<PAGE> 1
As filed with the Securities and Exchange Commission March 18, 1997
1933 Act Registration No. 33-21489
1940 Act File No. 811-5545
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 \X\
Pre-Effective Amendment No. \ \
Post-Effective Amendment No. 39 \X\
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 \X\
Amendment No. 41 \X\
THE SESSIONS GROUP
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road
Columbus, Ohio 43219
(Address of Principal Executive Offices)
Registrant's Telephone Number:
(800) 752-1823
CHARLES H. HIRE, ESQ.
Baker & Hostetler LLP
65 East State Street, Suite 2100
Columbus, Ohio 43215
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: Immediately, upon effectiveness.
It is proposed that this filing will become effective (check appropriate
box):
/ / immediately upon filing pursuant to paragraph (b)
/X/ on April 1, 1997, pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
The Registrant has registered an indefinite number or amount of
securities under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940. On August 28, 1996, the Registrant filed its
Rule 24f-2 Notice with respect to the fiscal year ended June 30, 1996.
<PAGE> 2
CROSS REFERENCE SHEET
THE KEYPREMIER PRIME MONEY MARKET FUND
A Fund
of
The Sessions Group
<TABLE>
<CAPTION>
Form N-1A Part A Item Prospectus Caption
- --------------------- ------------------
<S> <C> <C>
1. Cover page.................. Cover Page
2. Synopsis.................... Fee Table
3. Condensed Financial
Information............... Financial Highlights; Performance Information
4. General Description of
Registrant................ Investment Objective and Policies; Investment Restrictions;
General Information - Description of the Group and Its Shares;
Cover Page
5. Management of the Fund...... Management of the Group; General Information - Custodian;
General Information - Transfer Agency and Fund Accounting
Services
5A. Management Discussion
of Fund Performance....... Inapplicable
6. Capital Stock and Other
Securities................ How to Purchase and Redeem Shares; Dividends and Taxes;
General Information - Description of the Group and Its Shares;
General Information - Miscellaneous
7. Purchase of Securities
Being Offered............. Valuation of Shares; How to Purchase and Redeem Shares;
Management of the Group - Distribution Plan
8. Redemption or Repurchase.... How to Purchase and Redeem Shares
9. Pending Legal Proceedings... Inapplicable
</TABLE>
<PAGE> 3
LOGO
- --------------------------------------------------------------------------------
3435 Stelzer Road
Columbus, Ohio 43219
For current yield, purchase,
and redemption information,
call (800) 766-3960.
- --------------------------------------------------------------------------------
The Sessions Group (the "Group") is an open-end management investment company.
The Group includes The KeyPremier Prime Money Market Fund (the "Fund"), which is
a 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 current income with liquidity and stability of principal. The
Fund invests in high-quality money market instruments and other instruments of
high quality. All securities or instruments in which the Fund invests have, or
are deemed to have, remaining maturities of 397 days or less, although
instruments subject to repurchase agreements may bear longer maturities.
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 OR GUARANTEED BY THE U.S. GOVERNMENT, 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.
THE FUND SEEKS TO MAINTAIN A CONSTANT NET ASSET VALUE OF $1.00 PER SHARE, BUT
THERE CAN BE NO ASSURANCE THAT NET ASSET VALUE WILL NOT VARY.
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 April 1, 1997.
THE KEYPREMIER PRIME MONEY MARKET FUND
<PAGE> 4
PROSPECTUS SUMMARY
SHARES OFFERED: Units of beneficial interest ("Shares") of the Fund, one
separate investment fund 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 which the Fund will seek to maintain at $1.00 per Share.
MINIMUM PURCHASE: $1,000 minimum initial investment with $25 minimum
subsequent investments. Such minimum initial investment is reduced to $250 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 diversified series of an open-end,
management investment company.
INVESTMENT OBJECTIVES: Current income with liquidity and stability of
principal.
INVESTMENT POLICIES: The Fund invests in high-quality money market
instruments and other instruments of high quality. All securities or instruments
in which the Fund invests have remaining maturities of 397 days (13 months) or
less, although instruments subject to repurchase agreements may bear longer
maturities.
RISK FACTORS AND SPECIAL CONSIDERATIONS: An investment in the Fund is
subject to certain risks, including interest rate risk, as set forth in detail
under "Investment Objective and Policies--Risk Factors and Investment
Techniques." As with other mutual funds, there can be no assurance that the Fund
will achieve its investment objective. The Fund, to the extent set forth under
"Investment Objective and Policies," may engage in the following practices: the
use of repurchase and reverse repurchase agreements, lending 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 daily and generally paid
monthly. Net realized capital gains, if any, are distributed at least annually.
DISTRIBUTOR: BISYS Fund Services Limited Partnership d/b/a BISYS Fund
Services ("BISYS").
2
<PAGE> 5
FEE TABLE
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES................................................... None
ESTIMATED ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees After Voluntary Fee Waiver(1)...................................... .20%
12b-1 Fees......................................................................... None
Other Expenses(2).................................................................. .26
----
Estimated Total Fund Operating Expenses After Voluntary Fee Waiver1................ .46%
====
</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>
$5 $15
</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 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.
- ---------------
1 The Adviser has agreed voluntarily to reduce its investment advisory fee to
0.20% through on or about October 31, 1997. Absent such voluntary fee
reduction, Management Fees and Estimated Total Fund Operating Expenses would
be 0.40% and 0.66%, respectively.
2 "Other Expenses" are estimated for the current fiscal year.
3
<PAGE> 6
FINANCIAL HIGHLIGHTS
The Fund is one separate fund of the Group. The table below sets forth certain
information concerning the investment results of the Fund since its inception.
Further financial information is included in the Statement of Additional
Information. The Financial Highlights contained in the table below have not been
audited.
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 7, 1996
THROUGH
DECEMBER 31, 1996(A)
--------------------
(UNAUDITED)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................................... $ 1.00
Investment Activities:
Net investment income................................................. 0.004
Net realized and unrealized gains (losses) on investments............. --
--------
Total from Investment Activities........................................ 0.004
--------
Distributions:
Net investment income................................................. (0.004)
Net realized gains.................................................... --
--------
Total Distributions................................................... (0.004)
--------
NET ASSET VALUE, END OF PERIOD.......................................... $ 1.00
TOTAL RETURN............................................................ 1.16%(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, at end of period (000)...................................... $104,514
Ratio of expenses to average net assets................................. 0.29%(c)
Ratio of net investment income to average net assets.................... 4.94%(c)
Ratio of expenses to average net assets*................................ 1.19%(c)
Ratio of net investment income to average net assets*................... 4.04%(c)
</TABLE>
- ---------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Commencement of operations.
(b) Not annualized.
(c) Annualized.
4
<PAGE> 7
PERFORMANCE INFORMATION
From time to time performance information for the Fund showing the Fund's
average annual total return, aggregate total return, seven-day yield and
seven-day effective yield may be presented in advertisements, sales literature
and shareholder reports. SUCH PERFORMANCE FIGURES ARE BASED ON HISTORICAL
PERFORMANCE 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. 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. The seven-day yield of the Fund refers to
the income generated by an investment therein over a seven-day period (which
period will be stated in the advertisement). This income is then "annualized."
That is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. The seven-day effective yield is calculated
similarly but, when annualized, the income earned by an investment in the Fund
is assumed to be reinvested. The seven-day effective yield is slightly higher
than the seven-day yield because of the compounding effect of this assumed
reinvestment. The Fund may also present a 30-day yield which is calculated
similarly to the seven-day yield but instead refers to a 30-day period rather
than a seven-day period.
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 OBJECTIVE AND POLICIES
IN GENERAL
The investment objective of the Fund is to seek current income with liquidity
and stability of principal. The investment objective of the Fund is a
non-fundamental policy 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 objective of the Fund will be achieved.
As a money market fund, the Fund invests exclusively in United States
dollar-denominated instruments which the Trustees of the Group and the Adviser
determine present minimal credit risks and which at the time of acquisition are
rated by one or more appropriate nationally recognized statistical rating orga-
5
<PAGE> 8
nizations ("NRSROs") (e.g., Standard & Poor's Corporation and Moody's Investors
Service, Inc.) in one of the two highest rating categories for short-term debt
obligations or, if unrated, are determined by the Adviser to be of comparable
quality. The Fund also diversifies its investments so that, with minor
exceptions and except for United States Government securities, not more than
five percent of its total assets is invested in the securities of any one
issuer, not more than five percent of its total assets is invested in securities
of issuers rated by the NRSROs at the time of investment in the second highest
rating category for short-term debt obligations or, if unrated, deemed by the
Adviser to be of comparable quality ("Second Tier Securities") and not more than
the greater of one percent of total assets or one million dollars is invested in
the securities of one issuer that are Second Tier Securities. All securities or
instruments in which the Fund invests have remaining maturities of 397 calendar
days or less. The dollar-weighted average maturity of the securities in the Fund
will not exceed 90 days.
Subject to the foregoing general limitations, the Fund expects to invest in
the following types of securities. The Fund may invest in a variety of U.S.
Treasury obligations, differing in their interest rates, maturities, and times
of issuance, and other obligations issued or guaranteed by the U.S. Government
or its agencies or instrumentalities (collectively, "Government Obligations").
Obligations of certain agencies and instrumentalities of the U.S. Government,
such as the Government National Mortgage Association and the Export-Import Bank
of the United States, are supported by the full faith and credit of the U.S.
Treasury; others, such as those of the Federal National Mortgage Association,
are supported by the right of the issuer to borrow from the Treasury; others,
such as those of the Student Loan Marketing Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Federal Farm Credit Banks or the
Federal Home Loan Mortgage Corporation, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so by law. The Fund will invest
in the obligations of such agencies or instrumentalities only when the Adviser
believes that the credit risk with respect thereto is minimal.
The Fund may invest in bankers' acceptances guaranteed by domestic and foreign
banks if at the time of investment the guarantor bank has capital, surplus, and
undivided profits in excess of $100,000,000 (as of the date of its most recently
published financial statements). The Fund may also invest in certificates of
deposit and demand and time deposits of domestic and foreign banks and savings
and loan associations if (a) at the time of investment the depositor institution
has capital, surplus, and undivided profits in excess of $100,000,000 (as of the
date of their most recently published financial statements) or (b) the principal
amount of the instrument is insured in full by the Federal Deposit Insurance
Corporation.
The Fund may also invest in Eurodollar Certificates of Deposit ("ECDs") which
are U.S. dollar denominated certificates of deposit issued by offices of foreign
and domestic banks located outside the United States; Eurodollar Time Deposits
("ETDs") which are U.S. dollar denominated deposits in a foreign branch of a
U.S. bank or a foreign bank; Canadian Time Deposits ("CTDs") which are
essentially the same as ETDs except they are issued by Canadian offices of major
Canadian banks; and Yankee Certificates of Deposit ("Yankee CDs") which are
certificates of deposit issued by U.S. branch of a foreign bank denominated in
U.S. dollars and held in the United States. Under normal market conditions, the
Fund will not invest more than 20% of its total assets in such
6
<PAGE> 9
foreign securities (including CCP and Europaper as defined below).
The Fund will not invest in time deposits with maturities in excess of seven
days which are subject to penalties upon early withdrawal if, in the aggregate
with other illiquid securities held by the Fund, such deposits exceed 10% of the
Fund's net assets. Such time deposits include ETDs and CTDs but do not include
certificates of deposit.
The Fund may invest in short-term promissory notes issued by corporations
(including variable amount master demand notes) and in municipal obligations
rated at the time of purchase by one or more appropriate NRSROs in one of the
two highest rating categories for short-term debt obligations or, if not rated,
determined by the Adviser to be of comparable quality to instruments that are so
rated pursuant to guidelines adopted by the Group's Board of Trustees.
Instruments may be purchased in reliance upon a rating only when the rating
organization is not affiliated with the issuer or guarantor of the instrument.
For a description of the rating symbols of the NRSROs, see the Appendix to the
Statement of Additional Information. The Fund may also invest in Canadian
Commercial Paper ("CCP"), which is U.S. dollar denominated commercial paper
issued by a Canadian corporation or a Canadian subsidiary of a U.S. corporation,
and in Europaper, which is U.S. dollar denominated commercial paper of a foreign
issuer which, in each case, is rated at the time of purchase by one or more
appropriate NRSROs in one of the two highest rating categories for short-term
debt obligations or, if not rated, determined by the Adviser to be of comparable
quality to instruments that are so rated.
The Fund may also invest in corporate debt securities with remaining
maturities of 397 days or less although at the time of issuance such securities
had maturities exceeding 397 days. The Fund may invest in such securities so
long as comparable securities of such issuer have been rated in the highest
rating category for short-term debt obligations by the appropriate NRSROs or are
otherwise deemed to be eligible for purchase by the Fund in accordance with the
guidelines adopted by the Group's Board of Trustees.
Variable amount master demand notes in which the Fund may invest are unsecured
demand notes that permit the indebtedness thereunder to vary and that provide
for periodic adjustments in the interest rate according to the terms of the
instrument. Because master demand notes are direct lending arrangements between
the Fund and the issuer, they are not normally traded. Although there is no
secondary market in the notes, the Fund may demand payment of principal and
accrued interest at any time. While the notes are not typically rated by NRSROs,
issuers of variable amount master demand notes (which are normally
manufacturing, retail, financial, and other business concerns) must satisfy the
same criteria as set forth above for commercial paper. 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 status and ability to meet
payment on demand. In determining dollar-weighted average portfolio maturity, a
variable amount master demand note will be deemed to have a maturity equal to
the period of time remaining until the principal amount can be recovered from
the issuer through demand. The Fund may purchase variable amount master demand
notes with face maturities in excess of 397 days only so long as the Fund may
demand payment at any time on no more than 30 days' notice or at specified
intervals not exceeding 397 days and upon no more than 30 days' notice.
The Fund may also acquire variable and floating rate notes issued by both
governmental and nongovernmental issuers, subject to the Fund's investment
objective, policies and restrictions. A variable rate note is one whose terms
provide for the adjustment of its interest
7
<PAGE> 10
rate on set dates and which, upon such adjustment, can reasonably be expected to
have a market value that approximates its amortized cost. However, in the event
the interest rate of such a note is established by reference to an index or an
interest rate that may from time to time lag behind other market interest rates,
there is the risk that the market value of such note, on readjustment of its
interest rate, will not approximate its amortized cost which could adversely
affect the Fund's ability to maintain a stable net asset value. In such an
instance, the Adviser will seek to sell such note to the extent it can do so in
an orderly fashion given current market conditions.
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
amortized cost. Such notes are frequently not rated by NRSROs; however, unrated
variable and floating rate notes purchased by the Fund will be determined by the
Adviser 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 (such issuers include financial,
merchandising, bank holding and other companies) and will continuously monitor
their financial condition. Although there may be no active secondary market with
respect to a particular variable or floating rate note purchased by the Fund,
the Fund may resell the note at any time to a third party. The absence of an
active secondary market, however, could make it difficult for the Fund to
dispose of a variable or floating rate note in the event the issuer of the note
defaulted on its payment obligations and the Fund could, as a result or for
other reasons, suffer a loss to the extent of the default. Variable or floating
rate notes may be secured by bank letters of credit.
To the extent that the Fund holds a note for which the Fund is not entitled to
receive the principal amount within seven days of demand and for which no
readily available market exists, such a note will be treated as an illiquid
security for purposes of calculation of the 10% limitation on such securities as
set forth below.
RISK FACTORS AND INVESTMENT TECHNIQUES
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 Investment Company Act of 1940, as amended (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
8
<PAGE> 11
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 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 Objective 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.
Foreign Investments. Investments in foreign securities (including ECDs, ETDs,
CTDs, Yankee CDs, CCP and Europaper) may subject the Fund to investment risks
that differ in some respects from those related to investments in securities of
U.S. domestic issuers. Such risks include future adverse political and economic
developments, the possible imposition of withholding taxes on interest or other
investment income, possible seizure, nationalization, or expropriation of
foreign deposits or investments, the possible establishment of exchange controls
or taxation at the source, less stringent disclosure requirements, less liquid
or developed securities markets or the adoption of other foreign governmental
restrictions which might adversely affect the payment of principal or interest
on such securities or the purchase or sale thereof. In addition, foreign
branches of U.S. banks and foreign banks may be subject to less stringent
reserve requirements and to different accounting, auditing, reporting, and
recordkeeping standards than those applicable to domestic branches of U.S.
banks. The Fund will acquire securities issued by foreign branches of U.S.
banks, foreign banks, or other foreign issuers only when the Adviser believes
that the risks associated with such instruments are minimal.
Securities Lending. In order to generate additional income, the Fund may,
from time to time, lend its portfolio securities to broker-dealers, banks, or
institutional borrowers of securities. The Fund must receive 100% collateral in
the form of cash or U.S. Government securities. This collateral will be valued
daily by the Adviser. Should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Fund. During
the time portfolio securities are on loan, the borrower pays the Fund any
interest received on such securities. Loans are subject to termination by the
Fund or the borrower at any time. While the Fund does not have the right to
vote securities on loan, the Fund intends to terminate the loan and regain the
right to vote if that is considered important with respect to the investment.
In the event the borrower would default in its obligations, the Fund bears the
risk of delay in recovery of the portfolio
9
<PAGE> 12
securities and the loss of rights in the collateral. The Fund will enter into
loan agreements only with broker-dealers, banks, or other institutions that the
Adviser has determined are creditworthy under guidelines established by the
Group's Board of Trustees.
Other Investment Policies. 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 objective 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.
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 the securities of other 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,
immediately after such purchase, more than 5% of the Fund's total assets would
be invested in such issuer or the Fund would hold more than 10% of the
outstanding voting securities of the issuer, except that 25% or less of the
Fund's total assets may be invested without regard to such limitations. 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.
2. Purchase any securities which would cause more than 25% of the Fund's
total assets at the time of purchase to be invested in securities of one or
more issuers conducting their principal business activities in the same
industry, provided that (a) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, domestic bank certificates of deposit or bankers'
acceptances, and repurchase agreements secured by bank instruments or
obligations of the U.S. Government, its agencies or instrumentalities; (b)
wholly owned finance companies will be considered to be in the industries of
their parents if their activities are primarily related to financing the
activi-
10
<PAGE> 13
ties of their parents; and (c) utilities will be divided according to their
services. For example, gas, gas transmission, electric and gas, electric, and
telephone will each be considered a separate industry.
3. Borrow money or issue senior securities except as and to the extent
permitted by the 1940 Act or any rule, order or interpretation thereunder. So
long as the Fund's borrowings, including reverse repurchase agreements and
dollar roll agreements, exceed 5% of the Fund's total assets, the Fund will
not acquire any portfolio securities.
4. Make loans, except that the Fund may purchase or hold debt instruments
and lend portfolio securities in accordance with its investment objective 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 may not
purchase or otherwise acquire any security if, as a result, more than 10% 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.
Irrespective of fundamental investment restriction number 1 above, and
pursuant to Rule 2a-7 under the 1940 Act, the Fund will, with respect to 100% of
its total assets, limit its investment in the securities of any one issuer in
the manner provided by such Rule, which limitations are referred to above under
the caption "Investment Objectives and Policies."
VALUATION OF SHARES
The net asset value of the Fund is determined and its Shares are priced as of
12:00 noon (Eastern time) and the close of regular trading on the New York Stock
Exchange (the "Exchange") (generally 4:00 p.m. Eastern time) on each Business
Day of the Fund. The times at which the Shares of the Fund are priced are
hereinafter referred to as the "Valuation Time" or "Valuation Times," as the
case may be. 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 assets in the Fund are valued based upon the amortized cost method which
the Trustees of the Group believe fairly reflects the market-based net asset
value per share. Pursuant to the rules and regulations of the Commission
regarding the use of the amortized cost method, the Fund will maintain a
dollar-weighted average portfolio maturity of 90 days or less. Although the
Group seeks to maintain the Fund's net asset value per share at $1.00, there can
be no assurance that net asset value will not vary. For further information
about valuation of investments, see "Net Asset Value" in the Statement of
Additional Information.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares of the Fund are sold on a continuous basis by the Group's distributor,
BISYS (the
11
<PAGE> 14
"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 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. Purchases of Shares of the Fund will be effected only on a
Business Day (as defined in "Valuation of Shares").
