareholder. Reports of purchases and redemptions
of Shares by Entities on behalf of their Customers will be sent by the Entities
to their Customers. Shareholders may rely on these statements in lieu of
certificates. Certificates representing Shares will not be issued.
AUTO INVEST PLAN
The KeyPremier Funds Auto Invest Plan enables Shareholders to make regular
monthly, quarterly or semi-annual purchases of Shares of the Fund through
automatic deduction from their bank accounts, provided that the Share-
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holder's bank is a member of the Federal Reserve and the Automated Clearing
House (ACH) system. With Shareholder authorization the Transfer Agent will
deduct the amount specified (subject to the applicable minimums) from the
Shareholder's bank account which will automatically be invested in Shares of the
Fund at the public offering price on the date of such deduction. The required
minimum initial investment when opening an account using the Auto Invest Plan is
$250; the minimum amount for subsequent investments is $25. To participate in
the Auto Invest Plan, Shareholders should complete the appropriate section of
the Account Registration Form or a supplemental sign-up form which can be
acquired by calling the Group at (800) 766-3960. For a Shareholder to change the
Auto Invest instructions, the request must be made in writing to the Group at:
3435 Stelzer Road, Columbus, Ohio 43219.
SALES CHARGES
The public offering price of Shares of the Fund equals net asset value plus a
sales charge in accordance with the table below. BISYS receives this sales
charge as Distributor and reallows a portion of it as dealer discounts and
brokerage commissions. However, the Distributor, in its sole discretion may pay
certain dealers all or part of the portion of the sales charge it receives. The
broker or dealer who receives a reallowance in excess of 90% of the sales charge
may be deemed to be an "underwriter" for purposes of the Securities Act of 1933.
<TABLE>
<CAPTION>
DEALER
DISCOUNTS AND
AMOUNT OF SALES CHARGE BROKERAGE
TRANSACTION AT AS % OF NET SALES CHARGE AS COMMISSIONS AS
PUBLIC OFFERING AMOUNT % OF PUBLIC % OF PUBLIC
PRICE INVESTED OFFERING PRICE OFFERING PRICE
- -------------------- ------------ --------------- --------------
<S> <C> <C> <C>
Less than $100,000.. 4.71% 4.50% 4.05%
$100,000 but less
than $250,000..... 3.63 3.50 3.15
$250,000 but less
than $500,000..... 2.56 2.50 2.25
$500,000 but less
than $1,000,000... 1.52 1.50 1.35
$1,000,000 or more.. 0 0 0
</TABLE>
From time to time dealers who receive dealer discounts and brokerage
commissions from the Distributor may reallow all or a portion of such dealer
discounts and brokerage commissions to other dealers or brokers. The
Distributor, at its expense, will also provide additional compensation to
dealers in connection with sales of Shares of the Fund. Such compensation will
include financial assistance to dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising
campaigns regarding the Fund, and/or other dealer-sponsored special events. In
some instances, this compensation will be made available only to certain dealers
whose representatives have sold a significant amount of such Shares.
Compensation will include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to locations within or outside of the United
States for meetings or seminars of a business nature. Compensation will also
include the following types of non-cash compensation offered through sales
contests: (1) vacation trips, including the provision of travel arrangements and
lodging at luxury resorts at an exotic location, (2) tickets for entertainment
events (such as concerts, cruises and sporting events) and (3) merchandise (such
as clothing, trophies, clocks and pens). Dealers may not use sales of the Fund's
Shares to qualify for this compensation to the extent such may be prohibited by
the laws of any state or any self-regulatory agency, such as the National
Association of Securities Dealers, Inc. None of the aforementioned compensation
is paid for by the Fund or its Shareholders.
SALES CHARGE WAIVERS
The Distributor will waive sales charges for the purchase of Shares of the
Fund by or on behalf of (1) purchasers for whom Keystone, the Adviser, one of
their affiliates or another financial institution acts in a fiduciary, advisory,
agency, custodial (other than individual retire-
20
<PAGE> 21
ment accounts), or similar capacity, (2) officers, trustees, directors, advisory
board members, employees and retired employees (including spouses, children and
parents of the foregoing) of Keystone, the Adviser, the Group, BISYS and any
affiliated company thereof, (3) investors who purchase Shares with the proceeds
from a distribution from the Adviser, Keystone or an affiliate trust or agency
account, and (4) brokers, dealers and agents who have a sales agreement with the
Distributor, and their employees (and their spouses and children under 21). The
Distributor may change or eliminate the foregoing waivers at any time. The
Distributor may also periodically waive all or a portion of the sales charge for
all investors with respect to the Fund.
In addition, the Distributor may waive sales charges for the purchase of the
Fund's Shares with the proceeds from the recent redemption of shares of a
non-money market fund that imposes a sales charge. The purchase must be made
within 60 days of the redemption, and the Distributor must be notified in
writing by the investor, or by his financial institution, at the time the
purchase is made. A copy of the investor's account statement showing such
redemption must accompany such notice.