An order to purchase Shares of the Fund will be deemed to have been received
by the Distributor only when federal funds with respect thereto are available to
the Fund's custodian for investment. Federal funds are monies credited to a
bank's account with a Federal Reserve Bank. Payment for an order to purchase
Shares of the Fund which is transmitted by federal funds wire will be available
the same day for investment by the Fund's custodian, if received prior to the
last Valuation Time (see "Valuation of Shares"). Payments transmitted by other
means (such as by check drawn on a member of the Federal Reserve System) will
normally be converted into federal funds within two banking days after receipt.
The Group strongly recommends that investors of substantial amounts use federal
funds to purchase Shares. Shares of the Fund purchased before 12:00 noon,
Eastern Time, begin earning dividends on the same Business Day. Shares of the
Fund purchased after 12:00 noon, Eastern Time, begin earning dividends on the
next Business Day. All Shares of the Fund continue to earn dividends through the
day before their redemption.
12
<PAGE> 15
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
semi-monthly, monthly, quarterly or semi-annual purchases of Shares of the Fund
through automatic deduction from their bank accounts, provided that the
Shareholder'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 ($25 for employees of the Adviser, Keystone or one of their affiliates);
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.
IN-KIND PURCHASES
Payment for Shares of the Fund may, in the discretion of the Adviser, be made
in the form of securities that are permissible investments for the Fund as
described in this Prospectus. For further information about this form of
payment, contact the Adviser. In connection with an in-kind securities payment,
the Fund will require, among other things, that the securities be valued on the
date of purchase in accordance with the pricing methods used by the Fund and
that the Fund receive satisfactory assurances that it will have good and
marketable title to the securities received by it; that the securities be in
proper form of transfer to the Fund; and that adequate information be provided
concerning the basis and other tax matters relating to the securities.
13
<PAGE> 16
KEYPREMIER INDIVIDUAL RETIREMENT ACCOUNT ("IRA")
A KeyPremier IRA enables individuals, even if they participate in an
employer-sponsored retirement plan, to establish their own retirement program.
KeyPremier IRA contributions may be tax-deductible and earnings are tax
deferred. Under the Tax Reform Act of 1986, the tax deductibility of IRA
contributions is restricted or eliminated for individuals who participate in
certain employer pension plans and whose annual income exceeds certain limits.
Existing IRAs and future contributions up to the IRA maximums, whether
deductible or not, still earn income on a tax-deferred basis.
All KeyPremier IRA distribution requests must be made in writing to the
Distributor. Any deposits to a KeyPremier IRA must distinguish the type and year
of the contributions.
For more information on the KeyPremier IRAs call the Group at (800) 766-3960.
Investment in Shares of The KeyPremier Pennsylvania Municipal Bond Fund or any
other tax-exempt fund would not be appropriate for a KeyPremier IRA.
Shareholders are advised to consult a tax adviser on KeyPremier IRA contribution
and withdrawal requirements and restrictions.
GENERAL
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.
EXCHANGE PRIVILEGE
Shareholders may exchange their Shares in the Fund for Shares of any other
fund of the Group advised by the Adviser ("KeyPremier Funds"), including The
KeyPremier Pennsylvania Municipal Bond Fund, The KeyPremier Established Growth
Fund, The KeyPremier Intermediate Term Income Fund and The KeyPremier Aggressive
Growth Fund, at respective net asset values plus a sales charge equal to the
difference, if any, between the sales charge payable upon purchase of Shares of
such KeyPremier Fund and the sales charge, if any, previously paid on the Fund
Shares to be exchanged. In addition, with respect to every exchange, the amount
to be exchanged must meet the applicable minimum investment requirements and the
exchange must be made in states where it is legally authorized. When Shares of
the Fund are exchanged for Shares of a KeyPremier Fund sold with a sales charge,
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
14
<PAGE> 17
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.
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, all or part of the Customer's Shares of the Fund to the
extent necessary to maintain the required minimum balance. Also, Shares may be
redeemed using the check-writing feature described below.
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
15
<PAGE> 18
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. 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, such 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 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 such 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.
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 same day payments upon redemption of Shares if the request for
redemption is received by the Distributor before 12:00 noon, Eastern Time, on a
Business Day or, if the request for redemption is received after 12:00 noon,
Eastern Time, to honor requests for payment on the next 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. During the period of any such delay,
Shares to be redeemed would continue to receive daily dividends as declared
until execution of the redemption. 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
16
<PAGE> 19
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 any Shareholder
if, because of redemptions of Shares by or on behalf of the Shareholder (but not
as a result of 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" and "Net Asset Value" in
the Statement of Additional Information for examples of when the Group may
suspend the right of redemption or redeem shares involuntarily in light of the
Group's responsibilities under the 1940 Act.
CHECK-WRITING REDEMPTION PROCEDURE
The Transfer Agent will provide any Shareholder who so requests with a supply
of checks, imprinted with the Shareholder's name, which may be drawn against the
Fund's account maintained by The Bank of New York (the "Bank"), for redemption
of Fund Shares. These checks may be made payable to the order of any person in
any amount not less than $500. To participate in this procedure, an investor
must complete the Check-Writing Redemption Form available from the Transfer
Agent. When a check is presented to the Bank for payment, the Transfer Agent (as
the Shareholder's agent) will cause the Fund to redeem sufficient Shares in the
Shareholder's account to cover the amount of the check. Shares continue earning
daily dividends until the day on which the check is presented to the Bank for
payment. Cancelled checks will be returned to the Shareholder. Due to the delay
caused by the requirement that redemptions be priced at the next computed net
asset value, the Bank will only accept for payment checks presented through
normal bank clearing channels. Shareholders should not attempt to withdraw the
full amount of an account or to close out an account by using this procedure.
No charge will be made to a Shareholder for participation in the check-writing
redemption procedure or for the clearance of any checks. However, a
Shareholder's account may be subject to charges for copies, returned checks
and/or returned items of deposit.
In order to stop payment on a check, the Shareholder must notify the Group in
writing before the check has been presented to the Bank for payment. A charge
may be deducted from the Shareholder's account for each stop payment order.
DIVIDENDS AND TAXES
DIVIDENDS
The net income of the Fund is declared daily and such dividends are 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
17
<PAGE> 20
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, if any, 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 its 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, the Fund would be subject to a
nondeductible 4% excise tax on the deficiency.
It is expected that the Fund will distribute annually to Shareholders all or
substantially all of the Fund's net ordinary income and net realized capital
gains and that such distributed net ordinary income and distributed net realized
capital gains will be taxable income to Shareholders for federal income tax
purposes, even if paid in additional Shares of the Fund and not in cash. Since
all of the Fund's net investment income is expected to be derived from earned
interest and short-term capital gains, it is anticipated that no part of any
distribution from the Fund will be eligible for the dividends received deduction
for corporations. The Fund also does not expect to realize any long-term capital
gains and, therefore, does not foresee paying any "capital gains dividends" as
described in the Code.
Distribution by the Fund of the excess of net long-term capital gain, if any,
over net short-term capital loss is taxable to Shareholders as long-term capital
gain in the year in which it is received, regardless of how long the Shareholder
has held the Shares. Such distributions are not eligible for the
dividends-received deduction.
Additional information regarding federal taxes is contained in the Statement
of Additional Information under the heading "Additional General
Information--Additional 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 applica-
18
<PAGE> 21
tion 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 income tax
consequences of distributions made to them during the year.
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 and may receive fees under the Administrative
Services Plan discussed below. 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. Except with respect to the KeyPremier
Funds, the Adviser has not previously served as the investment adviser to a
registered open-end management investment company. However, the Adviser has
managed since its founding the investment portfolios of high net worth
individuals, endowments, pension and common trust funds. The Adviser currently
has over $960 million under management.
Subject to the general supervision of the Board of Trustees of the Group and
in accordance with the investment objective 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.
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 forty one-hundredths of
one percent (.40%) 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
19
<PAGE> 22
"Distributor," as the context indicates). BISYS and its affiliated companies,
including BISYS Fund Services, 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 an annual fee, calculated monthly and paid
periodically, from the Fund 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 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.
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 notification 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, 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, provid-
20
<PAGE> 23
ing 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 seventeen 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 Pennsylvania Municipal Bond Fund, The KeyPremier Established Growth
Fund, The KeyPremier Intermediate Term Income Fund, The KeyPremier Aggressive
Growth Fund, 1st Source Monogram U.S. Treasury Obligations Money Market Fund,
1st Source Monogram Diversified Equity Fund, 1st Source Monogram Income 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 Fund, Riverside Capital Fixed Income Fund,
Riverside Capital Growth Fund, Riverside Capital Tennessee Municipal Obligations
Fund and Riverside Capital Low Duration Government Securities Fund.
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
Group's investment advisory agreement with respect to the Fund.
Overall responsibility for the management of the Fund 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, although
Trustees may, under certain circumstances, fill vacancies, including vacancies
created by expanding the size of the Board. Trustees 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.
21
<PAGE> 24
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.
As of March 3, 1997, Keystone possessed, on behalf of its or its affiliates'
underlying accounts, voting or investment power with respect to more than 25% of
the outstanding shares of the Fund and therefore may be presumed to control the
Fund within the meaning of the 1940 Act.
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 a 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 $30,000. See "Management of the Group--Transfer Agency and Fund
Accounting Services" in the Statement of Additional Information for further
information.
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 the 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) 766-3960.
22
<PAGE> 25
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 LLP
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
FINANCIAL HIGHLIGHTS.................. 4
PERFORMANCE INFORMATION............... 5
INVESTMENT OBJECTIVE AND POLICIES..... 5
INVESTMENT RESTRICTIONS............... 10
VALUATION OF SHARES................... 11
HOW TO PURCHASE AND REDEEM SHARES..... 11
DIVIDENDS AND TAXES................... 17
MANAGEMENT OF THE GROUP............... 19
GENERAL INFORMATION................... 21
</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
PRIME MONEY
MARKET FUND
MARTINDALE
ANDRES & COMPANY, INC.
INVESTMENT ADVISER
Prospectus
dated April 1, 1997
<PAGE> 26
CROSS REFERENCE SHEET
THE KEYPREMIER PENNSYLVANIA MUNICIPAL BOND FUND
One Fund
of
The Sessions Group
<TABLE>
<CAPTION>
Form N-1A Part A Item Prospectus Caption
- --------------------- ------------------
<S> <C>
1. Cover page.................. Cover Page
2. Synopsis.................... Fee Table
3. Condensed Financial
Information............... Financial Highlights; Performance
Information
4. General Description of
Registrant................ Investment Objectives and Policies;
Investment Restrictions; General
Information - Description of the Group
and Its Shares ; Cover Page
5. Management of the Fund...... Management of the Group; General
Information - Custodian; General
Information - Transfer Agency and Fund
Accounting Services
5A. Management's Discussion
of Fund Performance....... Inapplicable
6. Capital Stock and Other
Securities................ How to Purchase and Redeem Shares;
Dividends and Taxes; General
Information - Description of the
Group and Its Shares; General
Information - Miscellaneous
7. Purchase of Securities
Being Offered............. Valuation of Shares; How to Purchase
and Redeem Shares; Management of the
Group - Distribution Plan
8. Redemption or Repurchase.... How to Purchase and Redeem Shares
9. Pending Legal Proceedings... Inapplicable
</TABLE>
<PAGE> 27
LOGO
- --------------------------------------------------------------------------------
3435 Stelzer Road
Columbus, Ohio 43219
For current yield, purchase,
and redemption information,
call (800) 766-3960.
- --------------------------------------------------------------------------------
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 April 1, 1997.
THE KEYPREMIER PENNSYLVANIA
MUNICIPAL BOND FUND
<PAGE> 28
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 and other governmental entities, 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").
2
<PAGE> 29
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.......................................... .30%
12b-1 Fees........................................................................... None
Other Expenses2...................................................................... .29
----
Estimated Total Fund Operating Expenses After Voluntary Fee Waiver1.................. .59%
====
</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>
$ 51 $63
---
</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.
- ---------------
1 The Adviser has agreed voluntarily to reduce its investment advisory fee to
0.30% through on or about October 31, 1997. Absent such voluntary fee
reduction, 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> 30
FINANCIAL HIGHLIGHTS
The Fund is one separate fund of the Group. The table below sets forth certain
information concerning the investment results of the Fund since its inception.
Further financial information is included in the Statement of Additional
Information. The Financial Highlights contained in the table below have not been
audited.
<TABLE>
<CAPTION>
PERIOD FROM OCTOBER
1, 1996 THROUGH
DECEMBER 31, 1996(A)
--------------------
(UNAUDITED)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................................. $10.21
Investment Activities:
Net investment income............................................... 0.04
Net realized and unrealized gains (losses) on investments........... 0.14
------
Total from Investment Activities...................................... 0.18
------
Distributions:
Net investment income............................................... (0.04)
Net realized gains.................................................. --
------
Total Distributions................................................. (0.04)
------
NET ASSET VALUE, END OF PERIOD........................................ $10.35
======
RATIOS/SUPPLEMENTAL DATA:
Total Return (excludes sales charge).................................. 2.34%(b)
Net Assets, at end of period(000)..................................... $108,000
Ratio of expenses to average net assets............................... 0.27%(c)
Ratio of net investment income to average net assets.................. 1.26%(c)
Ratio of expenses to average net assets*.............................. 1.04%(c)
Ratio of net investment income to average net assets*................. 0.49%(c)
Portfolio Turnover.................................................... 30%
</TABLE>
- ---------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Commencement of operations.
(b) Not annualized.
(c) Annualized.
4
<PAGE> 31
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 PERFORMANCE 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
5
<PAGE> 32
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 are
invested in a portfolio of debt 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 are 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 are 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-
6
<PAGE> 33
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 but 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 municipal obligations of other states, and any
political subdivision, county or municipality thereof, which are not Exempt
Securities and in taxable obligations if, for example, suitable Exempt
Securities are unavailable or for cash management purposes. In addition, the
Fund may invest up to 100% of its assets in such 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, commercial paper meeting the Fund's quality
standards (as described above) for tax-exempt commercial paper, and repurchase
agreements collateralized by such obligations. 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.
7
<PAGE> 34
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 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. Variable and floating
rate notes, 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 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
8
<PAGE> 35
U.S. Government securities. For certain participation interests, the Fund will
have the right to 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
9
<PAGE> 36
at a discount from face value, which produces a yield greater than the coupon
rate. Conversely, 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.
10
<PAGE> 37
Although the General Fund of the Commonwealth (the principal operating fund of
the Commonwealth) experienced deficits in fiscal 1990 and 1991, tax increases
and spending decreases have resulted in surpluses the last 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-trial 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 S&P and A1 by
Moody's, and Philadelphia's and Pittsburgh's general obligation bonds are
currently rated BBB- and BBB+ respectively by S&P and 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
11
<PAGE> 38
economic difficulties. The audited balance of 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" 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, as amended (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 banks and/or 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 value is
maintained at all times. Reverse repur-
12
<PAGE> 39
chase 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 particular
security will decline, and involve the
13
<PAGE> 40
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 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. Such options will be listed on national securities or futures
exchanges. The Fund may write covered call options (options on securities owned
by the Fund) 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. By writing a
covered 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.
The Fund, as part of its options transactions, also may purchase index put and
call options and write index options. Through the writing or purchase of index
options the Fund can achieve many of the same objectives as through the use of
options on individual securities. Options on securities indices are similar to
options on a security except that, rather than the right to take or make
delivery of a security at a specified price, an option on a securities index
gives the holder the right to receive, upon exercise of the option, an amount of
cash if the closing level of the securities index upon which the option is based
is greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option.
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 a call option is exercised, the Fund may deliver the
underlying security in the
14
<PAGE> 41
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.
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.
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 such 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.
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
15
<PAGE> 42
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 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
16
<PAGE> 43
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 agreement 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
17
<PAGE> 44
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 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 investment companies 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 market-
18
<PAGE> 45
able 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 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 of 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
19
<PAGE> 46
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 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.
20
<PAGE> 47
AUTO INVEST PLAN
The KeyPremier Funds Auto Invest Plan enables Shareholders to make regular
semi-monthly, monthly, quarterly or semi-annual purchases of Shares of the Fund
through automatic deduction from their bank accounts, provided that the
Shareholder'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.
IN-KIND PURCHASES
Payment for Shares of the Fund may, in the discretion of the Adviser, be made
in the form of securities that are permissible investments for the Fund as
described in this Prospectus. For further information about this form of
payment, contact the Adviser. In connection with an in-kind securities payment,
the Fund will require, among other things, that the securities be valued on the
date of purchase in accordance with the pricing methods used by the Fund and
that the Fund receive satisfactory assurances that it will have good and
marketable title to the securities received by it; that the securities be in
proper form of transfer to the Fund; and that adequate information be provided
concerning the basis and other tax matters relating to the securities.
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
21
<PAGE> 48
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 retirement 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 affiliated trust or agency account, (4) brokers, dealers
and agents, who have a sales agreement with the Distributor, and their employees
(and their spouses and children under 21), and (5) investment advisers or
financial planners regulated by a federal or state governmental authority who
are purchasing Shares for their own account or for an account for which they are
authorized to make investment decisions (i.e., a discretionary account) and who
charge a management, consulting or other fee for their services, and clients of
such investment advisers or financial planners who place trades for their own
accounts if the accounts are linked to the master account of such investment
adviser or financial planner on the books and records of a broker or agent. 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 with respect to the Shares of the Fund so purchased 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
22
<PAGE> 49
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 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 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
Shareholders may exchange their Shares in the Fund for Shares of any other
fund of the Group advised by the Adviser ("KeyPremier Funds"), including The
KeyPremier Prime Money Market Fund, The KeyPremier Established Growth Fund, The
KeyPremier Intermediate Term Income Fund and The KeyPremier Aggressive Growth
Fund, at respective net asset values plus a sales charge equal to the
difference, if any, between the sales charge payable upon purchase of Shares of
such KeyPremier Fund and the sales charge, if any, previously paid on the Fund
Shares to be exchanged. In addition, with respect to every exchange, the amount
to be exchanged must
23
<PAGE> 50
meet the applicable minimum investment requirements and the exchange must be
made in states where it is legally authorized.
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, 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
24
<PAGE> 51
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. 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 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 thereafter. 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
25
<PAGE> 52
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 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 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
26
<PAGE> 53
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 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
27
<PAGE> 54
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 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
28
<PAGE> 55
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. Except with respect to the KeyPremier
Funds, the Adviser has not previously served as the investment adviser to a
registered open-end management investment company. However, the Adviser has
managed since its founding the investment portfolios of high net worth
individuals, endowments, pension and common trust funds. The Adviser currently
has over $960 million 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 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, 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
29
<PAGE> 56
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 notification 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, 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 with respect to the Fund.
BANKING LAWS
The Adviser believes that it possesses the legal authority to perform the
investment advisory services for the Fund contemplated by its
30
<PAGE> 57
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 seventeen 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, The KeyPremier Aggressive Growth Fund,
1st Source Monogram U.S. Treasury Obligations Money Market Fund, 1st Source
Monogram Diversified Equity Fund, 1st Source Monogram Income 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 was initially 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
Group's investment advisory agreement with respect to the Fund.
Overall responsibility for the management of the Fund 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, although
Trustees may, under certain circumstances, fill vacancies created by expanding
the size of the Board. Trustees 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
31
<PAGE> 58
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.
As of March 3, 1997, Keystone possessed, on behalf of its or its affiliates'
underlying accounts, voting or investment power with respect to more than 25% of
the outstanding shares of the Fund and therefore may be presumed to control the
Fund within the meaning of the 1940 Act.
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.
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.