CONCURRENT PURCHASES
For purposes of qualifying for a lower sales charge, investors have the
privilege of combining concurrent purchases of the Fund and one or more of the
other funds of the Group sold with a sales charge and advised by the Adviser
("KeyPremier Load Funds"). For example, if a Shareholder concurrently purchases
Shares in the Fund at the total public offering price of $50,000 and Shares in
another KeyPremier Load Fund at the total public offering price of $50,000, the
sales charge would be that applicable to a $100,000 purchase as shown in the
table above. This privilege, however, may be modified or eliminated at any time
or from time to time by the Group without notice thereof.
LETTER OF INTENT
An investor may obtain a reduced sales charge by means of a written Letter of
Intent which expresses the intention of such investor to purchase Shares of the
Fund at a designated total public offering price within a designated 13-month
period. Each purchase of Shares under a Letter of Intent will be made at the net
asset value plus the sales charge applicable at the time of such purchase to a
single transaction of the total dollar amount indicated in the Letter of Intent.
A Letter of Intent may include purchases of Shares made not more than 90 days
prior to the date such investor signs a Letter of Intent; however, the 13-month
period during which the Letter of Intent is in effect will begin on the date of
the earliest purchase to be included. This program may be modified or eliminated
at any time or from time to time by the Group without notice. For further
information about letters of intent, interested investors should contact the
Group at (800) 766-3960.
A Letter of Intent is not a binding obligation upon the investor to purchase
the full amount indicated. The minimum initial investment under a Letter of
Intent is 5% of such amount. Shares purchased with the first 5% of such amount
will be held in escrow (while remaining registered in the name of the investor)
to secure payment of the higher sales charge applicable to the Shares actually
purchased if the full amount indicated is not purchased, and such escrowed
Shares will be involuntarily redeemed to pay the additional sales charge, if
necessary. Dividends on escrowed Shares, whether paid in cash or reinvested in
additional Shares, are not subject to escrow. The escrowed Shares will not be
available for disposal by the investor until all purchases pursuant to the
Letter of Intent have been made or the higher sales charge has been paid. When
the full amount indicated has been purchased, the escrow will be released. An
adjustment will be made to reflect any reduced sales charge applicable to Shares
purchased during the 90-day
21
<PAGE> 22
period prior to the date the Letter of Intent was entered into at the conclusion
of the 13-month period and in the form of additional Shares credited to the
Shareholder's account at the then current public offering price applicable to a
single purchase of the total amount of the total purchases. Additionally, if the
total purchases within the 13-month period exceed the amount specified, a
similar adjustment will be made to reflect further reduced sales charges
applicable to such purchases, if any.
RIGHT OF ACCUMULATION
Pursuant to the right of accumulation, investors are permitted to purchase
Shares of the Fund at the public offering price applicable to the total of (a)
the total public offering price of the Shares of the KeyPremier Load Fund then
being purchased plus (b) an amount equal to the then current net asset value of
the purchaser's combined holdings of the Shares of all KeyPremier Load Funds.
The "purchaser's combined holdings" described in the preceding sentence shall
include the combined holdings of the purchaser, the purchaser's spouse and
children under the age of 21 and the purchaser's retirement plan accounts. To
receive the applicable public offering price pursuant to the right of
accumulation, Shareholders must, at the time of purchase, give the Transfer
Agent sufficient information to permit confirmation of qualification. This right
of accumulation, however, may be modified or eliminated at any time or from time
to time by the Group without notice.
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged for Shares of The KeyPremier Prime Money
Market Fund at respective net asset values if the amount to be exchanged meets
the applicable minimum investment requirements and the exchange is made in
states where it is legally authorized. When shares of The KeyPremier Prime Money
Market Fund are exchanged for Shares of the Fund or other KeyPremier Load Fund,
the applicable sales load will be assessed, unless such shares to be exchanged
were acquired through a previous exchange for shares on which a sales charge was
paid. Under such circumstances, the Shareholder must notify the Group that a
sales charge was originally paid and provide the Group with sufficient
information to permit confirmation of the Shareholder's right not to pay a sales
charge.
An exchange is considered a sale of Shares for federal income tax purposes.
However, a Shareholder may not include any sales charge on Shares of the Fund as
a part of the cost of those Shares for purposes of calculating the gain or loss
realized on an exchange of those Shares within 90 days of their purchase.
The Group may at any time modify or terminate the foregoing exchange
privileges. The Group, however, will give Shareholders 60 days' advance written
notice of any such modification.
A Shareholder wishing to exchange his or her Shares may do so by contacting
the Group at (800) 766-3960 or by providing written instructions to the Group.
Any Shareholder who wishes to make an exchange should obtain and review the
current prospectus of the fund in which he or she wishes to invest before making
the exchange. For a discussion of risks associated with unauthorized telephone
exchanges, see "Redemption by Telephone" below.
REDEMPTION OF SHARES
Shares may ordinarily be redeemed by mail or by telephone. However, all or
part of a Customer's Shares may be redeemed in accordance with instructions and
limitations pertaining to his or her account at an Entity. For example, if a
Customer has agreed with an Entity to maintain a minimum balance in his or her
account with the Entity, and the balance in that account falls below that
minimum, the Customer may be obliged to redeem, or the Entity may redeem on
behalf of the Customer,
22
<PAGE> 23
all or part of the Customer's Shares of the Fund to the extent necessary to
maintain the required minimum balance.
Redemption by Mail
A written request for redemption must be received by the Group, at the address
shown on the front page of this Prospectus, in order to honor the request. The
Transfer Agent will require a signature guarantee by an eligible guarantor
institution. The signature guarantee requirement will be waived if the following
conditions apply: (1) the redemption check is payable to the Shareholder(s) of
record, and (2) the redemption check is mailed to the Shareholder(s) at the
address of record or mailed or wired to a commercial bank account previously
designated on the Account Registration Form. There is no charge for having
redemption proceeds mailed to a designated bank account. To change the address
to which a redemption check is to be mailed, a written request therefor must be
received by the Transfer Agent. In connection with such request, the Transfer
Agent will require a signature guarantee by an eligible guarantor institution.
For purposes of this policy, the term "eligible guarantor institution" shall
include banks, brokers, dealers, credit unions, securities exchanges and
associations, clearing agencies and savings associations as those terms are
defined in the Securities Exchange Act of 1934. The Transfer Agent reserves the
right to reject any signature guarantee if (1) it has reason to believe that the
signature is not genuine, (2) it has reason to believe that the transaction
would otherwise be improper, or (3) the guarantor institution is a broker or
dealer that is neither a member of a clearing corporation nor maintains net
capital of at least $100,000.
Redemption by Telephone
If a Shareholder has so designated on the Account Registration Form, a
Shareholder may request a redemption of his or her Shares by telephoning the
Group and having the payment of redemption requests sent electronically directly
to a domestic commercial bank account previously designated by the Shareholder
on the Account Registration Form. A Shareholder may also have such payment
mailed directly to the Shareholder at the Shareholder's address as recorded by
the Transfer Agent. However, this option may be suspended for a period of 30
days following a telephonic address change. Under most circumstances, such
payments will be transmitted on the next Business Day following receipt of a
valid request for redemption. Such wire redemption requests may be made by the
Shareholder by telephone to the Transfer Agent. The Group may reduce the amount
of a wire redemption payment by the then-current wire redemption charge of the
Fund's custodian. There is currently no charge for having payment of redemption
requests mailed or sent electronically to a designated bank account. For
telephone redemptions, call the Group at (800) 766-3960.
Neither the Group, the Fund nor its service providers will be liable for any
loss, damages, expense or cost arising out of any telephone redemption effected
in accordance with the Group's telephone redemption procedures, acting upon
instructions reasonably believed to be genuine. The Fund will employ procedures
designed to provide reasonable assurance that instructions by telephone are
genuine; if these procedures are not followed, the Fund or its service providers
may be liable for any losses due to unauthorized or fraudulent instructions.
These procedures include recording all phone conversations, sending
confirmations to Shareholders within 72 hours of the telephone transaction,
verification of account name and account number or tax identification number,
and sending redemption proceeds only to the address of record or to a previously
authorized bank account. If, due to temporary adverse conditions, Shareholders
are unable to effect telephone transactions, Shareholders may also mail the
redemption request to the Group at
23
<PAGE> 24
the address shown on the front page of this Prospectus.
Auto Withdrawal Plan
The Auto Withdrawal Plan enables Shareholders of the Fund, with an account
balance in the Fund of $5,000 or more, to make regular monthly or quarterly
redemptions of Shares. With Shareholder authorization, the Transfer Agent will
automatically redeem Shares at the net asset value on the dates of the
withdrawal and have a check in the amount specified mailed to the Shareholder.
The required minimum withdrawal is $50 monthly. To participate in the Auto
Withdrawal Plan, Shareholders should call (800) 766-3960 for more information.
Purchases of additional Shares, including use of the Auto Invest Plan described
above, concurrent with withdrawals may be disadvantageous to certain
Shareholders because of tax liabilities and sales charges. For a Shareholder to
change the Auto Withdrawal instructions, the request must be made in writing to
the Group.