32
<PAGE> 59
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 LLP
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
FINANCIAL HIGHLIGHTS.................. 4
PERFORMANCE INFORMATION............... 5
INVESTMENT OBJECTIVES AND POLICIES.... 5
INVESTMENT RESTRICTIONS............... 18
VALUATION OF SHARES................... 19
HOW TO PURCHASE AND REDEEM SHARES..... 19
DIVIDENDS AND TAXES................... 26
MANAGEMENT OF THE GROUP............... 28
GENERAL INFORMATION................... 31
</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 April 1, 1997
<PAGE> 60
CROSS REFERENCE SHEET
1ST SOURCE MONOGRAM U.S. TREASURY OBLIGATIONS MONEY MARKET FUND
1ST SOURCE MONOGRAM DIVERSIFIED EQUITY FUND
1ST SOURCE MONOGRAM INCOME EQUITY FUND
1ST SOURCE MONOGRAM SPECIAL EQUITY FUND
1ST SOURCE MONOGRAM INCOME FUND
1ST SOURCE MONOGRAM INTERMEDIATE TAX-FREE BOND FUND
Six Funds
of
The Sessions Group
<TABLE>
<CAPTION>
Form N-1A Part A Item Prospectus Caption
- --------------------- ------------------
<S> <C> <C>
1. Cover page.................. Cover Page
2. Synopsis.................... Fee Table
3. Condensed Financial
Information............... Financial Highlights; Performance Information
4. General Description of
Registrant................ Investment Objectives and Policies; Investment Restrictions;
General Information - Description of the Group and Its Shares
5. Management of the Fund...... Management of the Group; General Information - Custodian;
General Information - Transfer Agent
5A. Management's Discussion
of Fund Performance....... Inapplicable
6. Capital Stock and Other
Securities................ How to Purchase and Redeem Shares; Dividends and Taxes;
General Information - Description of the Group and Its Shares;
General Information - Miscellaneous
7. Purchase of Securities
Being Offered............. Valuation of Shares; How to Purchase and Redeem Shares;
Management of the Group - Distribution Plan
8. Redemption or Repurchase.... How to Purchase and Redeem Shares
9. Pending Legal Proceedings... Inapplicable
</TABLE>
<PAGE> 61
1ST SOURCE MONOGRAM U.S. TREASURY OBLIGATIONS
MONEY MARKET FUND
1ST SOURCE MONOGRAM DIVERSIFIED EQUITY FUND
1ST SOURCE MONOGRAM INCOME EQUITY FUND
1ST SOURCE MONOGRAM SPECIAL EQUITY FUND
1ST SOURCE MONOGRAM INCOME FUND
1ST SOURCE MONOGRAM INTERMEDIATE TAX-FREE BOND FUND LOGO
- --------------------------------------------------------------------------------
3435 Stelzer Road
Columbus, Ohio 43219
For current yield, purchase, and redemption
information, call (800) 766-8938.
- --------------------------------------------------------------------------------
The Sessions Group (the "Group") is an open-end management investment company.
The Group includes the 1st Source Monogram U.S. Treasury Obligations Money
Market Fund (the "Money Market Fund"), the 1st Source Monogram Diversified
Equity Fund (the "Diversified Equity Fund"), the 1st Source Monogram Income
Equity Fund (the "Income Equity Fund"), the 1st Source Monogram Special Equity
Fund (the "Special Equity Fund"), the 1st Source Monogram Income Fund (the
"Income Fund") and the 1st Source Monogram Intermediate Tax-Free Bond Fund (the
"Intermediate Tax-Free Fund"), each of which is a diversified investment fund of
the Group (the Money Market, Diversified Equity, Income Equity, Special Equity,
Income and Intermediate Tax-Free Funds are hereinafter collectively referred to
as the "Funds" and individually as a "Fund"). The Trustees of the Group have
divided each Fund's beneficial ownership into an unlimited number of
transferable units called shares (the "Shares").
1st Source Bank, South Bend, Indiana (the "Adviser"), which is a wholly owned
subsidiary of 1st Source Corporation ("FSC"), acts as the investment adviser to
each of the Funds. In addition, with respect to the Diversified Equity Fund, the
Adviser has retained Miller Anderson & Sherrerd LLP, Loomis Sayles & Company,
L.P. and Columbus Circle Investors to provide sub-investment advisory services.
Additional information about the Funds, 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 Funds at their address
or by calling the Funds 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 Funds that a
prospective investor ought to know before investing. Investors should read this
Prospectus and retain it for future reference.
Each of the Diversified Equity Fund's, Income Equity Fund's, Special Equity
Fund's, Income Fund's and Intermediate Tax-Free 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 Funds' administrator and distributor. BISYS Fund
Services, Inc., Columbus, Ohio, an affiliate of BISYS, acts as the Funds'
transfer agent (the "Transfer Agent") and performs certain fund accounting
services for each of the Funds.
THE SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, THE ADVISER, FSC 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 A FUND
INVOLVES CERTAIN INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
IN ADDITION, AN INVESTMENT IN THE MONEY MARKET FUND IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. THE MONEY MARKET FUND SEEKS TO MAINTAIN A
CONSTANT NET ASSET VALUE OF $1.00 PER SHARE, BUT THERE CAN BE NO ASSURANCE THAT
NET ASSET VALUE WILL NOT VARY.
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 April 1, 1997.
<PAGE> 62
PROSPECTUS SUMMARY
SHARES OFFERED: Units of beneficial interest ("Shares") of the Money Market
Fund, the Diversified Equity Fund, the Income Equity Fund, the Special Equity
Fund, the Income Fund and the Intermediate Tax-Free Fund, six separate
investment funds (collectively, the "Funds") of The Sessions Group, an Ohio
business trust (the "Group").
OFFERING PRICE: The public offering price of the Money Market Fund is equal to
the net asset value per share which such Fund will seek to maintain at $1.00 per
Share. The public offering price of each of the other Funds is equal to the net
asset value per share plus a sales charge of 5.00% (with respect to the
Diversified Equity, Income Equity and Special Equity Funds) and 4.00% (with
respect to the Income and Intermediate Tax-Free Funds) of the public offering
price, reduced on investments of $50,000 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 and subsequent investments are
reduced for investors using the Auto Invest Plan described herein and for
employees of the Adviser or one of its affiliates.
TYPE OF COMPANY: Each Fund is a diversified series of an open-end, management
investment company.
INVESTMENT OBJECTIVES: For the MONEY MARKET FUND, current income with
liquidity and stability of principal.
For the DIVERSIFIED EQUITY FUND and the SPECIAL EQUITY FUND, capital
appreciation.
For the INCOME EQUITY FUND, capital appreciation with current income as a
secondary objective.
For the INCOME FUND, current income consistent with preservation of capital.
For the INTERMEDIATE TAX-FREE FUND, current income which is exempt from
federal income tax consistent with preservation of capital.
INVESTMENT POLICIES: Under normal market conditions, the MONEY MARKET FUND
will invest as fully as possible, but in no event less than 80%, of its total
assets in the U.S. Treasury bills, notes and bonds, and repurchase agreements
secured by such obligations.
Under normal market conditions, the DIVERSIFIED EQUITY FUND will invest
substantially all, but in no event less than 65%, of its total assets in common
stocks and securities convertible into common stocks--of that amount 25% to 40%
will be committed to each of the following styles, representing the three
different styles of the SubAdvisers: (1) investing in companies believed to have
strong value measures whose stock is traded at a price below its perceived
value, (2) investing in companies believed to have growth potential, and (3)
investing in companies believed to be in a position to take advantage of
political, economic, industrial or secular trends or developments.
Under normal market conditions, the INCOME EQUITY FUND will invest
substantially all, but in no event less than 65%, of its total assets in common
stocks and securities convertible into common stocks.
Under normal market conditions, the SPECIAL EQUITY FUND will invest
substantially all, but in no event less than 65%, of its total assets in equity
securities issued by companies with market
2
<PAGE> 63
capitalizations ranging on average between $50 million and $1.5 billion and
which are considered to have growth potential.
Under normal market conditions, the INCOME FUND will invest substantially all,
but in no event less than 65%, of its total assets in debt securities of all
types, including high grade corporate bonds and U.S. Government bonds.
Under normal market conditions, the INTERMEDIATE TAX-FREE FUND will invest at
least 80% of its net assets in municipal securities issued by or on behalf of
the various States of the United States 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 income taxes
and is not treated as a preference item for certain Shareholders for purposes of
the federal alternative minimum tax. The Intermediate Tax-Free Fund, under
normal market conditions, expects to maintain an average weighted portfolio
maturity of four to eight years.
RISK FACTORS AND SPECIAL CONSIDERATIONS: An investment in any of the Funds is
subject to certain risks, including market risk and interest rate risk, 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 any of the Funds will achieve its investment objectives. The Funds, to the
extent set forth under "INVESTMENT OBJECTIVES AND POLICIES," may engage in the
following practices: the use of repurchase agreements and reverse repurchase
agreements, purchasing futures contracts, foreign securities and restricted
securities, entering into option transactions on securities in which the Funds
may invest directly and the purchase of securities on a when-issued or
delayed-delivery basis.
INVESTMENT ADVISER: 1st Source Bank (the "Adviser").
SUB-ADVISERS: With respect to the Diversified Equity Fund only, Miller,
Anderson & Sherrerd LLP, Loomis, Sayles & Company, L.P. and Columbus Circle
Investors (collectively, the "Sub-Advisers").
DIVIDENDS: For the Money Market Fund, dividends from net income are declared
daily and generally paid monthly. For each of the other Funds, other than the
Special Equity Fund, dividends from net income are declared and generally paid
monthly. For the Special Equity Fund, dividends from net income are declared and
generally paid quarterly. Net realized capital gains, if any, for each of the
Funds are distributed at least annually.
DISTRIBUTOR: BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services
("BISYS").
3
<PAGE> 64
FEE TABLE
<TABLE>
<CAPTION>
MONEY DIVERSIFIED INCOME
MARKET EQUITY EQUITY
FUND FUND FUND
------- ----------- ------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price)............................................. 0% 5.00% 5.00%
Exchange Fee.................................................. $ 0 $ 0 $ 0
ESTIMATED ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees............................................... .35% 1.10% .80%
12b-1 Fees After Fee Waivers(1)............................... .01 .01 .01
Other Expenses(2)............................................. .40 .42 .45
--------- --------- ---------
Estimated Total Fund Operating Expenses After Fee
Waivers(1).................................................. 0.76% 1.53% 1.26%
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
SPECIAL INTERMEDIATE
EQUITY INCOME TAX-FREE
FUND FUND FUND
------- ----------- ------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price)............................................. 5.00% 4.00% 4.00%
Exchange Fee.................................................. $ 0 $ 0 $ 0
ESTIMATED ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees............................................... .80% .55% .55%
12b-1 Fees After Fee Waivers(1)............................... .01 .01 .01
Other Expenses(2)............................................. .51 .42 .57
---- ---- ----
Estimated Total Fund Operating Expenses After Fee
Waivers(1).................................................. 1.32% 0.98% 1.13%
==== ==== ====
</TABLE>
- ---------------
1. BISYS has agreed with the Group to waive a portion of its Rule 12b-1 Fees
until October 31, 1997, so that such fees will not exceed during that period,
on an annual basis, 0.01% of any Fund's average daily net assets. Absent such
Fee Waivers, 12b-1 Fees for each of the Funds would be 0.25% and Estimated
Total Fund Operating Expenses would be estimated to be 1.00%, 1.77%, 1.50%,
1.66%, 1.22% and 1.37% for the Money Market Fund, Diversified Equity Fund,
Income Equity Fund, Special Equity Fund, Income Fund and Intermediate
Tax-Free Fund, respectively.
2. "Other Expenses" are based upon estimated amounts for the current fiscal
year.
4
<PAGE> 65
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> <C>
Money Market Fund......................................................... $ 8 $24
Diversified Equity Fund................................................... 65 96
Income Equity Fund........................................................ 62 88
Special Equity Fund....................................................... 63 90
Income Fund............................................................... 50 70
Intermediate Tax-Free Fund................................................ 51 74
</TABLE>
The purpose of the above table is to assist a potential purchaser of Shares of
any of the Funds in understanding the various costs and expenses that an
investor in a 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 Funds. See "MANAGEMENT OF THE
GROUP" and "GENERAL INFORMATION" for a more complete discussion of the
Shareholder transaction expenses and annual operating expenses of each Fund.
Except with respect to the Money Market Fund, as a result of the payment of
sales loads and Rule 12b-1 Fees, long-term Shareholders may pay more than the
maximum front-end sales charge permitted by the Rules of the National
Association of Securities Dealers, Inc. (the "NASD"). THE FOREGOING EXAMPLES
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
Each Fund is one separate fund of the Group. The table below sets forth
certain information concerning the investment results of the Funds, other than
the Money Market Fund and the Intermediate Tax-Free Fund, since their inception.
Such financial information for the Money Market Fund and the Intermediate
Tax-Free Fund has not been provided since such Funds have not
5
<PAGE> 66
yet commenced operations. Further financial information is included in the
Statement of Additional Information. The Financial Highlights contained in the
table below have not been audited.
<TABLE>
<CAPTION>
DIVERSIFIED INCOME SPECIAL
EQUITY EQUITY EQUITY INCOME
------------ ------------ ------------ ------------
FOR PERIOD FOR PERIOD FOR PERIOD FOR PERIOD
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 (A) 1996 (A) 1996 (A) 1996 (A)
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................ $ 10.00 $ 10.00 $ 10.00 $ 10.00
----------- ----------- ---------- ---------
INVESTMENT ACTIVITIES
Net investment income............. -- 0.08 -- 0.16
Net realized gains (losses) on
investments.................... 0.42 0.30 0.16 (0.02)
Net unrealized gains (losses) on
investments.................... 0.26 0.48 (0.16) 0.19
----------- ----------- ---------- ---------
Total from Investment
Activities................... 0.68 0.86 0.00 0.33
----------- ----------- ---------- ---------
DISTRIBUTIONS
Net investment income............. -- (0.08) -- (0.16)
In excess of net investment
income......................... -- -- -- --
Net realized gains................ (0.22) (0.05) (0.16) --
In excess of realized gains....... -- -- (0.15) --
----------- ----------- ---------- ---------
Total Distributions............ (0.22) (0.13) (0.31) (0.16)
----------- ----------- ---------- ---------
NET ASSET VALUE, END OF PERIOD...... $ 10.46 $ 10.73 $ 9.69 $ 10.17
=========== =========== =========== ==========
Total Return (excludes sales
charge)........................... 8.61%(b) 10.25%(b) -2.30%(b) 4.38%(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, at end of period
(000).......................... $ 65,681 $ 32,580 $ 26,058 $ 48,959
Ratio of expenses to average net
assets......................... 1.57%(c) 1.32%(c) 1.33%(c) 1.01%(c)
Ratio of net investment income to
average net assets............. -0.08%(c) 2.39%(c) -0.11%(c) 1.31%(c)
Ratio of expenses to average net
assets*........................ 1.82%(c) 1.57%(c) 1.58%(c) 1.26%(c)
Ratio of net investment income to
average net assets*............ -0.33%(c) 2.14%(c) -0.36%(c) 1.06%(c)
Portfolio Turnover Rate........... 23% 14% 37% 71%
</TABLE>
- ---------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Commencement of the Funds began September 20, September 19, September 23,
and September 24, respectively.
(b) Not annualized. The quoted returns of the Funds are for the period ended
December 31, 1996, and include, prior to commencement of operations for such
Funds, the performance of certain collective trust portfolio accounts for
the period beginning June 30, 1996.
(c) Annualized.
6
<PAGE> 67
PERFORMANCE INFORMATION
From time to time performance information for the Funds showing the Funds'
average annual total return, aggregate total return, yield, tax equivalent
yield, seven-day yield and/or seven-day effective yield may be presented in
advertisements, sales literature and shareholder reports. SUCH PERFORMANCE
FIGURES ARE BASED ON HISTORICAL PERFORMANCE AND ARE NOT INTENDED TO INDICATE
FUTURE PERFORMANCE. Average annual total return will be calculated for the
period since commencement of operations for a Fund (or its respective
predecessor collective investment fund) and will reflect the imposition of the
maximum sales charge, if any. Average annual total return is measured by
comparing the value of an investment in such 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 a Fund's net investment income per share earned during a
recent one-month period by that 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 a
Fund demonstrates the taxable yield necessary to produce an after-tax yield
equivalent to the yield of that Fund. Each of the Funds may also present its
average annual total return, aggregate total return, yield, and tax equivalent
yield, as the case may be, excluding the effect of a sales charge, if any.
Each of the Funds, other than the Money Market Fund and the Intermediate
Tax-Free Fund, were initially funded in part by the transfer of all of the
assets of a corresponding collective investment fund managed by the Adviser and,
in the case of the Diversified Equity Fund, the Sub-Advisers (the "CIFs").
Because the management of such Funds is substantially the same as the
corresponding CIF, the quoted performance of those Funds includes the
performance of the CIFs for periods prior to the effectiveness of the Group's
registration statement as it relates to those Funds. The CIFs were not
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), and therefore were not subject to certain investment restrictions that
are imposed by the 1940 Act. If the CIFs had been so registered, their
performance might have been adversely affected.
For the one year, five year and ten year periods ended December 31, 1996, and
the respective periods from commencement of operations to December 31, 1996, the
average annual total returns for the Diversified Equity Fund, the Income Equity
Fund, the Special Equity Fund and the Income Fund are set forth in the following
table. Such performance information includes the prior performance of the
respective CIFs for such Funds during those periods which has been restated to
reflect the estimated fees for those Funds.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
------------------------------------------------------------------------------------
WITH MAXIMUM SALES LOAD(1) WITHOUT SALES LOAD
---------------------------------------- ----------------------------------------
SINCE SINCE
FUND 1 YEAR 5 YEAR 10 YEAR INCEPTION 1 YEAR 5 YEAR 10 YEAR INCEPTION
- -------------------------------- ------ ------ ------- --------- ------ ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Diversified Equity(2)........... 13.19% 11.02.% 12.15% 11.15% 19.13% 12.17% 12.73% 11.65%
Income Equity(3)................ 11.67% 13.93% 11.56% 12.54% 17.59% 15.09% 12.12% 13.07%
Special Equity(3)............... 15.98% 12.17% 15.39% 13.60% 22.07% 13.32% 15.98% 14.12%
Income(2)....................... -1.55% 5.21% 6.45% 7.22% 2.55% 6.07% 6.88% 7.69%
</TABLE>
7
<PAGE> 68
- ---------------
1. The maximum sales load for the Diversified Equity, Income Equity and Special
Equity Funds is 5.00%. For the Income Fund, the maximum sales load is 4.00%.
2. Commenced operations June 30, 1985.
3. Commenced operations November 30, 1985.
For the period ended December 31, 1996, there is no total return information
for the Money Market Fund or the Intermediate Tax-Free Income Fund since such
Funds had not yet commenced operations. And, of course, past performance is no
guarantee as to future performance.
The seven-day yield of the Money Market Fund refers to the income generated by
an investment therein over a seven-day period (which period will be stated in
the advertisement). This income is then "annualized." That is, the amount of
income generated by the investment during that week is assumed to be generated
each week over a 52-week period and is shown as a percentage of the investment.
The seven-day effective yield is calculated similarly but, when annualized, the
income earned by an investment in the Money Market Fund is assumed to be
reinvested. The seven-day effective yield is slightly higher than the seven-day
yield because of the compounding effect of this assumed reinvestment. The Money
Market Fund may also present a 30-day yield which is calculated similarly to the
seven-day yield but instead refers to a 30-day period rather than a seven-day
period.
In addition, from time to time the Funds may also present their distribution
rates 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 a 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 each Fund may also present a distribution rate excluding the effect of
capital gains and/or a sales charge, if any. 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 each 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 these Funds 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 FSC or by any of its affiliated or
correspondent banks, including the Adviser, to its customer accounts which may
have invested in Shares of a 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 a Fund, as discussed below, the yield and total return for
that Fund will be higher than they would otherwise be in the absence of such
voluntary fee reductions.
8
<PAGE> 69
INVESTMENT OBJECTIVES AND POLICIES
IN GENERAL
The investment objective of the Money Market Fund is current income with
liquidity and stability of principal. The investment objective for each of the
Diversified Equity Fund and the Special Equity Fund is capital appreciation. The
investment objectives of the Income Equity Fund are capital appreciation with
current income as a secondary objective. The investment objectives of the Income
Fund are current income consistent with preservation of capital. The investment
objectives of the Intermediate Tax-Free Fund are income which is exempt from
federal income tax consistent with preservation of capital.
The investment objectives with respect to a Fund are non-fundamental policies
and as such may be changed by the Group's Trustees without a vote of the holders
of a majority of the outstanding Shares of that Fund (as defined below under
"GENERAL INFORMATION-- Miscellaneous"). There can be no assurance that the
investment objectives of any Fund will be achieved.
THE MONEY MARKET FUND
Under normal market conditions, the Money Market Fund invests as fully as
possible, but in no event less than 80% of its total assets, in U.S. Treasury
bills, notes and bonds and repurchase agreements relating to such obligations.
The Money Market Fund will purchase only obligations which have, or are deemed
to have, maturities, from the date of purchase, of thirteen months or less.
Current income earned on such securities may not be as great as current income
that could be earned on lower quality securities that have less liquidity and/or
a greater risk of non-payment or securities that have a longer term.
Notwithstanding any of the foregoing, the Money Market Fund, as a money market
fund subject to Rule 2a-7 of the 1940 Act, must invest exclusively in United
States dollar-denominated instruments which the Trustees of the Group and the
Adviser determine present minimal credit risks and which at the time of
acquisition are rated by one or more appropriate nationally recognized
statistical rating organizations ("NRSROs") (e.g. Standard & Poor's Corporation
and Moody's Investors Service, Inc.) in one of the two highest rating categories
for short-term debt obligations or, if unrated, are deemed to be of comparable
quality. In addition, the dollar-weighted average maturity of the obligations in
the Money Market Fund may not exceed 90 days.
Subject to the foregoing limitations and in order to achieve its investment
objectives, the Money Market Fund expects to invest in the following types of
securities: direct obligations issued by the U.S. Treasury including bills,
notes and bonds which differ from each other only in interest rates, maturities
and times of issuance; U.S. Treasury securities that have been stripped of their
unmatured interest coupons (which typically provide for interest payments
semi-annually); interest coupons that have been stripped from such U.S. Treasury
securities; receipts and certificates for such stripped debt obligations and
stripped coupons (collectively, "Stripped Treasury Securities"); and in
repurchase agreements collateralized by such securities. Stripped Treasury
Securities will include (1) coupons that have been stripped from U.S. Treasury
bonds, which may be held through the Federal Reserve Bank's book-entry system
called "Separate Trading of Registered Interest and Principal of Securities"
("STRIPS") or through a program entitled "Coupon Under Book-Entry Safekeeping"
("CUBES").
Treasury bills have maturities of one year or less; Treasury notes have
maturities of one to ten years; and Treasury bonds generally have maturities of
greater than ten years. Stripped Treasury Securities are sold at a deep discount
because the buyer of those securities receives
9
<PAGE> 70
only the right to receive a future fixed payment (representing principal or
interest) on the security and does not receive any rights to periodic interest
payments on the security. The Money Market Fund may engage in other investment
techniques described below.
THE DIVERSIFIED EQUITY FUND
Under normal market conditions, the Diversified Equity Fund will invest
substantially all, but in no event less than 65%, of its total assets in common
stocks and securities convertible into common stocks of companies with market
capitalizations of $100 million or greater--of that amount, 25% to 40% will be
committed to each of the following styles, representing the three different
styles of the Sub-Advisers: (1) investing in companies believed to have strong
value measures whose stock is traded at a price below its perceived value, (2)
investing in companies believed to have growth potential, and (3) investing in
companies believed to be in a position to take advantage of political, economic,
industrial or secular trends or developments. For purposes of the foregoing,
securities convertible into common stocks include convertible bonds, convertible
preferred stock, options and rights. To the extent the Diversified Equity Fund
invests in options or rights, such investments may contribute to its primary
investment objective of capital appreciation but will not contribute to its
secondary objective of current income.
Miller Anderson & Sherrerd LLP, one of the Sub-Advisers ("Miller Anderson"),
will manage its portion of the Diversified Equity Fund's portfolio with an
emphasis on equity securities of companies it believes have traditional value
characteristics, i.e., high yield, low price to earnings ratios and low price to
book value ratios, which Miller Anderson believes have unrecognized potential
for earnings improvement.
Loomis, Sayles & Company, L.P., another of the Sub-Advisers ("Loomis"), will
manage its portion of the Diversified Equity Fund's portfolio with an emphasis
on equity securities of companies Loomis believes are entering into a phase of
accelerating earnings growth. The criteria used by Loomis to select such
securities are historic and current relative price to earnings ratios, and the
extent to which Loomis believes that the market has recognized the accelerating
growth of such company.
Columbus Circle Investors, the third Sub-Adviser ("Columbus"), will manage its
portion of the Diversified Equity Fund's portfolio based upon Columbus'
identification of companies where political or economic developments, secular
trends, industry or group dynamics and company-specific events present greater
that market expected growth.
Under normal market conditions, the Diversified Equity Fund may also invest up
to 35% of its total assets in sponsored and unsponsored American Depositary
Receipts ("ADRs"), as described more fully below, securities of other investment
companies, units of real estate investment trusts ("REITs"), warrants, cash and
short-term obligations (with maturities of 12 months or less) (collectively,
"Short-Term Obligations") such as commercial paper, bankers' acceptances,
certificates of deposit, obligations of the U.S. Government or its agencies or
instrumentalities, demand and time deposits of domestic banks and savings and
loan associations and repurchase agreements secured by such Short-Term
Obligations. Commercial paper which is included within "Short-Term Obligations"
is that which is rated at the time of purchase within the two highest rating
groups assigned by one or more appropriate NRSROs, or, if unrated, which the
Adviser or the Sub-Adviser deems to be of comparable quality. For a description
of the rating symbols of the NRSROs, see the Appendix to the Statement of
Additional Information. The Diversified Equity Fund may also engage in other
investment techniques described below.
10
<PAGE> 71
THE INCOME EQUITY FUND
Under normal market conditions, the Income Equity Fund will invest
substantially all, but in no event less than 65%, of its total assets in common
stocks and securities convertible into common stocks of companies with market
capitalization of at least $100 million which the Adviser believes pay above
average dividends or interest. For purposes of the foregoing, securities
convertible into common stocks include convertible bonds, convertible preferred
stock, options and rights. The securities purchased by the Income Equity Fund
are those considered by the Adviser to be generally undervalued by the market.
Under normal market conditions, the Income Equity Fund may also invest up to
35% of its total assets in warrants, ADRs, securities of other investment
companies and REITs, cash and Short-Term Obligations and may engage in other
investment techniques described below.
THE SPECIAL EQUITY FUND
Under normal market conditions, the Special Equity Fund will invest
substantially all, but in no event less than 65%, of its total assets in common
stocks and securities convertible into common stocks (i.e., convertible bonds,
convertible preferred stock, options and rights), traded in U.S. markets, and
issued by companies believed by the Adviser to exhibit an attractive outlook for
growth in sales and earnings and with market capitalizations of between $50
million and $1.5 billion. Such companies may include "unseasoned" companies,
i.e., companies that, together with any predecessor, have less than three years
of continuous operation. The Special Equity Fund will not invest more than 25%
of its total assets in the securities of unseasoned companies.
The Special Equity Fund may also invest up to 35% of its total assets in
warrants, ADRs, securities of other investment companies and REITs, cash and
Short-Term Obligations and may engage in other investment techniques described
below.
THE INCOME FUND
Under normal market conditions, the Income Fund will invest substantially all,
but in no event less than 65%, of its total assets in debt securities of all
types, including variable and floating rate securities (as described more fully
below under "The Intermediate Tax-Free Fund"), although up to 35% of its total
assets may be invested in securities of other investment companies and in
preferred stock and dividend paying common stocks. Debt securities include
bonds, debentures, notes, mortgage-related securities, state, municipal or
industrial revenue bonds, obligations issued or guaranteed as to principal and
interest by the U.S. Government or its agencies or instrumentalities
("Government Obligations") and fixed-income securities convertible into, or
exchangeable for, common stocks. In addition, a portion of the Income Fund may
from time to time be invested in participation certificates in pools of
mortgages issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
Under normal market conditions, the Income Fund expects to invest primarily in
Government Obligations and in debt obligations of United States corporations.
The Income Fund also intends that, under normal market conditions, its portfolio
will maintain a dollar-weighted average maturity of no more than 18 years.
The Income Fund expects to invest in a variety of U.S. Treasury obligations,
differing in their interest rates, maturities, and times of issuance, and other
Government Obligations. Obligations of certain agencies and instrumentalities of
the U.S. Government, such as the Government National Mortgage Association
("GNMA") and the Export-Import Bank of the United States, are supported by the
full faith and credit of the U.S. Treasury; others, such as those of the Federal
National Mortgage
11
<PAGE> 72
Association ("FNMA"), are supported by the right of the issuer to borrow from
the Treasury; others, such as those of the Student Loan Marketing Association,
are supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations; still others, such as those of the Federal Farm Credit
Banks or the Federal Home Loan Mortgage Corporation ("FHLMC"), are supported
only by the credit of the instrumentality. No assurance can be given that the
U.S. Government would provide financial support to U.S. Government-sponsored
agencies or instrumentalities if it is not obligated to do so by law. The Income
Fund will invest in the obligations of such agencies or instrumentalities only
when the Adviser believes that the credit risk with respect thereto is minimal.
The Income Fund also expects to invest in bonds, notes and debentures of a
wide range of U.S. corporate issuers. Such obligations may be secured or
unsecured promises to pay and will in most cases differ in their interest rates,
maturities and times of issuance.
The Income Fund will invest only in corporate debt securities which are rated
at the time of purchase within the three highest rating groups assigned by one
or more appropriate NRSROs or, if unrated, which the Adviser deems to be of
comparable quality. In the event that a security's rating falls below "A" by an
appropriate NRSRO, the Adviser will reevaluate the security in order to
determine whether to sell. In no event, however, will the Income Fund be
required to liquidate such security if it would suffer a loss on the sale of
such security or so long as one appropriate NRSRO has rated such security within
its three highest rating groups. For a description of the rating symbols of the
NRSROs, see the Appendix to the Statement of Additional Information.
The Income Fund may hold some Short-Term Obligations and securities of other
investment companies for cash management purposes.
The Income Fund may also invest in U.S. dollar denominated international bonds
for which the primary trading market is in the United States ("Yankee Bonds"),
or for which the primary trading market is abroad ("Eurodollar Bonds"), and in
Canadian Bonds and bonds issued by institutions organized for a specific
purpose, such as the World Bank and the European Economic Community, by two or
more sovereign governments ("Supranational Agency Bonds").
The Income Fund may invest up to 25% of its total assets in mortgage-related
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or by nongovernmental entities which are rated, at the time of
purchase, within the three highest bond rating categories assigned by one or
more appropriate NRSROs, or, if unrated, which the Adviser deems to be of
comparable quality. Such mortgage-related securities have mortgage obligations
backing such securities, including among others, conventional thirty year fixed
rate mortgage obligations, graduated payment mortgage obligations, fifteen year
mortgage obligations and adjustable rate mortgage obligations. All of these
mortgage obligations can be used to create pass-through securities. A
pass-through security is created when mortgage obligations are pooled together
and undivided interests in the pool or pools are sold. The cash flow from the
mortgage obligations is passed through to the holders of the securities in the
form of periodic payments of interest, principal and prepayments (net of a
service fee). Prepayments occur when the holder of an individual mortgage
obligation prepays the remaining principal before the mortgage obligation's
scheduled maturity date. As a result of the pass-through of prepayments of
principal on the underlying securities, mortgage-backed securities are often
subject to more rapid prepayment of principal than their stated maturity would
indicate. Because the prepayment characteristics of the underlying mortgage
obligations vary, it is not possible to predict accurately the
12
<PAGE> 73
realized yield or average life of a particular issue of pass-through
certificates. Prepayment rates are important because of their effect on the
yield and price of the securities. In addition, prepayment rates will be used to
determine a security's estimated average life and the Income Fund's average
portfolio duration and its dollar-weighted average portfolio maturity.
Accelerated prepayments have an adverse impact on yields for pass-through
securities purchased at a premium (i.e., a price in excess of principal amount)
and may involve additional risk of loss of principal because the premium may not
have been fully amortized at the time the obligations are repaid. The opposite
is true for pass-through securities purchased at a discount. The Income Fund may
purchase mortgage-related securities at a premium or a discount. Reinvestment of
principal payments may occur at higher or lower rates than the original yield on
such securities. Due to the prepayment feature and the need to reinvest payments
and prepayments of principal at current rates, mortgage-related securities can
be less effective than typical bonds of similar maturities at maintaining yields
during periods of declining interest rates.
The Income Fund may also acquire collateralized mortgage obligations or
"CMOs." CMOs are debt obligations collateralized by mortgage loans or mortgage
pass-through securities. Typically, CMOs are collateralized by GNMA, FNMA or
FHLMC certificates, but also may be collateralized by whole loans or private
mortgage pass-through securities (such collateral collectively referred to as
"Mortgage Assets"). Payments of principal or interest on the Mortgage Assets,
and any reinvestment income thereon, provide the funds to pay debt service on
the CMOs. CMOs may be issued by agencies or instrumentalities of the U.S.
Government or by private originators of, or investors in, mortgage loans.
Asset-backed securities are similar to mortgage-backed securities except that
instead of using mortgages to collateralize the obligations, a broad range of
other assets may be used as collateral, primarily automobile and credit card
receivables and home equity loans. Such receivables and loans are securitized in
pass-through structures similar to the mortgage pass-through or pay-through
structures described above.
Certain debt securities such as, but not limited to, mortgage-backed
securities, CMOs, asset backed securities and securitized loan receivables, as
well as securities subject to prepayment of principal prior to the stated
maturity date, are expected to be repaid prior to their stated maturity dates.
As a result, the effective maturity of these securities is expected to be
shorter than the stated maturity. For purposes of compliance with stated
maturity policies and calculation of the Income Fund's dollar-weighted average
maturity, the effective maturity of such securities will be used.
An increase in interest rates will generally reduce the value of the
investments in the Income 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, 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 INTERMEDIATE TAX-FREE FUND
Under normal market conditions, at least 80% of the net assets of the
Intermediate Tax-Free Fund will be invested in a portfolio of obligations
consisting of bonds, notes, commercial paper, certificates of indebtedness and
other debt instruments, issued by or on behalf of the various States of the
United States, or any county, political subdivision or municipality thereof
(including any agency, board, author-
13
<PAGE> 74
ity or commission of any of the foregoing), the interest on which, in the
opinion of bond counsel to the issuer, is exempt from federal income tax and is
not treated as a preference item for individuals for purposes of the federal
alternative minimum tax. The Intermediate Tax-Free Fund may also invest 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 income taxes and is not treated as a
preference item for individuals for purposes of the federal alternative minimum
tax (collectively, "Exempt Securities"). The Intermediate Tax-Free Fund, under
normal market conditions, expects to maintain an average weighted portfolio
maturity of four to eight years.
The two principal classifications of Exempt Securities which may be held by
the Intermediate Tax-Free 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 Intermediate
Tax-Free 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 Intermediate Tax-Free 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 Intermediate Tax-Free Fund invests in Exempt Securities which are rated at
the time of purchase within the three highest rating groups assigned by one or
more appropriate NRSROs for bonds, notes, tax-exempt commercial paper, or
variable rate demand obligations, as the case may be. The Intermediate Tax-Free
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. In the
event that a security's rating falls below "A" by an appropriate NRSRO, the
Adviser will reevaluate the security in order to determine whether to sell. In
no event, however, will the Intermediate Tax-Free Fund be required to liquidate
such security if it would suffer a loss on the sale of such security or so long
as one appropriate NRSRO has rated such security within its three highest rating
groups. The applicable Exempt Securities ratings are described in the Appendix
to the Statement of Additional Information.
The Intermediate Tax-Free 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. In addition, investments of the Intermediate
Tax-Free Fund may be made in taxable Short-Term Obligations if, for example,
suitable tax-exempt obligations are unavailable. Under such circumstances and
during the period of such investment, the Intermediate Tax-Free Fund may not
achieve its stated investment objectives.
The Intermediate Tax-Free Fund may also invest up to 20% of its net assets in
municipal securities, the interest income on which is exempt from federal income
tax but may be treated as a preference item for individuals for
14
<PAGE> 75
purposes of the federal alternative minimum tax. The Intermediate Tax-Free Fund
will not include such municipal securities in the calculation of compliance with
the 80% test described above. For further information relating to the types of
municipal securities which will be included in income subject to alternative
minimum tax, see "ADDITIONAL INFORMATION--Additional Tax Information" in the
Statement of Additional Information.
Opinions relating to the validity of Exempt Securities and to the exemption of
interest thereon from federal income taxes are normally rendered by bond counsel
to the respective issuers at the time of issuance. Neither the Intermediate
Tax-Free 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 Intermediate Tax-Free Fund may include
rated and unrated variable and floating rate obligations the interest on which
is tax-exempt. A variable rate obligation is one whose terms provide for the
adjustment of its interest rate on set dates and which, upon such adjustment,
can reasonably be expected to have a market value that approximates its par
value.
A floating rate obligation 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 obligations are frequently not rated by credit rating agencies; however,
unrated variable and floating rate obligations purchased by the Intermediate
Tax-Free Fund will be determined by the Adviser to be of comparable quality at
the time of purchase to rated instruments eligible for purchase under the
Intermediate Tax-Free 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 obligations and will continuously monitor their
financial condition. Although there may be no active secondary market with
respect to a particular variable or floating rate obligation purchased by the
Intermediate Tax-Free Fund, the Intermediate Tax-Free Fund may attempt to resell
the obligation at any time to a third party. The absence of an active secondary
market, however, could make it difficult for the Intermediate Tax-Free Fund to
dispose of a variable or floating rate obligation in the event the issuer of the
obligation defaulted on its payment obligations and the Intermediate Tax-Free
Fund could, as a result or for other reasons, suffer a loss to the extent of the
default. Variable or floating rate obligations may be secured by bank letters of
credit.
In the event the interest rate of a variable or floating rate obligation is
established by reference to an index or an interest rate that may from time to
time lag behind other market interest rates, there is the risk that the market
value of such obligation, on readjustment of its interest rate, will not
approximate its par value.
Variable and floating rate obligations for which no readily available market
exists will be purchased in an amount which, together with other illiquid
securities, exceeds 15% of the Intermediate Tax-Free Fund's net assets only if
such obligations are subject to a demand feature that will permit the
Intermediate Tax-Free Fund to receive payment of the principal within seven days
after demand by the Intermediate Tax-Free Fund.
An increase in interest rates will generally reduce the value of the
investments in the Intermediate Tax-Free 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, if debt securities are purchased at a premium over face value, the
15
<PAGE> 76
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.
IN GENERAL
Each of the Funds, other than the Money Market Fund, may purchase securities
of other investment companies which in the opinion of the Adviser or
Sub-Adviser, as the case may be, will assist such Fund in achieving its
investment objective and/or for cash management purposes, and each of the Funds
may enter into repurchase and reverse repurchase agreements, and except for the
Money Market Fund, the Intermediate Tax-Free Fund and the Income Fund, enter
into options and futures transactions and write covered-call options on
securities that such Fund could otherwise purchase directly. In addition, the
Income Fund and the Intermediate Tax-Free Fund may purchase securities on a
when-issued basis. Use by the Intermediate Tax-Free Fund of one or more of these
investment techniques may cause such Fund to earn income which would be taxable
to its Shareholders.
The securities purchased by the Funds are generally traded on U.S. markets,
including the New York Stock Exchange, the American Stock Exchange and NASDAQ,
although each of the Diversified Equity Fund, Income Equity Fund, Special Equity
Fund and Income Fund may purchase securities which are restricted as to their
disposition, including those eligible for resale under Rule 144A under the
Securities Act of 1933 ("Rule 144A Securities").
During temporary defensive periods as determined by the Adviser or the
appropriate Sub-Adviser, as the case may be, based upon current or anticipated
market conditions, each Fund may hold up to 100% of its total assets in
Short-Term Obligations as described above or in cash. However, to the extent
that a Fund is so invested, it may not achieve its investment objective or
objectives.
Each of the Funds, other than the Money Market Fund, may invest in certain
types of securities which are considered to be "derivative" securities, such as
certain variable or floating rate securities, options and futures. 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. The Diversified Equity Fund, the Income Equity Fund,
the Special Equity Fund and the Intermediate Tax-Free Fund each will not invest
more than 25% of its total assets in such derivatives. With respect to the
Income Fund, such Fund may invest up to 35% of its total assets in CMOs and
asset-backed securities and up to 25% of its total assets in any other
derivatives. Notwithstanding the foregoing, with respect to the Income and
Intermediate Tax-Free Funds, there is no limitation on the amount of their total
assets which may be invested in variable or floating rate obligations regardless
of whether or not such obligations are deemed to be "derivatives."
RISK FACTORS AND INVESTMENT TECHNIQUES
Like any investment program, an investment in any of the Funds entails certain
risks. Equity securities such as those in which the Diversified Equity, Income
Equity and Special Equity Funds may invest are more volatile and carry more risk
than some other forms of investment, including investments in high grade fixed
income securities. Therefore, such Funds are subject to stock market risk, i.e.,
the possibility that stock prices in general will decline over short or even
extended periods of time.
Since the Income and Intermediate Tax-Free Funds invest in bonds, investors in
such a Fund, to the extent so invested, are exposed to bond market risk, i.e.,
fluctuations in the market value of bonds. Bond prices are influenced primarily
by changes in the level of interest rates. When interest rates rise, the prices
of bonds generally fall; conversely, when interest rates fall, bond prices
generally rise. While
16
<PAGE> 77
bonds normally fluctuate less in price than stocks, there have been in the
recent past extended periods of cyclical increases in interest rates that have
caused significant declines in bond prices and have caused the effective
maturity of securities with pre-payment features to be extended, thus
effectively converting short or intermediate term securities into longer term
securities which are generally more volatile in price.