PAYMENTS TO SHAREHOLDERS
Redemption orders are effected at the net asset value per share next
determined after the Shares are properly tendered for redemption, as described
above. Payment to Shareholders for Shares redeemed will be made within seven
days after receipt by the Distributor of the request for redemption. However, to
the greatest extent possible, the Fund will attempt to honor requests from
Shareholders for next day payments upon redemption of Shares if the request for
redemption is received by the Distributor before the Valuation Time, on a
Business Day or, if the request for redemption is received after the Valuation
Time, to honor requests for payment on the second Business Day. The Fund will
attempt to so honor redemption requests unless it would be disadvantageous to
the Fund or the Shareholders of the Fund to sell or liquidate portfolio
securities in an amount sufficient to satisfy requests for payments in that
manner.
At various times, the Group may be requested to redeem Shares for which it has
not yet received good payment. In such circumstances, the Group may delay the
forwarding of proceeds for up to 15 days or more until payment has been
collected for the purchase of such Shares. The Group intends to pay cash for all
Shares redeemed, but under abnormal conditions which make payment in cash
unwise, the Group may make payment wholly or partly in portfolio securities at
their then market value equal to the redemption price. In such cases, an
investor may incur brokerage costs in converting such securities to cash.
Due to the relatively high cost of handling small investments, the Group
reserves the right to redeem, at net asset value, the Shares of the Fund of any
Shareholder if, because of redemptions of Shares by or on behalf of the
Shareholder (but not as a result of a decrease in the market price of such
Shares, the deduction of any sales charge or the establishment of an account
with less than $1,000 using the Auto Invest Plan), the account of such
Shareholder has a value of less than $1,000 ($250 if the Shareholder is an
employee of the Adviser or one of its affiliates). Accordingly, an investor
purchasing Shares of the Fund in only the minimum investment amount may be
subject to such involuntary redemption if he or she thereafter redeems some of
his or her Shares. Before the Group exercises its right to redeem such Shares
and to send the proceeds to the Shareholder, the Shareholder will be given
notice that the value of the Shares in his or her account is less than the
minimum amount and will be allowed at least 60 days to make an additional
investment in an amount which will increase the value of the account to at least
$1,000 ($250 if the Shareholder is an employee of the Adviser or one of its
affiliates).
See "Additional Purchase and Redemption Information" in the Statement of
Additional
24
<PAGE> 25
Information for examples of when the Group may suspend the right of redemption.
DIVIDENDS AND TAXES
DIVIDENDS
A dividend for the Fund is declared monthly at the close of business on the
day of declaration consisting of an amount of accumulated undistributed net
income of the Fund as determined necessary or appropriate by the appropriate
officers of the Group. Such dividend is generally paid monthly. Shareholders
will automatically receive all income dividends and capital gains distributions
in additional full and fractional Shares of the Fund at the net asset value as
of the date of payment, unless the Shareholder elects to receive dividends or
distributions in cash. Such election, or any revocation thereof, must be made in
writing to the Transfer Agent at 3435 Stelzer Road, Columbus, Ohio 43219, and
will become effective with respect to dividends and distributions having record
dates after its receipt by the Transfer Agent.
Distributable net realized capital gains for the Fund are distributed at least
annually. Dividends are paid in cash not later than seven Business Days after a
Shareholder's complete redemption of his or her Shares in the Fund.
If a Shareholder elects to receive distributions in cash, and checks (1) are
returned and marked as "undeliverable" or (2) remain uncashed for six months,
the Shareholder's cash election will be changed automatically and future
dividend and capital gains distributions will be reinvested in the Fund at the
per share net asset value determined as of the date of payment of the
distribution. In addition, any undeliverable checks or checks that remain
uncashed for six months will be canceled and will be reinvested in the Fund at
the per share net asset value determined as of the date of cancellation.
FEDERAL TAXES
The Fund is treated as a separate entity for federal income tax purposes and
intends to qualify as a "regulated investment company" under the Code for so
long as such qualification is in the best interest of the Fund's Shareholders.
Qualification as a regulated investment company under the Code requires, among
other things, that the regulated investment company distribute to its
shareholders at least 90% of its investment company taxable income. The Fund
contemplates declaring as dividends all or substantially all of the Fund's
investment company taxable income (before deduction of dividends paid).
A non-deductible 4% excise tax is imposed on regulated investment companies
that do not distribute in each calendar year (regardless of having a
non-calendar taxable year) an amount equal to 98% of their ordinary income for
the calendar year plus 98% of their capital gain net income for the one-year
period ending on October 31 of such calendar year. If distributions during a
calendar year were less than the required amount, that Fund would be subject to
a non-deductible 4% excise tax on the deficiency.
It is expected that the Fund will distribute annually substantially all of its
net investment income and net capital gains to its Shareholders. Dividends
derived from interest earned on Exempt Securities constitute "exempt-interest
dividends" when designated as such by the Fund and will be excludable from gross
income for federal income tax purposes. However, exempt-interest dividends
attributable to certain municipal obligations issued on or after August 8, 1986,
to finance certain private activities will be treated as a tax preference item
in computing the alternative minimum tax. Also, a portion of all other interest
excluded from gross income for federal income tax purposes earned by a
corporation may be subject to the alternative minimum tax as a result of the
inclusion in alternative minimum taxable income of 75% of the excess of adjusted
current
25
<PAGE> 26
earnings over alternative minimum taxable income.