The Special Equity Fund is intended for investors who can accept the higher
risks involved in seeking potentially higher capital appreciation through
investments in growth oriented companies. A growth oriented company typically
invests most of its net income in its enterprise and does not pay out much, if
any, in dividends. Accordingly, the Special Equity Fund does not anticipate any
significant distributions to shareholders from net investment income, and
potential investors should be in a financial position to forego current income
from their investment in the Special Equity Fund. The securities of less
seasoned companies may have limited marketability, and therefore may be less
liquid, and may be subject to more abrupt or erratic market movements over time
than securities of more seasoned companies or the market as a whole.
Depending upon the performance of each Funds' investments, the net asset value
per share of a Fund may decrease instead of increase, except with respect to the
Money Market Fund, the net asset value of which the Adviser will attempt to
maintain at $1.00.
Repurchase Agreements. Securities held by each Fund may be subject to
repurchase agreements. Under the terms of a repurchase agreement, a Fund would
acquire securities, in exchange for cash from banks and/or registered
broker-dealers which the Adviser or Sub-Adviser, as the case may be, 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 a 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
such Fund may invest directly. 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. Each Fund may borrow funds by entering into
reverse repurchase agreements in accordance with the investment restrictions
described below. Pursuant to such agreements, a Fund would sell portfolio
securities to financial institutions such as banks and broker-dealers, and agree
to repurchase them at a mutually agreed-upon date and price. At the time a Fund
enters into a reverse repurchase agreement, it will place in a segregated
custodial account assets such as U.S. Government securities or other liquid
high-grade debt securities consistent with such 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 value is
maintained at all times. Reverse repurchase agreements involve the risk that the
market value of the securities sold by a 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 a Fund under the 1940 Act and
therefore a form of leverage. A Fund may experience a negative impact on its net
asset value if interest rates rise during the term of a reverse repurchase
agreement. A 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
17
<PAGE> 78
than the interest expense of the transaction. For further information about, and
limitations on the use of, reverse repurchase agreements, see investment
restriction no. 3 under "INVESTMENT RESTRICTIONS" below and "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 Funds, 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, any Sub-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.
Options. The Diversified Equity Fund, the Income Equity Fund, the Special
Equity Fund and the Income Fund may also each purchase put and call options for
hedging purposes. Such Funds anticipate that options will be exchange traded
options, meaning that such options are generally standardized and are guaranteed
by a clearing agency, which is in contrast to over-the-counter or OTC traded
options. A put option gives the purchaser of the option the right to sell, and
obligates the writer (seller) of the option to buy, 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 obligates the seller of the option
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. Purchasing options is a specialized investment technique that entails
a substantial risk of a complete loss of the amounts paid as premiums to writers
of options.
For hedging purposes, each of such Funds may also engage in writing call
options from time to time as the Adviser or the Sub-Adviser, as the case may be,
deems appropriate. A Fund will write only covered call options (options on
securities owned by that Fund). When a Fund writes a covered call option and
such option is exercised, that Fund will forego the appreciation, if any, on the
underlying security in excess of the exercise price. In order to close out a
call option it has written, a Fund will enter into a "closing purchase
transaction"--the purchase of a call option on the same security with the same
exercise price and expiration date as the call option which that Fund previously
wrote on any particular securities. When a portfolio security subject to a call
option is sold, the Fund which wrote the call will effect a closing purchase
transaction to close out any existing call option on that security. There is no
assurance of liquidity in the secondary market for purposes of closing out
options positions. If that Fund is unable to effect a closing purchase
transaction, it will not be able to sell the underlying security until the
option expires or such Fund delivers the underlying security upon exercise.
Each of those Funds, as part of its options transactions, also may purchase
index put and call options and write index options. Through the writing or
purchase of index options a Fund can achieve many of the same objectives as
through the use of options on individual securities. Options on securities
indices are similar to options on a security except that, rather than the right
to take or make delivery of a security at a specified price, an option on a
securities index gives the holder the right to receive, upon exercise of the
option, an amount of cash if the closing level of the securities index upon
which the option is based is greater than, in the case of a call, or less than,
in the case of a put, the exercise price of the option.
18
<PAGE> 79
A Fund may lose the expected benefit of options transactions if interest rates
or securities prices move in an unanticipated manner. In addition, the value of
a Fund's options positions may not prove to be perfectly or even highly
correlated with the value of its portfolio securities, limiting such Fund's
ability to hedge effectively against market or interest rate risk. Because index
options are settled in cash, a call writer cannot determine the amount of its
settlement obligations in advance and, unlike call writing on specific
securities, cannot provide in advance for, or cover, its potential settlement
obligations by acquiring and holding the underlying securities. A Fund may be
required to segregate assets or provide an initial margin to cover index options
that would require it to pay cash upon exercise. Under normal conditions, it is
not expected that any such Fund would permit the underlying value of its
portfolio securities subject to such options to exceed 25% of its net assets.
In addition, the Intermediate Tax-Free Fund may acquire "puts" with respect to
Exempt Securities held in its portfolio. Under a put, the Intermediate Tax-Free
Fund would have the right to sell a specified Exempt Security within a specified
period of time at a specified price. A put would be sold, transferred, or
assigned only with the underlying security. The Intermediate Tax-Free Fund will
acquire puts solely to either facilitate portfolio liquidity, shorten the
maturity of the underlying securities, or permit the investment of its funds at
a more favorable rate of return. The Intermediate Tax-Free 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 Intermediate Tax-Free Fund may pay for a put 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).
Futures Contracts. Each Fund, other than the Money Market Fund, may also enter
into contracts for the future delivery of securities and futures contracts based
on a specific security, class of securities, interest rate or an index, purchase
or sell options on any such futures contracts and engage in related closing
transactions. A futures contract on a securities index or based on an interest
rate is an agreement obligating either party to pay, and entitling the other
party to receive, while the contract is outstanding, cash payments based on the
level of a specified securities index or interest rate, as the case may be. A
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 prices or interest rates, which otherwise might adversely
affect either the value of such Fund's securities or the prices of securities
which the Fund intends to purchase at a later date. Alternatively, a 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.
Each such Fund may engage in such futures contracts in an effort to hedge
against market risks. For example, when interest rates are expected to rise or
market values of portfolio securities are expected to fall, a Fund can seek
through the sale of futures contracts to offset a decline in the value of its
portfolio securities. When interest rates are expected to fall or market values
are expected to rise, a Fund, through the purchase of such contracts, can
attempt to secure better rates or prices for such Fund than might later be
available in the market when it effects anticipated purchases.
The acquisition of put and call options on futures contracts will,
respectively, give a Fund the right (but not the obligation), for a specified
price, to sell or to purchase the underlying futures contract, upon exercise of
the option, at any time during the option period. A Fund may also sell options
on futures contracts as
19
<PAGE> 80
part of closing purchase transactions to terminate its options positions. No
assurance can be given that such closing transactions can be effected, that
there will be a correlation between price movements in the Fund's portfolio
securities which are the subject of the hedge or of liquidity in the secondary
market for purposes of closing out future positions. In addition, a Fund's
purchase of such options will be based upon predictions as to anticipated
interest rate or other market trends, which could prove to be inaccurate.
In general, the value of futures contracts sold by a 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 a Fund
will be 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, a Fund will be
required to segregate in a separate account cash and/or U.S. Government
securities in an amount sufficient to meet its obligations. When writing call
options, a 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.
Aggregate initial margin deposits for futures contracts, and premiums paid for
related options, may not exceed five percent of a Fund's total assets, and the
value of securities that are the subject of such futures and options (both for
receipt and delivery) may not exceed one-third of the market value of a Fund's
total assets. Futures transactions will be limited to the extent necessary to
maintain each Fund's qualifications as a regulated investment company.
A Fund may lose the expected benefit of futures transactions if interest rates
or securities prices move in an unanticipated manner. Such unanticipated changes
may also result in poorer overall performance than if the Fund had not entered
into any futures transactions. In addition, the value of a Fund's futures
positions may not prove to be perfectly or even highly correlated with the value
of its portfolio securities, limiting such Fund's ability to hedge effectively
against interest rate and/or market risk and giving rise to additional risks.
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, a 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 futures 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.
Foreign Investments. As described above, each of the Diversified Equity,
Income Equity and Special Equity Funds may invest in sponsored and unsponsored
ADRs. ADRs are receipts typically issued by a United States bank or trust
company evidencing ownership of the underlying foreign securities and are
denominated in U.S. dollars. Unsponsored ADRs may be less liquid than sponsored
ADRs, and there may be less information available regarding the underlying
foreign issuer for unsponsored ADRs.
Investments in foreign securities, including ADRs, may subject a Fund to
investment risks that differ in some respects from those related to investments
in securities of U.S. domestic issuers. Such risks include future adverse
political and economic developments, the possible imposition of withholding
taxes on interest or other investment income, fluctuations in exchange rates,
possible seizure, nationalization, or expropriation of foreign deposits or
investments, the possible establishment of exchange
20
<PAGE> 81
controls or taxation at the source, less stringent disclosure requirements, less
liquid or developed securities markets or the adoption of other foreign
governmental restrictions which might adversely affect the payment of principal,
interest or dividends on such securities or the purchase or sale thereof. In
addition, foreign branches of U.S. banks and foreign banks may be subject to
less stringent reserve requirements and to different accounting, auditing,
reporting, and recordkeeping standards than those applicable to domestic
branches of U.S. banks. A Fund will acquire securities issued by foreign
branches of U.S. banks, foreign banks, or other foreign issuers only when the
Adviser believes that the risks associated with such instruments are minimal.
Securities Lending. In order to generate additional income, each Fund may,
from time to time, lend its portfolio securities to broker-dealers, banks, or
institutional borrowers of securities. A Fund must receive 100% collateral in
the form of cash or U.S. Government securities. This collateral will be valued
daily by the Adviser or the Sub-Adviser, as the case may be. Should the market
value of the loaned securities increase, the borrower must furnish additional
collateral to that Fund. During the time portfolio securities are on loan, the
borrower pays that Fund any dividends or interest received on such securities.
Loans are subject to termination by such Fund or the borrower at any time. While
a Fund does not have the right to vote securities on loan, each Fund intends to
terminate the loan and regain the right to vote if that is considered important
with respect to the investment. In the event the borrower would default on its
obligations, the Fund bears the risk of delay in recovery of the portfolio
securities and the loss of rights in the collateral. A Fund will enter into loan
agreements only with broker-dealers, banks, or other institutions that the
Adviser or the Sub-Adviser, as the case may be, has determined are creditworthy
under guidelines established by the Group's Board of Trustees.
When-Issued and Delayed Delivery Transactions. The Income Fund and the
Intermediate Tax-Free Fund may purchase securities on a when-issued or
delayed-delivery basis. These transactions are arrangements in which a Fund
purchases securities with payment and delivery scheduled for a future time. The
Income Fund and the Intermediate Tax-Free 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 objective 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. A Fund will generally
not pay for such securities or start earning interest on them until they are
received on the settlement date. When a 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 such Fund to miss a price
or yield considered to be advantageous.
Restricted Securities. Securities in which the Diversified Equity Fund, the
Income Equity Fund, the Special Equity Fund and the Income Fund may invest
include securities issued by corporations without registration under the
Securities Act of 1933, as amended (the "1933 Act"), such as securities issued
in reliance on the so-called "private placement" exemption from registration
which is afforded by Section 4(2) of the 1933 Act ("Section 4(2) securities").
Section 4(2) securities are restricted as to disposition under the federal
securities laws, and generally are sold to institutional investors such as the
Funds who agree that they are
21
<PAGE> 82
purchasing the securities for investment and not with a view to public
distribution. Any resale must also generally be made in an exempt transaction.
Section 4(2) securities are normally resold, if at all, to other institutional
investors through or with the assistance of the issuer or investment dealers who
facilitate the resale of such Section 4(2) securities, thus providing some
liquidity.
Pursuant to procedures adopted by the Board of Trustees of the Group, the
Adviser, or the Sub-Adviser, as the case may be, may determine Section 4(2)
securities to be liquid if such securities are eligible for resale under Rule
144A under the 1933 Act and are readily saleable. Rule 144A permits a Fund to
purchase securities which have been privately placed and resell such securities
to certain qualified institutional buyers without restriction. For purposes of
determining whether a Rule 144A security is readily saleable, and therefore
liquid, the Adviser or the Sub-Adviser, as the case may be, must consider, among
other things, the frequency of trades and quotes for the security, the number of
dealers willing to purchase or sell the security and the number of potential
purchasers, dealer undertakings to make a market in the security, and the nature
of the security and marketplace trades of such security. However, investing in
Rule 144A securities, even if such securities are initially determined to be
liquid, could have the effect of increasing the level of the Fund's illiquidity
to the extent that qualified institutional buyers become, for a time,
uninterested in purchasing these securities.
Investment Company Securities. Each Fund, other than the Money Market Fund,
may also invest in the securities of other investment companies in accordance
with the limitations of the 1940 Act and any exemptions therefrom. Each Fund
intends to invest in the securities of other investment companies which, in the
opinion of the Adviser or the Sub-Adviser, as the case may be, will assist such
Fund in achieving its investment objectives and in money market mutual funds for
purposes of short-term cash management. A 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 Funds' investments in the securities of
other mutual funds are described in the Statement of Additional Information.
PORTFOLIO TURNOVER
The portfolio turnover rate for each Fund is calculated by dividing the lesser
of a Fund's purchases or sales of portfolio securities for the year by the
monthly average value of the portfolio securities. The Commission requires that
the calculation exclude all securities whose remaining maturities at the time of
acquisition are one year or less. For the Money Market Fund, portfolio turnover
rate is expected to be zero percent for regulatory purposes. The portfolio
turnover rate for each of the other Funds may vary greatly from year to year, as
well as within a particular year, and may also be affected by cash requirements
for redemptions of Shares. High portfolio turnover rates will generally result
in higher transaction costs, including brokerage commissions, to a Fund and may
result in additional tax consequences to a Fund's shareholders. Portfolio
turnover will not be a limiting factor in making investment decisions.
INVESTMENT RESTRICTIONS
Each 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 that Fund (as
defined under "GENERAL INFORMATION--Miscellaneous" herein).
Each of the Funds will not:
1. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
repurchase agreements secured by such obligations, if, immediately after such
purchase, more than 5% of such Fund's total assets would be invested in such
issuer, or
22
<PAGE> 83
such Fund would hold more than 10% of outstanding voting securities of such
issuer, except that up to 25% of a Fund's total assets may be invested without
regard to such limitations. 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 or
repurchase agreements secured by such obligations.
2. Purchase any securities which would cause more than 25% of such Fund's
total assets at the time of purchase to be invested in securities of one or
more issuers conducting their principal business activities in the same
industry; provided that (a) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
and repurchase agreements secured by such obligations; (b) wholly owned
finance companies will be considered to be in the industries of their parents
if their activities are primarily related to financing the activities of their
parents; and (c) utilities will be divided according to their services. For
example, gas, gas transmission, electric and gas, electric, and telephone will
each be considered a separate industry.
3. Borrow money or issue senior securities except as and to the extent
permitted by the 1940 Act or any rule, order or interpretation thereunder. So
long as the Money Market Fund's borrowings, including reverse repurchase
agreements and dollar roll agreements, exceed 5% of such Fund's total assets,
the Money Market Fund will not acquire any portfolio securities.
4. Make loans, except that each Fund may purchase or hold debt instruments
and lend portfolio securities in accordance with its investment objective and
policies, make time deposits with financial institutions, and enter into
repurchase agreements.
The following additional investment restrictions, as to a particular Fund, may
be changed without the vote of a majority of the outstanding Shares of such
Fund:
1. The Money Market Fund will not purchase or otherwise acquire any
security, if, as a result, more than 10% of its net assets would be invested
in securities that are illiquid.
2. Each of the other Funds 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.
In addition to the above investment restrictions, each Fund is subject to
certain other investment restrictions set forth under "INVESTMENT OBJECTIVES AND
POLICIES--Investment Restrictions" in the Funds' Statement of Additional
Information.
Irrespective of fundamental investment restriction number 1 above, and
pursuant to Rule 2a-7 under the 1940 Act, the Money Market Fund will, with
respect to 100% of its total assets, limit its investment in the securities of
any one issuer in the manner provided by such Rule, which limitations are
referred to above under the caption "INVESTMENT OBJECTIVES AND POLICIES--The
Money Market Fund."
VALUATION OF SHARES
The net asset value of the Money Market Fund is determined and its Shares are
priced as of 12:00 noon (Eastern time) and the close of regular trading on the
New York Stock Exchange (the "Exchange") (generally 4:00 p.m. Eastern time) on
each Business Day of the Money Market Fund. The net asset value of each of the
other Funds is determined and their Shares are priced as of the close of regular
trading on the Exchange on each Business
23
<PAGE> 84
Day of such Fund. The time or times at which the Shares of a Fund are priced are
hereinafter referred to as the "Valuation Time" or "Valuation Times," as the
case may be. A "Business Day" of a 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 that Fund
are tendered for redemption and no order to purchase any Shares of that Fund is
received) during which there is sufficient trading in portfolio instruments such
that such 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 a Fund, less the liabilities charged to that Fund,
by the number of that Fund's outstanding Shares.
The net asset value per share for each of the Funds, other than the Money
Market Fund, will fluctuate as the value of the investment portfolio of a Fund
changes.
The assets in the Money Market Fund are valued based upon the amortized cost
method which the Trustees of the Group believe fairly reflects the market-based
net asset value per share. Pursuant to the rules and regulations of the
Commission regarding the use of the amortized cost method, the Money Market Fund
will maintain a dollar-weighted average portfolio maturity of 90 days or less.
Although the Group seeks to maintain the Money Market Fund's net asset value per
share at $1.00, there can be no assurance that net asset value will not vary.
The portfolio securities in each of the other Funds 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. For further information about valuation of investments, see "NET ASSET
VALUE" in the Statement of Additional Information.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in each 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) 766-8938.
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 or its correspondent or
affiliated banks (collectively, the "Banks"). 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 Bank and the Customer are invested by the Distributor in Shares of a
particular Fund, depending upon the type of the Customer's account and/or the
instructions of the Customer.
Shares of the Funds sold to the Banks acting in a fiduciary, advisory,
custodial, agency, or other similar capacity on behalf of Customers
24
<PAGE> 85
will normally be held of record by the Banks. With respect to Shares of the
Funds so sold, it is the responsibility of the particular Bank 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 Banks and reflected in the account statements provided by the Banks to
Customers. A Bank will exercise voting authority for those Shares for which it
is granted authority by the Customer.
Investors may also purchase Shares of a 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 appropriate Fund, to the 1st Source Monogram Funds, P.O.
Box 182084, Columbus, Ohio 43218-2084. Subsequent purchases of Shares of that
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 Funds' 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) 766-8938 to obtain
instructions regarding the bank account number into which the funds should be
wired and other pertinent information.
Shares of each 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 a Fund will be effected only on a Business Day (as
defined in "VALUATION OF SHARES") of that Fund.
An order to purchase Shares of the Money Market Fund will be deemed to have
been received by the Distributor only when federal funds with respect thereto
are available to the Money Market Fund's custodian for investment. Federal funds
are monies credited to a bank's account with a Federal Reserve Bank. Payment for
an order to purchase Shares of the Money Market Fund which is transmitted by
federal funds wire will be available the same day for investment by the Money
Market Fund's custodian, if received prior to the last Valuation Time (see
"VALUATION OF SHARES"). Payments transmitted by other means (such as by check
drawn on a member of the Federal Reserve System) will normally be converted into
federal funds within two banking days after receipt. The Group strongly
recommends that investors of substantial amounts use federal funds to purchase
Shares. Shares of the Money Market Fund purchased before 12:00 noon, Eastern
Time, begin earning dividends on the same Business Day. Shares of the Money
Market Fund purchased after 12:00 noon, Eastern Time, begin earning dividends on
the next Business Day. All Shares of the Money Market Fund continue to earn
dividends through the day before their redemption.
For orders for the purchase of Shares of any of the other Funds 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.