Distributions, if any, derived from capital gains will generally be taxable to
Shareholders as capital gains for federal income tax purposes to the extent so
designated by the Fund. Dividends, if any, derived from sources other than
interest excluded from gross income for federal income tax purposes and capital
gains will be taxable to Shareholders as ordinary income for federal income tax
purposes whether or not reinvested in additional Shares. Shareholders not
subject to federal income tax on their income will not, of course, be required
to pay federal income tax on any amounts distributed to them. The Fund
anticipates that substantially all of its dividends will be excluded from gross
income for federal income tax purposes. The Fund will notify each Shareholder
annually of the tax status of all distributions.
If a Shareholder receives an exempt-interest dividend with respect to any
Share and such Share is held by the Shareholder for six months or less, any loss
on the sale or exchange of such Share will be disallowed to the extent of the
amount of such exempt-interest dividend. In certain limited instances, the
portion of Social Security benefits that may be subject to federal income
taxation, may be affected by the amount of tax-exempt interest income, including
exempt-interest dividends, received by a Shareholder.
Interest on indebtedness incurred or continued by a Shareholder to purchase or
carry Shares of the Fund is not deductible for federal income taxes assuming the
Fund distributes exempt-interest dividends during the Shareholder's taxable
year. It is anticipated that distributions from the Fund will not be eligible
for the dividends received deduction for corporations.
Proposals that may restrict or eliminate the income tax exemption for interest
on Exempt Securities may be introduced in the future. If any such proposal were
enacted that would reduce the availability of Exempt Securities for investment
by the Fund so as to adversely affect Fund Shareholders, the Fund would
reevaluate its investment objective and policies and submit possible changes in
the Fund's structure to Shareholders for their consideration. If legislation
were enacted that would treat a type of Exempt Securities as taxable, the Fund
would treat such security as a permissible taxable investment within the
applicable limits set forth herein.
Additional information regarding federal taxes is contained in the Statement
of Additional Information under the heading "Additional Information--Additional
General Tax Information." However, the information contained in this Prospectus
and the additional material in the Statement of Additional Information are only
brief summaries of some of the important tax considerations generally affecting
the Fund and its Shareholders. Accordingly, potential investors are urged to
consult their own tax advisers concerning the application of federal, state and
local taxes as such laws and regulations affect their own tax situation.
Shareholders will be advised at least annually as to the federal and state
income tax consequences of distributions made to them during the year.
PENNSYLVANIA TAXES
Under current Pennsylvania law, Shareholders will not be subject to
Pennsylvania Personal Income Tax on distributions from the Fund attributable to
interest income from Pennsylvania Exempt Securities or from obligations of the
United States, its territories and certain of its agencies and instrumentalities
("Federal Exempt Securities"). However, Pennsylvania Personal Income Tax will
apply to distributions from the Fund attributable to gain realized on the
disposition of any investment, including Exempt Securities, or to interest
income from investments other than Exempt Securities. Shareholders also will be
subject to the
26
<PAGE> 27
Pennsylvania Personal Income tax on any gain they realize on the disposition of
Shares in the Fund.
Distributions attributable to interest from Exempt Securities is not subject
to the Philadelphia School District Net Income Tax. However, distributions
attributable to gain from the disposition of Exempt Securities are subject to
the Philadelphia School District Net Income Tax, except that distributions
attributable to gain on any investment held for more than six months are exempt.
A shareholder's gain on the disposition of Shares in the Fund that he or she has
held for more than six months will not be subject to the Philadelphia School
District Net Income Tax.
Shareholders are not subject to the county personal property tax imposed on
residents of Pennsylvania by the Act of June 17, 1913, P.L. 507, as amended to
the extent that the Fund is comprised of Exempt Securities.
MANAGEMENT OF THE GROUP
TRUSTEES OF THE GROUP
Overall responsibility for management of the Group rests with its Board of
Trustees. Unless so required by the Group's Declaration of Trust or By-Laws, or
by Ohio law, at any given time, all of the Trustees may not have been elected by
the shareholders of the Group. The Group will be managed by the Trustees in
accordance with the laws of Ohio governing business trusts. The Trustees, in
turn, elect the officers of the Group to supervise its day-to-day operations.
The Trustees of the Group receive fees and are reimbursed for their expenses
in connection with each meeting of the Board of Trustees they attend. However,
no officer or employee of BISYS Fund Services Inc., the sole general partner of
BISYS, receives any compensation from the Group for acting as a Trustee of the
Group. The officers of the Group receive no compensation directly from the Group
for performing the duties of their offices. BISYS receives fees from the Fund
for acting as Administrator, may receive fees under the Administrative Services
Plan discussed below, and may retain all or a portion of any sales load imposed
upon purchases of Shares. BISYS Fund Services, Inc. receives fees from the Fund
for acting as Transfer Agent and for providing certain fund accounting services.
INVESTMENT ADVISER
Martindale Andres & Company, Inc., Four Falls Corporate Center, Suite 200,
West Conshohocken, Pennsylvania 19428, is the investment adviser of the Fund and
has served as such since the Fund's inception. The Adviser is a wholly owned
subsidiary of Keystone Financial, Inc., 1 Keystone Plaza, Harrisburg,
Pennsylvania 17101 ("Keystone"). The Adviser was organized in 1989 and was
acquired by Keystone in December 1995. While the Adviser has not previously
served as the investment adviser to a registered open-end management investment
company, it has managed since its founding the investment portfolios of high net
worth individuals, endowments, pension and common trust funds. The Adviser
currently has over $1.6 billion under management, including over $400 million of
municipal securities.
Subject to the general supervision of the Board of Trustees of the Group and
in accordance with the investment objectives and restrictions of the Fund, the
Adviser manages the Fund, makes decisions with respect to and places orders for
all purchases and sales of its portfolio securities, and maintains the Fund's
records relating to such purchases and sales.
Mr. Robert Andres is primarily responsible for the day-to-day management of
the Fund's portfolio. Mr. Andres co-founded the Adviser in 1989 and serves as
its President and Chief Operating Officer. Prior thereto, he served as President
of Merrill Lynch Mortgage Capital
27
<PAGE> 28
Corporation and manager of Merrill Lynch's secondary corporate bond trading
division. He has had more than 30 years of broad based experience with respect
to fixed-income securities, including more than 20 years in trading, sales and
investment management of municipal securities.
For the services provided and expenses assumed pursuant to its Investment
Advisory Agreement with the Group, the Adviser receives a fee from the Fund,
computed daily and paid monthly, at the annual rate of sixty one-hundredths of
one percent (.60%) of the Fund's average daily net assets.
The Adviser may periodically voluntarily reduce all or a portion of its
advisory fee with respect to the Fund to increase the net income of the Fund
available for distribution as dividends. The Adviser may not seek reimbursement
of such voluntarily reduced fees after the end of the fiscal year in which the
fees were reduced. The reduction of such fee will cause the yield and total
return of the Fund to be higher than they would otherwise be in the absence of
such a reduction.
ADMINISTRATOR AND DISTRIBUTOR
BISYS is the administrator for the Fund and also acts as the Fund's principal
underwriter and distributor (the "Administrator" or the "Distributor," as the
context indicates). BISYS and its affiliated companies, including BISYS Fund
Services Ohio, Inc., are wholly owned by The BISYS Group, Inc., a publicly-held
company which is a provider of information processing, loan servicing and 401(k)
administration and recordkeeping services to and through banking and other
financial organizations.
The Administrator generally assists in all aspects of the Fund's
administration and operation. For expenses assumed and services provided as
administrator pursuant to its management and administration agreement with the
Group, the Administrator receives a fee from the Fund, computed daily and paid
periodically, calculated at an annual rate of eleven and one-half one-hundredths
of one percent (.115%) of the Fund's average daily net assets. The Administrator
may periodically voluntarily reduce all or a portion of its administration fee
with respect to the Fund to increase the net income of the Fund available for
distribution as dividends. The Administrator may not seek reimbursement of such
reduced fees after the end of the fiscal year in which the fees were reduced.
The voluntary reduction of such fee will cause the yield and total return of the
Fund to be higher than they would otherwise be in the absence of such a fee
reduction.
The Distributor acts as agent for the Fund in the distribution of its Shares
and, in such capacity, solicits orders for the sale of Shares, advertises, and
pays the costs of advertising, office space and its personnel involved in such
activities. The Distributor receives no compensation under its Distribution
Agreement with the Group, but may retain all or a portion of any sales charge
imposed upon the purchase of Shares. See "How to Purchase and Redeem
Shares--Sales Charges."
EXPENSES
The Adviser and the Administrator each bear all expenses in connection with
the performance of their services as investment adviser and administrator,
respectively, other than the cost of securities (including brokerage
commissions, if any) purchased for the Fund. The Fund will bear the following
expenses relating to its operations: organizational expenses, taxes, interest,
any brokerage fees and commissions, fees and expenses of the Trustees of the
Group, Commission fees, state securities qualification fees, costs of preparing
and printing prospectuses for regulatory purposes and for distribution to the
Fund's current shareholders, outside auditing and legal expenses, advisory fees,
fees and out-of-pocket expenses of the custodian, fund accountant and Transfer
Agent, costs for independent pricing services,
28
<PAGE> 29
certain insurance premiums, costs of maintenance of the Group's existence, costs
of shareholders' reports and meetings, expenses incurred under the
Administrative Services Plan described below and any extraordinary expenses
incurred in the Fund's operation.