25
<PAGE> 86
Depending upon the terms of a particular Customer's account, the Banks or
their affiliates may charge a Customer account fees for automatic investment and
other cash management services provided in connection with an investment in a
Fund. Information concerning these services and any charges will be provided by
the Banks. This Prospectus should be read in conjunction with any such
information received from the Banks or their affiliates.
Each 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 Banks on behalf of their Customers will be sent by the Banks to
their Customers. Shareholders may rely on these statements in lieu of
certificates. Certificates representing Shares will not be issued.
1ST SOURCE MONOGRAM INDIVIDUAL RETIREMENT ACCOUNT ("IRA")
A 1st Source Monogram IRA enables individuals, even if they participate in an
employer-sponsored retirement plan, to establish their own retirement program.
1st Source Monogram IRA contributions may be tax-deductible and earnings are tax
deferred. Under the Tax Reform Act of 1986, the tax deductibility of IRA
contributions is restricted or eliminated for individuals who participate in
certain employer pension plans and whose annual income exceeds certain limits.
Existing IRAs and future contributions up to the IRA maximums, whether
deductible or not, still earn income on a tax-deferred basis.
All 1st Source Monogram IRA distribution requests must be made in writing to
the Distributor. Any deposits to a 1st Source Monogram IRA must distinguish the
type and year of the contributions.
For more information on the 1st Source Monogram IRAs call the Group at (800)
766-8938. Investment in Shares of the Intermediate Tax-Free Fund or any other
tax-exempt fund would not be appropriate for a 1st Source Monogram IRA.
Shareholders are advised to consult a tax adviser on 1st Source Monogram IRA
contribution and withdrawal requirements and restrictions.
AUTO INVEST PLAN
The 1st Source Monogram Funds Auto Invest Plan enables Shareholders to make
regular semi-monthly, monthly or quarterly purchases of Shares of a Fund through
automatic deduction from their bank accounts, provided that the Shareholder'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 described below) from the
Shareholder's bank account which will automatically be invested in Shares of the
designated Fund at the public offering price next determined after receipt of
payment by the Transfer Agent. 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) 766-8938. 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.
The Group may eliminate or change the Auto Invest Plan at any time or from
time to time without notice thereof.
26
<PAGE> 87
MINIMUM INVESTMENT
The following table sets forth the minimum requirements for initial purchases
of a Fund's Shares and any subsequent purchases made thereafter. As the table
shows, these requirements may vary depending upon the method or methods used by
the purchaser to invest in the Funds.
<TABLE>
<CAPTION>
MINIMUM MINIMUM
REQUIREMENTS REQUIREMENTS
FOR FOR
METHOD OF INITIAL SUBSEQUENT
PURCHASE PURCHASES PURCHASES
- ---------------- --------------- ------------
<S> <C> <C>
For purchases
other than
through the Auto
Invest Plan:
Non-IRA....... $1,000 per Fund $25 per Fund
IRAs.......... $1,000 per Fund $25 per Fund
For purchases
made through the
Auto Invest
Plan:
Non-IRA....... $ 25 per Fund $25 per Fund
IRAs.......... $ 250 per Fund $25 per Fund
</TABLE>
SPECIAL PURCHASE PROGRAMS FOR EMPLOYEES OF THE ADVISER OR ONE OF ITS AFFILIATES
The Adviser has arranged for lower minimum requirements for its employees and
the employees of its affiliates (collectively, "Employees") to invest in the
Funds. Regardless of the method chosen by an Employee to purchase Shares (e.g.,
whether or not for an IRA and whether or not through the Auto Invest Plan), all
initial purchases of Shares in a Fund must be for a dollar amount of not less
than $10 and all subsequent purchases of Shares in that Fund must be for a
dollar amount of not less than $10.
Employees should note that regardless of the amount that they use to open a
1st Source Monogram IRA, the annual fee of $10 will be deducted from their IRA
account each December. Therefore, if an Employee opens a 1st Source Monogram IRA
account with only the minimum investment and does not add to it during that
year, the annual fee may reduce the Employee's IRA account balance to $0.
IN-KIND PURCHASES
Payment for Shares of a Fund may, in the discretion of the Adviser, be made in
the form of securities that are permissible investments for that Fund as
described in this Prospectus. For further information about this form of
payment, contact the Adviser. In connection with an in-kind securities payment,
a Fund will require, among other things, that the securities be valued on the
date of purchase in accordance with the pricing methods used by the Fund and
that the Fund receive satisfactory assurances that it will have good and
marketable title to the securities received by it; that the securities be in
proper form of transfer to the Fund; and that adequate information be provided
concerning the basis and other tax matters relating to the securities.
SALES CHARGES
The public offering price of Shares of each of the Funds, other than the Money
Market Fund, equals net asset value plus a sales charge calculated in accordance
with the tables 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 1933 Act.
There is no sales charge imposed by the Money Market Fund in connection with
the purchase of its Shares.
27
<PAGE> 88
DIVERSIFIED EQUITY, INCOME EQUITY
AND SPECIAL EQUITY FUNDS
<TABLE>
<CAPTION>
DEALER
DISCOUNTS
SALES SALES CHARGE AND BROKERAGE
AMOUNT OF CHARGE AS % OF COMMISSIONS
TRANSACTION AS % OF PUBLIC AS % OF
AT PUBLIC NET AMOUNT OFFERING PUBLIC
OFFERING PRICE INVESTED PRICE OFFERING PRICE
- --------------- ----------- ------------- ---------------
<S> <C> <C> <C>
Less than
$50,000....... 5.26% 5.00% 4.50%
$50,000 but
less than
$100,000...... 4.17 4.00 3.60
$100,000 but
less than
$250,000...... 3.09 3.00 2.70
$250,000 but
less than
$500,000...... 2.04 2.00 1.80
$500,000 but
less than
$1,000,000.... 1.52 1.50 1.35
$1,000,000 or
more.......... 0 0 0
</TABLE>
INCOME AND INTERMEDIATE TAX-FREE FUNDS
<TABLE>
<CAPTION>
DEALER
DISCOUNTS
SALES SALES CHARGE AND BROKERAGE
AMOUNT OF CHARGE AS % OF COMMISSIONS
TRANSACTION AS % OF PUBLIC AS % OF
AT PUBLIC NET AMOUNT OFFERING PUBLIC
OFFERING PRICE INVESTED PRICE OFFERING PRICE
- --------------- ----------- ------------- ---------------
<S> <C> <C> <C>
Less than
$50,000....... 4.17% 4.00% 3.60%
$50,000 but
less than
$100,000...... 3.63 3.50 3.15
$100,000 but
less than
$250,000...... 3.09 3.00 2.70
$250,000 but
less than
$500,000...... 2.04 2.00 1.80
$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 own expense, will also provide additional compensation to
dealers in connection with sales of Shares of the Funds. 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 one of more funds of the Group, 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 a 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 NASD. None of the aforementioned compensation is paid for by any Fund or its
Shareholders.
SALES CHARGE WAIVERS
The Distributor may waive sales charges for the purchase of Shares of a Fund
by or on behalf of:
(1) Accounts for which FSC, the Adviser, banks and trust companies or one of
their affiliates acts in a fiduciary, advisory, agency, custodial (other than
for individual retirement accounts), or similar capacity;
(2) Officers, trustees, directors, employees and retired employees (including
spouses and children under the age of 21 of the foregoing) of FSC, the Adviser,
the Group, BISYS and any affiliates thereof;
28
<PAGE> 89
(3) Purchasers pursuant to the terms of a payroll deduction plan, a 401(k)
plan or a 403(b) plan which by its terms permits purchases of Shares of the
Funds;
(4) Purchasers using solely the proceeds from a distribution from an account
for which the Adviser or an affiliate serves in a trust, fiduciary or agency
capacity (this waiver only applies to the initial purchase of Shares with such
proceeds);
(5) Brokers, dealers and agents for their own account, who have a sales
agreement with the Distributor, and their employees (and their spouses and
children under the age of 21);
(6) Orders placed on behalf of other investment companies distributed by The
BISYS Group, Inc. or its affiliated companies, including the Distributor;
(7) Investment advisers or financial planners regulated by a federal or state
governmental authority who are purchasing Shares for their own account or for an
account for which they are authorized to make investment decisions (i.e., a
discretionary account) and who charge a management, consulting or other fee for
their services, and clients of such investment advisers or financial planners
who place trades for their own accounts if the accounts are linked to the master
account of such investment adviser or financial planner on the books and records
of a broker or agent; and
(8) Investors purchasing Shares with proceeds from a redemption of shares of
another open-end investment company (other than the Group) on which a sales
charge was paid if (i) such redemption occurred with sixty (60) days prior to
the date of the purchase order and (ii) satisfactory evidence of the purchaser's
eligibility is provided to the Distributor at the time of purchase (e.g., a
confirmation of the redemption).
The Distributor may change or eliminate the foregoing waivers at any time or
from time to time without notice thereof. The Distributor may also periodically
waive all or a portion of the sales charge for all investors with respect to a
Fund.
CONCURRENT PURCHASES
For purposes of qualifying for a lower sales charge, investors have the
privilege of combining concurrent purchases of a Fund and one or more of the
other Funds sold with a sales charge ("1st Source Monogram Load Funds"). For
example, if a Shareholder concurrently purchases Shares in the Diversified
Equity Fund at the total public offering price of $25,000 and Shares in the
Income Fund at the total public offering price of $30,000, the sales charge on
the Shares of the Funds so sold would be that applicable to a $55,000 purchase
as shown in the tables above, i.e., 4.00% for the Shares of the Diversified
Equity Fund and 3.50% for Shares of the Income Fund. 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 a
1st Source Monogram Load 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
29
<PAGE> 90
letters of intent, interested investors should contact the Group at (800)
766-8938.
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 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.
RIGHT OF ACCUMULATION
Pursuant to the right of accumulation, investors are permitted to purchase
Shares of a 1st Source Monogram Load Fund at the public offering price
applicable to the total of (a) the total public offering price of the Shares of
the 1st Source Monogram 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 of the 1st Source Monogram Load Funds. For example, if a
Shareholder held Shares of the Special Equity Fund and the Income Fund with a
total net asset value of $200,000 and wanted to invest $60,000 in the Income
Equity Fund, the sales charge applicable to such $60,000 investment in the
Income Equity Fund would be 2.00%. 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 a 1st Source Monogram Load Fund may be exchanged for Shares of any
of the other 1st Source Monogram Load Funds at respective net asset values upon
the payment of a sales charge equal to the difference, if any, between the sales
charge payable upon purchase of Shares of such 1st Source Monogram Load Fund and
the sales charge previously paid on the Fund Shares to be exchanged. When Shares
of the Money Market Fund are exchanged for Shares of a 1st Source Monogram 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 or to pay a reduced sales charge. Provided further, that with respect to
every exchange, the amount to be exchanged must meet the appli-
30
<PAGE> 91
cable minimum investment requirements and the exchange is made in states where
it is legally authorized.
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 a 1st
Source Monogram Load 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) 766-8938 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 a Bank. For example, if a
Customer has agreed with a Bank to maintain a minimum balance in his or her
account with the Bank, and the balance in that account falls below that minimum,
the Customer may be obliged to redeem, or the Bank may redeem on behalf of the
Customer, all or part of the Customer's Shares of a 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 or mailed di-
31
<PAGE> 92
rectly to the Shareholder at the Shareholder's address as recorded by the
Transfer Agent. Under most circumstances, such payments will be transmitted on
the next Business Day following receipt of a valid request for redemption. The
Group may reduce the amount of a wire redemption payment by the then-current
wire redemption charge of the Funds' 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)
766-8938.
Neither the Group, the Funds nor their service providers will be liable for
any loss, damages, expense or cost arising out of any telephone redemption
effected in accordance with a Fund's telephone redemption procedures, acting
upon instructions reasonably believed to be genuine. Each Fund will employ
procedures designed to provide reasonable assurance that instructions by
telephone are genuine; if these procedures are not followed, such 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 the address
shown on the front page of this Prospectus.
AUTO WITHDRAWAL PLAN
The Auto Withdrawal Plan enables Shareholders of a Fund, with an account
balance in such 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 $25 monthly. To participate in the Auto
Withdrawal Plan, Shareholders should call (800) 766-8938 for more information.
Purchases of additional Shares 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,
with respect to the Money Market Fund, to the greatest extent possible, such
Fund will attempt to honor requests from Shareholders for same day payments upon
redemption of Shares if the request for redemption is received by the
Distributor before 12:00 noon, Eastern Time, on a Business Day or, if the
request for redemption is received after 12:00 noon, Eastern Time, to honor
requests for payment on the next Business Day. With respect to each of the other
Funds, to the greatest extent possible, such Funds 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. Each
Fund will attempt to so honor redemption requests unless it would be
disadvantageous to that Fund or the Shareholders of that Fund to sell or
liquidate portfolio securities in an amount sufficient to satisfy requests for
payments in that manner.
32
<PAGE> 93
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. With respect to Shares of the Money
Market Fund, during the period of any such delay, such Shares to be redeemed
would continue to receive daily dividends as declared until execution of the
redemption. 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, each Fund
reserves the right to redeem, at net asset value, the Shares of that 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 by
an employee of the Adviser or one of its affiliates or by using the Auto Invest
Plan), the account of such Shareholder has a value of less than $1,000.
Accordingly, an investor purchasing Shares of a 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 a Fund 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 not less than 60
days to make an additional investment in an amount which will increase the value
of the account to at least $1,000.
See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION" and "NET ASSET VALUE" in
the Statement of Additional Information for examples of when the Group may
suspend the right of redemption or redeem shares involuntarily in light of the
Group's responsibilities under the 1940 Act.
DIVIDENDS AND TAXES
DIVIDENDS
The net income of the Money Market Fund is declared daily and generally paid
monthly on the first Business Day of the following month. However, from time to
time such dividends may be paid on the last Business Day of the preceding month.
A dividend for each of the other Funds, other than the Special Equity Fund, is
declared monthly at the close of business on the day of declaration and is
generally paid monthly. A dividend for the Special Equity Fund is declared
quarterly at the close of business on the day of declaration and is generally
paid quarterly. Each such dividend consists of an amount of accumulated
undistributed net income of that Fund as determined necessary or appropriate by
the appropriate officers of the Group.
Shareholders will automatically receive all income dividends and capital gains
distributions in additional full and fractional Shares of that particular 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 each 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 a Fund.
33
<PAGE> 94
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 that 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 that Fund at
the per share net asset value determined as of the date of cancellation.
FEDERAL TAXES
General. Each of the Funds is treated as a separate entity for federal income
tax purposes and intends to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986 (the "Code") for so long as such qualification
is in the best interest of that 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. Each Fund contemplates declaring as
dividends all or substantially all of that 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 whether they
otherwise have 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 nondeductible 4% excise tax on the deficiency.
It is expected that each Fund will distribute annually to Shareholders all or
substantially all of that Fund's net ordinary income and net realized capital
gains and that, except as discussed below with respect to the Intermediate
Tax-Free Fund, such distributed net ordinary income and distributed net realized
capital gains will be taxable income to Shareholders for federal income tax
purposes, even if paid in additional Shares of the Fund and not in cash. The
dividends-received deduction for corporations will apply to the aggregate of
such ordinary income distributions in the same proportion as the aggregate
dividends eligible for the dividends deduction, if any, received by the Fund
bear to its gross income. Since all of the Money Market Fund's, the Income
Fund's and the Intermediate Tax-Free Fund's net investment income is expected to
be derived from earned interest and short-term capital gains, it is anticipated
that no part of any distribution from such Funds will be eligible for the
dividends received deduction for corporation. The Money Market Fund also does
not expect to realize any long-term capital gains and, therefore, does not
foresee paying any "capital gains dividends" as described in the Code.
Distribution by a Fund of the excess of net long-term capital gain over net
short-term capital loss is taxable to Shareholders as long-term capital gain in
the year in which it is received, regardless of how long the Shareholder has
held the Shares. Such distributions are not eligible for the dividends-received
deduction.
If the net asset value of a Share is reduced below the Shareholder's cost of
that Share by the distribution of income or gain realized on the sale of
securities, the distribution, from a practical stand point, is a return of
invested principal, although taxable as described above.
Prior to purchasing Shares, the impact of dividends or capital gains
distributions which are expected to be declared or have been declared, but have
not been paid, should be carefully considered. Any such dividends or capital
gains distributions paid shortly after a purchase
34
<PAGE> 95
of Shares prior to the record date will have the effect of reducing the per
share net asset value of the Shares by the amount of the dividends or
distributions. All or a portion of such dividends or distributions, although in
effect a return of capital, is subject to tax.
Additional information regarding federal taxes is contained in the Statement
of Additional Information under the heading "ADDITIONAL INFORMATION--Addi-
tional 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 Funds and their Shareholders. Accordingly, potential investors are urged to
consult their 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.
The Intermediate Tax-Free Fund. The Intermediate Tax-Free Fund will distribute
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
Intermediate Tax-Free Fund and will be excludable from gross income for federal
income tax purposes and is not expected to be treated as a preference item for
computing the alternative minimum tax.
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 Intermediate Tax-Free 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 Intermediate Tax-Free Fund anticipates that substantially all of its
dividends will be excluded from gross income for federal income tax purposes.
The Intermediate Tax-Free 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 Intermediate Tax-Free Fund is not deductible for federal
income tax purposes assuming the Intermediate Tax-Free Fund distributes
exempt-interest dividends during the Shareholder's taxable year. It is
anticipated that distributions from the Intermediate Tax-Free Fund will not be
eligible for the dividends received deduction for corporations.
STATE TAXES
Even though a substantial portion of distributions of net income by the Money
Market Fund to its Shareholders will be attributable to interest on U.S.
Treasury obligations, which may be exempt from state or local tax if received
directly by a Shareholder, Shareholders of the Money Market Fund may be subject
to state and local taxes with respect to their ownership of Shares or their
receipt of distributions from
35
<PAGE> 96
the Money Market Fund. In addition, to the extent Shareholders receive
distributions of income attributable to investments in repurchase agreements by
the Money Market Fund, such distributions may also be subject to state or local
taxes.
MANAGEMENT OF THE GROUP
TRUSTEES OF THE GROUP
Overall responsibility for management of the Group rests with its Board of
Trustees. At any given time all Trustees of the Group may not have been elected
by 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 or 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 Group for acting as Administrator and under the Distribution Plan
discussed below, 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 each of the
Funds for acting as Transfer Agent and for providing certain fund accounting
services.
INVESTMENT ADVISER
1st Source Bank, 100 North Michigan Street, South Bend, Indiana 46601, is the
investment adviser of each Fund. The Adviser is a wholly owned subsidiary of 1st
Source Corporation, a publicly held bank holding company ("FSC"). The Adviser
was founded in 1936, and while it has not previously served as an investment
adviser to an open-end management investment company, the Adviser and its
affiliates administer and manage, on behalf of their clients, trust assets which
as of December 31, 1996, totalled approximately $1.25 billion. Of such amount,
approximately $512 million are managed on behalf of personal trust customers and
approximately $739 million are managed on behalf of employee benefit plans. The
Adviser has over 60 years of banking experience and as of December 31, 1996,
had, on a consolidated basis with FSC, over $2.07 billion in assets.
Subject to the general supervision of the Board of Trustees of the Group and
in accordance with the investment objectives and restrictions of the Funds, the
Adviser manages, makes decisions with respect to and places orders for all
purchases and sales of portfolio securities for the Money Market Fund, the
Income Equity Fund, the Special Equity Fund, the Income Fund and the
Intermediate Tax-Free Fund, and, through the Sub-Advisers, the Diversified
Equity Fund.
For the services provided and expenses assumed pursuant to its investment
advisory agreement with the Group, the Adviser receives a fee from each of the
Funds, computed daily and paid monthly, at the following rates: with respect to
the Money Market Fund, the annual rate of thirty-five one-hundredths of one
percent (0.35%) of such Fund's average daily net assets; with respect to the
Diversified Equity Fund, the annual rate of one hundred ten one-hundredths of
one percent (1.10%) of such Fund's average daily net assets; with respect to the
Income Equity Fund, the annual rate of eighty one-hundredths of one percent
(0.80%) of such Fund's average daily net assets; with respect to the Special
Equity Fund, the annual rate of eighty one-hundredths of one percent (0.80%) of
such Fund's average daily net assets; with respect to the Income Fund, the
annual rate of fifty-five one-
36
<PAGE> 97
hundredths of one percent (0.55%) of such Fund's average daily net assets; and
with respect to the Intermediate Tax-Free Fund, the annual rate of fifty-five
one-hundredths of one percent (0.55%) of such Fund's average daily net assets.