ADMINISTRATIVE SERVICES PLAN
The Group has adopted an Administrative Services Plan (the "Services Plan")
pursuant to which the Fund is authorized to pay compensation to banks and other
financial institutions (each a "Service Organization"), which may include the
Adviser, its correspondent and affiliated banks, and BISYS, which agree to
provide certain ministerial, record keeping and/or administrative support
services for their customers or account holders (collectively, "customers") who
are the beneficial or record owner of Shares of the Fund. In consideration for
such services, a Service Organization receives a fee from the Fund, computed
daily and paid monthly, at an annual rate of up to .25% of the average daily net
asset value of Shares of the Fund owned beneficially or of record by such
Service Organization's customers for whom the Service Organization provides such
services.
The servicing agreements adopted under the Services Plan (the "Servicing
Agreements") require the Service Organizations receiving such compensation to
perform certain ministerial, record keeping and/or administrative support
services with respect to the beneficial or record owners of Shares of the Fund,
such as processing dividend and distribution payments from the Fund on behalf of
customers, providing periodic statements to customers showing their positions in
the Shares of the Fund, providing sub-accounting with respect to Shares
beneficially owned by such customers and providing customers with a service that
invests the assets of their accounts in Shares of the Fund pursuant to specific
or pre-authorized instructions. As of the date hereof, no such servicing
agreements have been entered into by the Group.
BANKING LAWS
The Adviser believes that it possesses the legal authority to perform the
investment advisory services for the Fund contemplated by its investment
advisory agreement with the Group, as described in this Prospectus, without
violation of applicable banking laws and regulations, and has so represented in
its investment advisory agreement with the Group. Future changes in Federal or
state statutes and regulations relating to permissible activities of banks or
bank holding companies and their subsidiaries and affiliates as well as further
judicial or administrative decisions or interpretations of present and future
statutes and regulations could change the manner in which the Adviser could
continue to perform such services for the Fund. See "Management of the
Group--Glass-Steagall Act" in the Statement of Additional Information for
further discussion of applicable law and regulations.
GENERAL INFORMATION
DESCRIPTION OF THE GROUP AND ITS SHARES
The Group was organized as an Ohio business trust on April 25, 1988. The Group
consists of sixteen funds, each having its own class of shares. Each share
represents an equal proportionate interest in a fund with other shares of the
same fund, and is entitled to such dividends and distributions out of the income
earned on the assets belonging to that fund as are declared at the discretion of
the Trustees (see "Miscellaneous" below). The other funds of the Group are The
KeyPremier Prime Money Market Fund, The KeyPremier Established Growth Fund, The
KeyPremier Intermediate Term Income Fund, 1st Source Monogram U.S. Treasury
Obligations Money Market Fund, 1st Source Monogram Diversified Equity Fund, 1st
Source Monogram In-
29
<PAGE> 30
come Equity Fund, 1st Source Monogram Special Equity Fund, 1st Source Monogram
Income Fund, 1st Source Monogram Intermediate Tax-Free Bond Fund, Riverside
Capital Money Market Fund, Riverside Capital Value Equity Fund, Riverside
Capital Fixed Income Fund, Riverside Capital Growth Fund, Riverside Capital
Tennessee Municipal Obligations Fund and Riverside Capital Low Duration
Government Securities Fund.
The Fund will initially be funded by the transfer of all of the assets of a
corresponding common trust fund managed by the Adviser in exchange for Shares of
the Fund equal in aggregate net asset value to the assets so received.
Shareholders are entitled to one vote for each dollar of value invested and a
proportionate fractional vote for any fraction of a dollar invested, and will
vote in the aggregate and not by fund except as otherwise expressly required by
law. For example, Shareholders of the Fund will vote in the aggregate with other
shareholders of the Group with respect to the election of trustees. However,
Shareholders of the Fund will vote as a fund, and not in the aggregate with
other shareholders of the Group, for purposes of approval or amendment of the
Fund's investment advisory agreement.
Overall responsibility for the management of the Funds is vested in the Board
of Trustees of the Group. See "Management of the Group-- Trustees of the Group."
Individual Trustees are elected by the shareholders of the Group and may be
removed by the Board of Trustees or shareholders in accordance with the
provisions of the Declaration of Trust and By-Laws of the Group and Ohio law.
See "Additional Information--Miscellaneous" in the Statement of Additional
Information for further information.
An annual or special meeting of shareholders to conduct necessary business is
not required by the Declaration of Trust, the 1940 Act or other authority
except, under certain circumstances, to elect Trustees, amend the Declaration of
Trust, the investment advisory agreement or the Fund's fundamental policies and
to satisfy certain other requirements. To the extent that such a meeting is not
required, the Group does not intend to have an annual or special meeting of
shareholders.
The Group has represented to the Commission that the Trustees will call a
special meeting of shareholders for purposes of considering the removal of one
or more Trustees upon written request therefor from shareholders holding not
less than 10% of the outstanding votes of the Group. At such a meeting, a quorum
of shareholders (constituting a majority of votes attributable to all
outstanding shares of the Group), by majority vote, has the power to remove one
or more Trustees.
Immediately prior to the public offering of the Fund's Shares, BISYS Fund
Services Ohio, Inc. was the sole shareholder of the Fund. It is expected that
immediately after the public offering of the Fund's Shares BISYS Fund Services
Ohio, Inc.'s holdings of Shares of the Fund will be reduced below 5%.
CUSTODIAN
The Bank of New York serves as the custodian for the Fund.
TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio 43219, serves as
the Fund's transfer agent pursuant to a Transfer Agency Agreement with the Group
and receives a fee for such services. BISYS Fund Services, Inc. also provides
certain accounting services for the Fund pursuant to the Fund Accounting
Agreement and receives a fee for such services equal to the greater of (a) a fee
computed at an annual rate of 0.03% of the Fund's average daily net assets, or
(b) the annual fee of $35,000. See "Management of the Group--Transfer Agency and
Fund Accounting Services" in the Statement of Additional Information for further
information.
30
<PAGE> 31
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and annual reports
audited by independent public accountants.
As used in this Prospectus and in the Statement of Additional Information,
"assets belonging to a fund" means the consideration received by the fund upon
the issuance or sale of shares in that fund, together with all income, earnings,
profits, and proceeds derived from the investment thereof, including any
proceeds from the sale, exchange, or liquidation of such investments, and any
funds or amounts derived from any reinvestment of such proceeds, and any general
assets of the Group not readily identified as belonging to a particular fund
that are allocated to the fund by the Group's Board of Trustees. The Board of
Trustees may allocate such general assets in any manner it deems fair and
equitable. Determinations by the Board of Trustees of the Group as to the timing
of the allocation of general liabilities and expenses and as to the timing and
allocable portion of any general assets with respect to the Fund are conclusive.
As used in this Prospectus and in the Statement of Additional Information, a
"vote of a majority of the outstanding Shares" of the Fund means the affirmative
vote, at a meeting of Shareholders duly called, of the lesser of (a) 67% or more
of the votes of Shareholders of the Fund present at a meeting at which the
holders of more than 50% of the votes attributable to Shareholders of record of
the Fund are represented in person or by proxy, or (b) the holders of more than
50% of the outstanding votes of Shareholders of the Fund.
Inquiries regarding the Fund may be directed in writing to the Group at 3435
Stelzer Road, Columbus, Ohio 43219, or by calling toll free (800) 766-3690.
31
<PAGE> 32
INVESTMENT ADVISER
Martindale Andres & Company, Inc.
Four Falls Corporate Center, Suite 200
West Conshohocken, Pennsylvania 19428
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services Limited Partnership
3435 Stelzer Road
Columbus, Ohio 43219
LEGAL COUNSEL
Baker & Hostetler
65 East State Street
Columbus, Ohio 43215
AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, Ohio 43215
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.................... 2
FEE TABLE............................. 3
PERFORMANCE INFORMATION............... 4
INVESTMENT OBJECTIVES AND POLICIES.... 4
INVESTMENT RESTRICTIONS............... 17
VALUATION OF SHARES................... 17
HOW TO PURCHASE AND REDEEM SHARES..... 18
DIVIDENDS AND TAXES................... 25
MANAGEMENT OF THE GROUP............... 27
GENERAL INFORMATION................... 29
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR, BISYS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
FUND OR BY BISYS IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE
MADE.
LOGO
THE
KEYPREMIER
PENNSYLVANIA
MUNICIPAL BOND
FUND
MARTINDALE,
ANDRES & COMPANY, INC.
INVESTMENT ADVISER
Prospectus
dated July 9, 1996,
as supplemented as
of December 6, 1996
<PAGE> 33
Rule 497(e)
Registration No. 33-21489
File No. 811-5545
The KeyPremier Prime Money Market Fund
The KeyPremier Pennsylvania Municipal Bond Fund
Two Investment Portfolios of
THE SESSIONS GROUP
Supplement dated as of December 6, 1996 to
Statement of Additional Information dated
July 9, 1996
Capitalized terms used in this Supplement have the meaning assigned to them
in the Statement of Additional Information.
On page B-15 of the Statement of Additional Information, the word "and" has
been added to the end of investment restriction no. 3, investment restriction
no. 4 has been deleted and investment restriction no. 5 has been redesignated
investment restriction no. 4.
INVESTORS SHOULD RETAIN THIS SUPPLEMENT WITH THE
STATEMENT OF ADDITIONAL INFORMATION FOR FUTURE REFERENCE