While the fees of the Adviser with respect to the Diversified Equity, Special
Equity and Income Equity Funds are higher than similar fees paid by most mutual
funds, the Board of Trustees believes such fees to be fair and reasonable.
The Adviser may periodically voluntarily reduce all or a portion of its
advisory fee with respect to a Fund to increase the net income of that 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 that Fund to be higher than they would otherwise be in the absence of
such a reduction.
Ralph Shive is the portfolio manager of the Income Equity Fund. Mr. Shive has
served as Vice President and an investment officer of the Adviser since
September, 1989. Generally, Mr. Shive has worked as an analyst and portfolio
manager for 20 years after receiving his BBA from Southern Methodist University.
Prior to joining the Adviser, he was employed by a brokerage firm and a private
investment partnership in Dallas, Texas. He is a Chartered Financial Analyst and
manages the Income Equity Fund as well as individual portfolios with a focus on
"value" investing.
J. Gregory Turner is the portfolio manager of the Special Equity Fund. Mr.
Turner has served as an investment officer of the Adviser since 1994. Prior
thereto and since October, 1986 he worked for IAA Trust Company, Bloomington,
Illinois, as a portfolio manager. Generally, Mr. Turner has worked as an analyst
and portfolio manager for 10 years after receiving his BS from Illinois State
University and a masters degree in management from Purdue University. As a
Chartered Financial Analyst, Mr. Turner manages individual portfolios, the
Special Equity Fund, and other growth equity accounts.
John S. Seidl is the portfolio manager of the Money Market Fund and since
March 17, 1997, has served as the portfolio manager of the Income Fund and the
Intermediate Tax-Free Fund. Mr. Seidl has served as Vice President and a Senior
Investment Officer of the Adviser since 1985, and Mr. Seidl heads the Investment
Division at the Adviser. He has worked more than 21 years as an Analyst and
Senior Portfolio Manager after receiving his BBA from the University of Notre
Dame. Mr. Seidl is a Chartered Financial Analyst who focuses his efforts on the
fixed income market, along with being responsible for the overall investment
strategy of the department.
THE SUB-ADVISERS
Pursuant to the terms of its Investment Advisory Agreement with the Group, the
Adviser has entered into Sub-Investment Advisory Agreements with each of:
Miller, Anderson, One Tower Bridge, Suite 1100, West Conshohocken, Pennsylvania
19428; Loomis, 3 First National Plaza, Suite 5450, Chicago, Illinois 60600; and
Columbus, One Station Place, Stamford, Connecticut 06902. Pursuant to the terms
of such Sub-Investment Advisory Agreements, each of the Sub-Advisers has been
retained by the Adviser to manage the day-to-day investment and reinvestment of
a designated portion of the assets of the Diversified Equity Fund, subject to
the direction and control of the Group's Board of Trustees, and the Adviser is
responsible for selecting and monitoring each Sub-Adviser and reporting the
activities of each Sub-Adviser to the Company's Board of Trustees.
Miller, Anderson is wholly owned by Morgan Stanley Group, Inc., 1585 Broadway,
New York, New York 10036. Miller, Anderson was founded in 1969 and was acquired
by Morgan Stanley Group, Inc. in 1995. Miller, Anderson
37
<PAGE> 98
provides advice primarily to institutions, including other investment companies,
and currently has approximately $35 billion in assets under management, of which
approximately $2.4 billion is managed using Miller Anderson's value style as
described above. Robert J. Marcin, CFA, is primarily responsible for the day-
to-day management of that portion of the Diversified Equity Fund's portfolio
managed by Miller Anderson. Mr. Marcin has been a Partner with Miller Anderson
since 1994, and has had more than 14 years of investment experience.
Loomis is a limited partnership, the sole general partner of which is Loomis,
Sayles & Company, Incorporated, One Financial Center, Boston, Massachusetts
02111. All of the outstanding shares of Loomis, Sayles & Company, Incorporated
are owned by New England Investment Companies, L.P., a publicly-traded limited
partnership ("NEIC"). As a result of the merger of New England Mutual Life
Insurance Company with and into Metropolitan Life Insurance Company ("MET") on
August 30, 1996, MET holds approximately 55% of the outstanding limited
partnership units of NEIC. Loomis was founded in 1926 and has approximately $51
billion in assets under management. The Chicago office of Loomis was founded in
1952, and has currently approximately 62 clients and $4 billion in assets under
management. Jerry Castellini is primarily responsible for the day-to-day
management of that portion of the Diversified Equity Fund's portfolio managed by
Loomis. Mr. Castellini has been Managing Partner of Loomis since January, 1994,
a Director since February, 1995 and has had more than 16 years of investment
experience.
Columbus, a general partnership formed on September 9, 1994, is registered as
an investment adviser under the Investment Advisers Act of 1940 and acquired the
business operated by Columbus' predecessor since 1975. PIMCO Advisors L.P.
("PIMCO") and Columbus Circle Investors Management Inc. ("CCI"), a wholly owned
subsidiary of PIMCO, are the general partners of Columbus. Columbus serves as
sub-adviser to other mutual funds and also advises and manages individual
accounts, profit sharing and pension funds and institutional accounts. PIMCO's
general partner is a general partnership with two partners: (i) an indirect
wholly owned subsidiary of Pacific Mutual Life Insurance Company; and (ii) PIMCO
Partners, L.L.C., a limited liability company, all of the interests of which are
held directly by the 11 managing directors of Pacific Investment Management
Company, a subsidiary of PIMCO.
Columbus currently has approximately $13 billion in assets under management,
of which approximately $8 billion is managed using the sector rotation style of
management (known as Positive Momentum & Positive Surprise) described above.
Although Columbus operates on a team style management basis, Daniel S. Pickett,
CFA, is primarily responsible for the day-to-day management of that portion of
the Diversified Equity Fund's portfolio managed by Columbus. Mr. Pickett has
been with Columbus since June, 1988, and a Managing Director of Columbus since
1994, and has had more than 11 years of investment experience.
For its services provided and expenses assumed pursuant to its Sub-Investment
Advisory Agreement with the Adviser, each of Miller, Anderson, Loomis and
Columbus receives from the Adviser a fee (computed daily and paid monthly as a
percentage of that portion of the Diversified Equity Fund's average daily net
assets managed by that Sub-Adviser) at the following annual rates: for Miller
Anderson, 0.625% up to $25,000,000 and 0.375% of the excess over $25,000,000;
for Loomis, 0.65% up to $5,000,000 and 0.50% of the excess over $5,000,000; and
for Columbus, 1.00% up to $10,000,000 and 0.50% of the excess over $10,000,000.
38
<PAGE> 99
ADMINISTRATOR AND DISTRIBUTOR
BISYS is the administrator for each Fund and also acts as each Fund's
principal underwriter and distributor (the "Administrator" or the "Distributor,"
as the context indicates). BISYS and its affiliated companies, including BISYS
Fund Services, 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 a 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 each Fund equal to the lesser of a fee
computed daily and paid periodically, calculated at an annual rate of twenty
one-hundredths of one percent (0.20%) of that Fund's average daily net assets or
such other fee as may be agreed upon in writing by the Group and the
Administrator. The Administrator may periodically voluntarily reduce all or a
portion of its administration fee with respect to a Fund to increase the net
income of such Fund available for distribution as dividends. The Administrator
may not seek reimbursement of such reduced fees at a later date. The voluntary
reduction of such fee will cause the yield and total return of that Fund to be
higher than they would otherwise be in the absence of such fee reduction.
The Distributor acts as agent for each of the Funds in the distribution of
their 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 receives compensation under the
Distribution and Shareholder Service Plan described below and 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 a Fund. Each 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 notification 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,
fund accounting fees, fees and out-of-pocket expenses of the custodian and
Transfer Agent, costs for independent pricing services, certain insurance
premiums, costs of maintenance of the Group's existence, costs of shareholders'
reports and meetings, distribution expenses incurred pursuant to the
Distribution and Shareholder Service Plan described below, administrative
services expenses incurred pursuant to the Administrative Services Plan
described below and any extraordinary expenses incurred in the Fund's operation.
DISTRIBUTION AND SHAREHOLDER SERVICE PLAN
Pursuant to Rule 12b-1 under the 1940 Act, the Group has adopted a
Distribution and Shareholder Service Plan (the "Plan"), under which each Fund is
authorized to pay BISYS, as Distributor, a fee in an amount not to exceed on an
annual basis 0.25% of the average daily net asset value of that Fund (the "12b-1
Fee"). Payments of the 12b-1 Fee to BISYS pursuant to the Plan will be used (i)
to compensate
39
<PAGE> 100
Participating Organizations (as defined below) for providing distribution
assistance relating to Shares of a Fund, (ii) for promotional activities
intended to result in the sale of Shares of the Funds such as to pay for the
preparation, printing and distribution of prospectuses to other than current
shareholders, and (iii) to compensate Participating Organizations for providing
shareholder services with respect to their customers who are, from time to time,
beneficial and record holders of Shares of the Fund.
Participating Organizations include banks, broker-dealers and other financial
institutions (including BISYS, FSC, the Adviser and their affiliates). Such fee
paid to BISYS may exceed the actual costs incurred by BISYS in providing such
services and/or compensating such Participating Organizations. In addition, from
time to time, BISYS may periodically voluntarily reduce all or a portion of its
fee under the Plan with respect to a Fund to increase the net income of that
Fund available for distribution as dividends. BISYS 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 that Fund to be higher than they would otherwise be in the absence of
such a fee reduction.
BISYS may enter into, from time to time, other Rule 12b-1 Agreements with
selected dealers pursuant to which such dealers will provide certain services in
connection with the distribution of a Fund's Shares such as those described
above.
ADMINISTRATIVE SERVICES PLAN
The Group has adopted an Administrative Services Plan (the "Services Plan")
pursuant to which each 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 that Fund. In consideration for
such services, a Service Organization receives a fee from a Fund, computed daily
and paid monthly, at an annual rate of up to .25% of the average daily net asset
value of Shares of that 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 Funds,
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 with respect to the Funds.
BANKING LAWS
The Adviser believes that it possesses the legal authority to perform the
investment advisory services for each 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
40
<PAGE> 101
present and future statutes and regulations could change the manner in which the
Adviser could continue to perform such services for the Funds. 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 seventeen funds, each having its own class of shares. In addition to
the Funds, the Group consists of the following funds: Riverside Capital Money
Market Fund, Riverside Capital Value Equity Fund, Riverside Capital Fixed Income
Fund, Riverside Capital Low Duration Government Securities Fund, Riverside
Capital Growth Fund, Riverside Capital Tennessee Municipal Obligations Fund, The
KeyPremier Prime Money Market Fund, The KeyPremier Pennsylvania Municipal Bond
Fund, The KeyPremier Established Growth Fund, The KeyPremier Intermediate Term
Income Fund and The KeyPremier Aggressive Growth Fund. 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 the fund as are declared at the discretion of the Trustees
(see "Miscellaneous" below).
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 series except as otherwise expressly required
by law. For example, Shareholders of each Fund will vote in the aggregate with
other shareholders of the Group with respect to the election of Trustees.
However, Shareholders of a Fund will vote as a fund, and not in the aggregate
with other shareholders of the Group, for purposes of approval of the Group's
investment advisory agreement with respect to that Fund and the Plan.
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, although
Trustees may, under certain circumstances, fill vacancies, including vacancies
created by expanding the size of the Board. Trustees 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, the Plan or a 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.
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.
As of March 3, 1997, the Adviser possessed, on behalf of its underlying
accounts, voting or investment power with respect to more than 25% of the
outstanding shares of the Diversi-
41
<PAGE> 102
fied Equity, Income Equity, Special Equity and Income Funds and therefore may be
presumed to control those Funds within the meaning of the 1940 Act. As of such
date, neither the Money Market Fund nor the Intermediate Tax-Free Fund had
commenced operations.
CUSTODIAN
The Fifth Third Bank, 38 Fountain Square Plaza, Cincinnati, Ohio 45263, serves
as the custodian for each of the Funds.
TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio 43219-3035,
serves as the Funds' 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 each Fund pursuant to a 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) $50,000 minus the fee paid by such Fund under its Management and
Administration Agreement with BISYS. See "Management of the Group--Transfer
Agency and Fund Accounting Services" in the Statement of Additional Information
for further information.
While BISYS Fund Services, Inc. is a distinct legal entity from BISYS (the
Group's administrator and distributor), BISYS Fund Services, Inc. is considered
to be an affiliated person of BISYS under the 1940 Act due to, among other
things, the fact that BISYS Fund Services, Inc. is the general partner of BISYS.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and annual reports
audited by independent accountants.
As used in this Prospectus and in the Statement of Additional Information,
"assets belonging to the 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 a 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 a 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 that Fund present at a meeting at which the
holders of more than 50% of the votes attributable to Shareholders of record of
that Fund are represented in person or by proxy, or (b) the holders of more than
50% of the outstanding votes of Shareholders of that Fund.
Inquiries regarding any of the Funds may be directed in writing to the Group
at 3435 Stelzer Road, Columbus, Ohio 43219, or by calling toll free (800)
766-8938.
42
<PAGE> 103
INVESTMENT ADVISER
1st Source Bank
100 North Michigan Street
South Bend, Indiana 46634
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services Limited Partnership
3435 Stelzer Road
Columbus, Ohio 43219
LEGAL COUNSEL
Baker & Hostetler LLP
65 East State Street
Columbus, Ohio 43215
AUDITORS
Coopers & Lybrand L.L.P.
100 East Broad Street
Columbus, Ohio 43215
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY................... 2
FEE TABLE............................ 4
FINANCIAL HIGHLIGHTS................. 5
PERFORMANCE INFORMATION.............. 7
INVESTMENT OBJECTIVES AND POLICIES... 9
INVESTMENT RESTRICTIONS.............. 22
VALUATION OF SHARES.................. 23
HOW TO PURCHASE AND REDEEM SHARES.... 24
DIVIDENDS AND TAXES.................. 33
MANAGEMENT OF THE GROUP.............. 36
GENERAL INFORMATION.................. 41
</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 FUNDS
OR THEIR DISTRIBUTOR, BISYS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
ANY FUND OR BY BISYS IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
LOGO
U.S. TREASURY OBLIGATIONS
MONEY MARKET FUND
DIVERSIFIED EQUITY FUND
INCOME EQUITY FUND
SPECIAL EQUITY FUND
INCOME FUND
INTERMEDIATE TAX-FREE BOND FUND
1ST SOURCE BANK
Investment Adviser
Prospectus dated
April 1, 1997
<PAGE> 104
The KeyPremier Prime Money Market Fund
The KeyPremier Pennsylvania Municipal Bond Fund
Two Investment Portfolios of
THE SESSIONS GROUP
Statement of Additional Information
April 1, 1997
This Statement of Additional Information is not a prospectus, but
should be read in conjunction with the prospectuses (the "Prospectuses") of The
KeyPremier Prime Money Market Fund (the "Money Market Fund") and The KeyPremier
Pennsylvania Municipal Bond Fund (the "Pennsylvania Bond Fund"), each dated as
of the date hereof. The Money Market Fund and the Pennsylvania Bond Fund are
hereafter collectively referred to as the "Funds" and individually as a "Fund."
The Funds are two of seventeen funds of The Sessions Group, an Ohio business
trust (the "Group"). This Statement of Additional Information is incorporated in
its entirety into the Prospectuses. Copies of the Prospectuses may be obtained
by writing the Group at 3435 Stelzer Road, Columbus, Ohio 43219, or by
telephoning toll free (800) 766-3960.
<PAGE> 105
TABLE OF CONTENTS
Page
----
THE SESSIONS GROUP....................................................... B-1
INVESTMENT OBJECTIVES AND POLICIES....................................... B-1
Additional Information on Portfolio Instruments................. B-1
Investment Restrictions......................................... B-15
Portfolio Turnover.............................................. B-16
NET ASSET VALUE.......................................................... B-17
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION........................... B-18
MANAGEMENT OF THE GROUP.................................................. B-18
Trustees and Officers........................................... B-18
Investment Adviser.............................................. B-21
Portfolio Transactions.......................................... B-23
Glass-Steagall Act.............................................. B-25
Administrator................................................... B-26
Distributor..................................................... B-27
Administrative Services Plan.................................... B-28
Custodian....................................................... B-29
Transfer Agency and Fund Accounting Services.................... B-29
Auditors ....................................................... B-30
Legal Counsel................................................... B-30
ADDITIONAL INFORMATION................................................... B-31
Description of Shares........................................... B-31
Vote of a Majority of the Outstanding Shares.................... B-32
Additional General Tax Information.............................. B-32
Additional Tax Information With Respect
to the Pennsylvania Bond Fund.......................... B-35
Seven-Day Yield of the Money Market Fund........................ B-39
Yield of the Pennsylvania Bond Fund............................. B-40
Tax-Free vs. Taxable Income..................................... B-40
Calculation of Total Return..................................... B-41
Distribution Rates.............................................. B-42
Performance Comparisons......................................... B-42
Miscellaneous................................................... B-43
FINANCIAL STATEMENTS..................................................... B-44
APPENDIX ................................................................ A-1
- i -
<PAGE> 106
STATEMENT OF ADDITIONAL INFORMATION
THE SESSIONS GROUP
The Sessions Group (the "Group") is an open-end management investment
company which currently offers seventeen separate investment portfolios. This
Statement of Additional Information deals with two of those portfolios, the
Money Market Fund, which is considered to be a diversified portfolio, and the
Pennsylvania Bond Fund, which is considered to be a non-diversified portfolio.
Much of the information contained in this Statement of Additional
Information expands upon subjects discussed in the Prospectuses of the Funds.
Capitalized terms not defined herein are defined in the Prospectuses. No
investment in Shares of either Fund should be made without first reading the
Prospectus of that Fund.
INVESTMENT OBJECTIVES AND POLICIES
Additional Information on Portfolio Instruments
The following policies supplement the investment objectives and
policies of the Funds as set forth in the respective Prospectus.
Bank Obligations. Each Fund may invest in bank obligations such as
bankers' acceptances, certificates of deposit, and demand and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange
typically drawn by an importer or exporter to pay for specific merchandise,
which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Bankers' acceptances invested in by the Funds will be those guaranteed by
domestic and foreign banks having, at the time of investment, capital, surplus,
and undivided profits in excess of $100,000,000 (as of the date of their most
recently published financial statements).
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank or a savings and loan association for a
definite period of time and earning a specified return. Certificates of deposit
and demand and time deposits will be those of domestic and foreign banks and
savings and loan associations, if (a) at the time of investment the depository
institution has capital, surplus, and undivided profits in excess of
$100,000,000 (as of the date of its most recently published financial
statements), or (b) the principal amount of the instrument is insured in full by
the Federal Deposit Insurance Corporation.
<PAGE> 107
The Money Market Fund may also invest in Eurodollar Certificates of
Deposit, which are U.S. dollar denominated certificates of deposit issued by
offices of foreign and domestic banks located outside the United States; Yankee
Certificates of Deposit, which are certificates of deposit issued by a U.S.
branch of a foreign bank denominated in U.S. dollars and held in the United
States; Eurodollar Time Deposits ("ETDs"), which are U.S. dollar denominated
deposits in a foreign branch of a U.S. bank or a foreign bank; and Canadian Time
Deposits, which are basically the same as ETDs except they are issued by
Canadian offices of major Canadian banks.
Commercial Paper. Commercial paper consists of unsecured promissory
notes issued by corporations. Except as noted below with respect to variable
amount master demand notes, issues of commercial paper normally have maturities
of less than nine months and fixed rates of return.
The Funds will purchase commercial paper consisting of issues rated at
the time of purchase by one or more appropriate nationally recognized
statistical rating organizations ("NRSRO") (e.g., Standard & Poor's Corporation
and Moody's Investors Service, Inc.) in one of the two highest rating categories
for short-term debt obligations. Each Fund may also invest in commercial paper
that is not rated but that is determined by the Adviser to be of comparable
quality to instruments that are so rated by an NRSRO that is neither
controlling, controlled by, or under common control with the issuer of, or any
issuer, guarantor, or provider of credit support for, the instruments. For a
description of the rating symbols of the NRSROs, see the Appendix. The Money
Market Fund may also invest, subject to the foregoing quality criteria, in
Canadian Commercial Paper, which is commercial paper issued by a Canadian
corporation or a Canadian counterpart of a U.S. corporation ("CCP"), and in
Europaper, which is U.S. dollar denominated commercial paper of a foreign
issuer.
Variable Amount Master Demand Notes. Variable amount master demand
notes, in which the Funds may invest, are unsecured demand notes that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate according to the terms of the instrument. Because master demand
notes are direct lending arrangements between a Fund and the issuer, they are
not normally traded. Although there is no secondary market in the notes, the
Fund may demand payment of principal and accrued interest at any time within 30
days. While such notes are not typically rated by credit rating agencies,
issuers of variable amount master demand notes (which are normally
manufacturing, retail, financial and other business concerns), must satisfy, for
purchase by a Fund, the same criteria as set forth above for commercial paper.
The Adviser will consider the earning power, cash flow, and other liquidity
ratios of the issuers of such notes
B-2
<PAGE> 108
and will continuously monitor their financial status and ability to meet payment
on demand. In determining average weighted portfolio maturity, a variable amount
master demand note will be deemed to have a maturity equal to the longer of the
period of time remaining until the next interest rate adjustment or the period
of time remaining until the principal amount can be recovered from the issuer
through demand.
Foreign Investment. Investments in securities issued by foreign
branches of U.S. banks, foreign banks, or other foreign issuers, may subject the
Money Market Fund to investment risks that differ in some respects from those
related to investment in obligations of U.S. domestic issuers or in U.S.
securities markets. Such risks include future adverse political and economic
developments, possible seizure, nationalization, or expropriation of foreign
investments, less stringent disclosure requirements, the possible establishment
of exchange controls or taxation at the source, or the adoption of other foreign
governmental restrictions. The Money Market Fund will acquire such securities
only when the Adviser believes the risks associated with such investments are
minimal.
U.S. Government Obligations. Each Fund may invest in obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities.
Obligations of certain agencies and instrumentalities of the U.S. Government are
supported by the full faith and credit of the U.S. Treasury; others are
supported by the right of the issuer to borrow from the Treasury; others are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; and still others are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so by law.
Each Fund may also invest in the following types of U.S. Treasury
securities: direct obligations issued by the U.S. Treasury including bills,
notes and bonds which differ from each other only in interest rates, maturities
and times of issuance; U.S. Treasury securities that have been stripped of their
unmatured interest coupons (which typically provide for interest payments
semi-annually); interest coupons that have been stripped from such U.S. Treasury
securities; receipts and certificates for such stripped debt obligations and
stripped coupons (collectively, "Stripped Treasury Securities"); and in
repurchase agreements collateralized by such securities. Stripped Treasury
Securities will include (1) coupons that have been stripped from U.S. Treasury
bonds, which may be held through the Federal Reserve Bank's book-entry system
called "Separate Trading of Registered Interest and Principal of Securities"
("STRIPS") or through a program entitled "Coupon Under Book-Entry Safekeeping"
("CUBES").
B-3
<PAGE> 109
Treasury bills have maturities of one year or less; Treasury notes have
maturities of one to ten years and Treasury bonds generally have maturities of
greater than ten years. Stripped Treasury Securities are sold at a deep discount
because the buyer of those securities receives only the right to receive a
future fixed payment (representing principal or interest) on the security and
does not receive any rights to periodic interest payments on the security.
Exempt Securities. As stated in its Prospectus, the assets of the
Pennsylvania Bond Fund will be primarily invested in Exempt Securities. Under
normal market conditions, at least 80% of the net assets of the Fund will be
invested in Exempt Securities and 65% of the Fund's net assets will be invested
in Pennsylvania Exempt Securities.
Exempt Securities include debt obligations issued by governmental
entities to obtain funds for various public purposes, such as the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses, and the extension of loans to other
public institutions and facilities. Private activity bonds that are issued by or
on behalf of public authorities to finance various privately-operated facilities
are included within the term Exempt Securities, only if the interest paid
thereon is exempt from both Pennsylvania income taxes and federal taxes,
although such interest may be treated as a preference item for purposes of the
federal alternative minimum tax.
Among other types of Exempt Securities, the Pennsylvania Bond Fund may
purchase short-term General Obligation Notes, Tax Anticipation Notes, Bond
Anticipation Notes, Revenue Anticipation Notes, Project Notes, Tax-Exempt
Commercial Paper, Construction Loan Notes and other forms of short-term
tax-exempt loans. Such instruments are issued with a short-term maturity in
anticipation of the receipt of tax funds, the proceeds of bond placements or
other revenues. In addition, the Pennsylvania Bond Fund may invest in other
types of tax-exempt instruments, such as municipal bonds, private activity
bonds, and pollution control bonds.
Project Notes are issued by a state or local housing agency and are
sold by the Department of Housing and Urban Development. While the issuing
agency has the primary obligation with respect to its Project Notes, they are
also secured by the full faith and credit of the United States through
agreements with the issuing authority which provide that, if required, the
federal government will lend the issuer an amount equal to the principal of and
interest on the Project Notes.
As described in the Prospectus of the Pennsylvania Bond Fund, the two
principal classifications of Exempt Securities consist of
B-4
<PAGE> 110
"general obligation" and "revenue" issues. The Pennsylvania Bond Fund may also
acquire "moral obligation" issues, which are normally issued by special purpose
authorities. There are, of course, variations in the quality of Exempt
Securities, both within a particular classification and between classifications,
and the yields on Exempt Securities depend upon a variety of factors, including
the financial condition of the issuer, general conditions of the municipal bond
market, the size of a particular offering, the maturity of the obligation and
the rating of the issue. Ratings represent the opinions of an NRSRO as to the
quality of Exempt Securities. It should be emphasized, however, that ratings are
general and are not absolute standards of quality, and Exempt Securities with
the same maturity, interest rate and rating may have different yields, while
Exempt Securities of the same maturity and interest rate with different ratings
may have the same yield. Subsequent to purchase, an issue of Exempt Securities
may cease to be rated or its rating may be reduced below the minimum rating
required for purchase. The Adviser will consider such an event in determining
whether the Pennsylvania Bond Fund should continue to hold the obligation.
An issuer's obligations under its Exempt Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors, such as the federal bankruptcy code, and laws, if any,
which may be enacted by Congress or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
the enforcement of such obligations or upon the ability of municipalities to
levy taxes. The power or ability of an issuer to meet its obligations for the
payment of interest on and principal of its Exempt Securities may be materially
adversely affected by litigation or other conditions.
Variable and Floating Rate Notes. Each Fund may acquire variable and
floating rate notes, subject to such Fund's investment objective, policies and
restrictions. A variable rate note is one whose terms provide for the adjustment
of its interest rate on set dates and which, upon such adjustment, can
reasonably be expected to have a market value that approximates its par value or
amortized cast, as the case may be. 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 or amortized cast, as the case may be.
Such notes are frequently not rated by credit rating agencies; however, unrated
variable and floating rate notes purchased by a Fund will be determined by the
Adviser to be of comparable quality at the time of purchase to rated instruments
eligible for purchase under that 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 (such issuers include financial,
merchandising, bank holding and other companies) and will continuously monitor
their financial
B-5
<PAGE> 111
condition. Although there may be no active secondary market with respect to a
particular variable or floating rate note purchased by a Fund, the Fund may
resell the note at any time to a third party. The absence of an active secondary
market, however, could make it difficult for the Fund to dispose of a variable
or floating rate note in the event the issuer of the note defaulted on its
payment obligations and the Fund could, as a result or for other reasons, suffer
a loss to the extent of the default. To the extent that there exists no readily
available market for such note and the Fund is not entitled to receive the
principal amount of a note within seven days, such a note will be treated as an
illiquid security for purposes of calculation of that Fund's limitation on
investments in illiquid securities, as set forth in its investment restrictions.
Variable or floating rate notes may be secured by bank letters of credit.
Variable or floating rate notes invested in by the Money Market Fund
may have maturities of more than 397 days, as follows:
1. An instrument that is issued or guaranteed by the United
States Government or any agency thereof which has a variable rate of interest
readjusted no less frequently than every 762 days is deemed by the Money Market
Fund to have a maturity equal to the period remaining until the next
readjustment of the interest rate.
2. A variable rate note, the principal amount of which is
scheduled on the face of the instrument to be paid in 397 calendar days or less,
is deemed by the Money Market Fund to have a maturity equal to the earlier of
the period remaining until the next readjustment of the interest rate or the
period remaining until the principal amount can be recovered through demand.
3. A variable rate note that is subject to a demand feature is
deemed by the Money Market Fund to have a maturity equal to the longer of the
period remaining until the next readjustment of the interest rate or the period
remaining until the principal amount can be recovered through demand.
4. A floating rate note which has a remaining maturity of 397
days or less is deemed by the Money Market Fund to have a maturity of one day. A
floating rate note that has a remaining maturity of more than 397 days and is
subject to a demand feature is deemed by the Money Market Fund to have a
maturity equal to the period remaining until the principal amount can be
recovered through demand.
As used above, a note is "subject to a demand feature" where the Money
Market Fund is entitled to receive the principal amount of the note either at
any time on no more than thirty days' notice or at specific intervals not
exceeding 397 days and upon no more than 30 days' notice.
B-6
<PAGE> 112
Municipal Lease Obligations. Municipal lease obligations or installment
purchase contract obligations (collectively, "lease obligations") have special
risks not ordinarily associated with Exempt Securities. Although lease
obligations do not constitute general obligations of the municipality for which
the municipality's taxing power is pledged, a lease obligation ordinarily is
based by the municipality's covenant to budget for, appropriate and make the
payments due under the lease obligation. However, certain lease obligations
contain "non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future years unless
money is appropriated for such purpose on a yearly basis. Although
"non-appropriation" lease obligations are secured by the leased property,
disposition of the property in the event of foreclosure might prove difficult.
The staff of the Commission currently considers certain lease obligations to be
illiquid. Determination as to the liquidity of such securities is made in
accordance with guidelines established by the Group's Board of Trustees.
Pursuant to such guidelines, the Board of Trustees has directed the Adviser to
monitor carefully the Pennsylvania Bond Fund's investment in such securities
with particular regard to (1) the frequency of trades and quotes for the lease
obligation; (2) the number of dealers willing to purchase or sell the lease
obligations and the number of other potential buyers; (3) the willingness of
dealers to undertake to make a market in the lease obligation; (4) the nature of
the marketplace trades including the time needed to dispose of the lease
obligation, the method of soliciting offers and the mechanics of transfer; and
(5) such other factors concerning the trading market for the lease obligation as
the Adviser may deem relevant. In addition, in evaluating the liquidity and
credit quality of a lease obligation that is unrated, the Group's Board of
Trustees has directed the Adviser to consider (a) whether the lease can be
cancelled; (b) what assurance there is that the assets represented by the lease
can be sold; (c) the strength of the lessee's general credit (e.g., its debt,
administrative, economic and financial characteristics); (d) the likelihood that
the municipality will discontinue appropriating funding for the leased property
because the property is no longer deemed essential to the operations of the
municipality (e.g., the potential for an event of "non-appropriation"); (e) the
legal recourse in the event of failure to appropriate; and (f) such other
factors concerning credit quality as the Adviser may deem relevant. The
Pennsylvania Bond Fund will not invest more than 15% of the value of its net
assets in lease obligations that are illiquid and in other illiquid securities.
When-Issued Securities. As discussed in the Prospectuses, each Fund may
purchase securities on a "when-issued" basis (i.e., for delivery beyond the
normal settlement date at a stated price and yield). When a Fund agrees to
purchase securities on a "when-issued" basis, the Fund's custodian will set
aside cash or liquid
B-7
<PAGE> 113
portfolio securities equal to the amount of the commitment in a separate
account. Normally, the Fund's custodian will set aside portfolio securities to
satisfy the purchase commitment, and in such a case, the Fund may be required
subsequently to place additional assets in the separate account in order to
assure that the value of the account remains equal to the amount of that Fund's
commitment. It may be expected that a Fund's net assets will fluctuate to a
greater degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. In addition, because a Fund will set
aside cash or liquid portfolio securities to satisfy its purchase commitments in
the manner described above, such Fund's liquidity and the ability of the Adviser
to manage it might be affected in the event its commitments to purchase
"when-issued" securities ever exceeded 25% of its total assets. Under normal
market conditions, however, each Fund's commitment to purchase "when-issued" or
"delayed-delivery" securities will not exceed 25% of its total assets.
When a Fund engages in "when-issued" transactions, it relies on the
seller to consummate the trade. Failure of the seller to do so may result in
that Fund's incurring a loss or missing the opportunity to obtain a price
considered to be advantageous. Each Fund will engage in "when-issued" delivery
transactions only for the purpose of acquiring portfolio securities consistent
with such Fund's investment objectives and policies and not for investment
leverage. If the Pennsylvania Bond Fund sells a "when-issued" or
"delayed-delivery" security before delivery, any gain would not be tax-exempt.
Repurchase Agreements. Securities held by each Fund may be subject to
repurchase agreements. Under the terms of a repurchase agreement, a Fund would
acquire securities from banks and registered broker-dealers which the Adviser
deems creditworthy under guidelines approved by the Group's Board of Trustees,
subject to the seller's agreement to repurchase such securities at a mutually
agreed-upon date and price. The repurchase price would generally equal the price
paid by the Fund plus interest negotiated on the basis of current short-term
rates, which may be more or less than the rate on the underlying portfolio
securities. The seller under a repurchase agreement will be required to maintain
continually the value of collateral held pursuant to the agreement at not less
than the repurchase price (including accrued interest). This requirement will be
continually monitored by the Adviser. If the seller were to default on its
repurchase obligation or become insolvent, the Fund would suffer a loss to the
extent that the proceeds from a sale of the underlying portfolio securities were
less than the repurchase price under the agreement, or to the extent that the
disposition of such securities by such Fund were delayed pending court action.
Securities subject to repurchase agreements will be held by the Fund's custodian
or another
B-8
<PAGE> 114
qualified custodian or in the Federal Reserve/Treasury book-entry system.
Reverse Repurchase Agreements. As discussed in the Prospectuses, each
Fund may borrow funds by entering into reverse repurchase agreements in
accordance with its investment restrictions. Pursuant to such agreements, a Fund
would sell portfolio securities to financial institutions such as banks and
broker-dealers, and agree to repurchase the securities at a mutually agreed-upon
date and price. At the time a Fund enters into a reverse repurchase agreement,
it will place in a segregated custodial account assets such as U.S. Government
securities or other liquid, high grade debt securities consistent with that
Fund's investment restrictions having a value equal to the repurchase price
(including accrued interest), and will subsequently continually monitor the
account to ensure that such equivalent value is maintained at all times. Reverse
repurchase agreements involve the risk that the market value of the securities
sold by a Fund may decline below the price at which that Fund is obligated to
repurchase the securities. Reverse repurchase agreements are considered to be
borrowings by a Fund under the 1940 Act and therefore a form of leveraging.
Lower Rated Bonds. The Pennsylvania Bond Fund is permitted to invest in
securities rated Ba and B by Moody's or BB and B by another appropriate NRSRO.
Such bonds, though higher yielding, are characterized by risk. See the Appendix
hereto for a general description of NRSRO ratings of municipal obligations.
Although ratings may be useful in evaluating the safety of interest and
principal payments, they do not evaluate the market value risk of these bonds.
The Pennsylvania Bond Fund will rely on the Adviser's judgment, analysis and
experience in evaluating the creditworthiness of an issuer.
Investors should be aware that the market values of many of these lower
rated bonds tend to be more sensitive to economic conditions than are higher
rated securities. These bonds generally are considered by S&P and Moody's to be,
on balance, predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation and generally
will involve more credit risk than securities in the higher rating categories.
Because there is no established retail secondary market for many of
these securities, the Pennsylvania Bond Fund anticipates that such securities
could be sold only to a limited number of dealers or institutional investors. To
the extent a secondary trading market for these bonds does exist, it generally
is not as liquid as the secondary market for higher rated securities. The lack
of a liquid secondary market may have an adverse impact on market price and
yield and the Pennsylvania Bond Fund's ability to
B-9
<PAGE> 115
dispose of particular issues when necessary to meet its liquidity needs or in
response to a specific economic event such as a deterioration in the
creditworthiness of the issuer. The lack of a liquid secondary market for
certain securities also may make it more difficult for the Pennsylvania Bond
Fund to obtain accurate market quotations for purposes of valuing the
Pennsylvania Bond Fund's portfolio and calculating its net asset value. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of these securities. In such
cases, judgment may play a greater role in valuation because less reliable
objective data may be available.
These bonds may be particularly susceptible to economic downturns. It
is likely that any economic recession could severely disrupt the market for such
securities and may have an adverse impact on the value of such securities. In
addition, it is likely that any such economic downturn could adversely affect
the ability of the issuers of such securities to repay principal and pay
interest thereon and increase the incidence of default of such securities.
The Pennsylvania Bond Fund may acquire these bonds during an initial
offering. Such securities may involve special risks because they are new issues.
The Pennsylvania Bond Fund has no arrangement with any persons concerning the
acquisition of such securities, and the Adviser will review carefully the credit
and other characteristics pertinent to such new issues.
The credit risk factors pertaining to lower rated securities also apply
to lower rated zero coupon securities in which the Pennsylvania Bond Fund may
invest. Zero coupon bonds carry an additional risk in that, unlike bonds which
pay interest through the period to maturity, the Pennsylvania Bond Fund will
realize no cash until the cash payment date unless a portion of such securities
are sold and, if the issuer defaults, the Pennsylvania Bond Fund may obtain no
return at all on its investment.
Short Sales. The Pennsylvania Bond Fund will from time to time sell
securities short. Short sales are effected when it is believed that the price of
a particular security will decline, and involves the sale of a security which
the Pennsylvania Bond Fund does not own in the hope of purchasing the same
security at a later date at a lower price. To make delivery to the buyer, the
Pennsylvania Bond Fund must borrow the security, and the Pennsylvania Bond Fund
is obligated to return the security to the lender, which is accomplished by a
later purchase of the security by the Pennsylvania Bond Fund. The frequency of
short sales will vary substantially in different periods, and it is not intended
that any specified portion of the Pennsylvania Bond Fund's assets will as a
matter of practice be invested in short sales.
B-10
<PAGE> 116
At any time that the Pennsylvania Bond Fund has an open short sale
position, the Pennsylvania Bond Fund is required to segregate with its custodian
(and to maintain such amount until the Pennsylvania Bond Fund replaces the
borrowed security) an amount of cash or U.S. Government securities or other
high-grade liquid debt securities equal to the difference between (i) the
current market value of the securities sold short and (ii) any cash or U.S.
Government securities required to be deposited with the broker in connection
with the short sale (not including the proceeds from the short sale). As a
result of these requirements, the Pennsylvania Bond Fund will not gain any
leverage merely by selling short, except to the extent that it earns interest on
the immobilized cash or government securities while also being subject to the
possibility of gain or loss from the securities sold short. The total amount of
cash or U.S. Government securities deposited with the broker (not including the
proceeds of the short sale) and segregated by the Pennsylvania Bond Fund with
the Pennsylvania Bond Fund's custodian may not at any time be more than 25% of
the Pennsylvania Bond Fund's net assets. These deposits do not have the effect
of limiting the amount of money the Pennsylvania Bond Fund may lose on a short
sale -- the Pennsylvania Bond Fund's possible losses may exceed the total amount
deposited.
The Pennsylvania Bond Fund will incur a loss as a result of the short
sale if the price of the security increases between the date of the short sale
and the date on which the Pennsylvania Bond Fund purchases the security to
replace the borrowed security. The Pennsylvania Bond Fund will realize a gain if
the security declines in price between those dates. The amount of any gain will
be decreased and the amount of any loss increased by any premium or interest the
Pennsylvania Bond Fund may be required to pay in connection with a short sale.
It should be noted that possible losses from short sales differ from those that
could arise from a cash investment in a security in that the former may be
limitless while the latter can only equal the total amount of the Pennsylvania
Bond Fund's investment in the security. For example, if the Pennsylvania Bond
Fund purchases a $10 security short, the most that can be lost is $10. However,
if the Pennsylvania Bond Fund sells a $10 security short, it may have to
purchase the security for return to the lender when the market value is $50,
thereby incurring a loss of $40.
Hedging Transactions. Hedging transactions, including the use of
options and futures, in which the Pennsylvania Bond Fund is authorized to
engage, as described in its Prospectus, have risks associated with them
including possible default by the other party to the transaction, illiquidity
and, to the extent the Adviser's view as to certain market movements is
incorrect, the risk that the use of such hedging transactions could result in
losses greater than if they had not been used.
B-11
<PAGE> 117
Use of put and call options may result in losses to the Pennsylvania
Bond Fund, force the sale or purchase of portfolio securities at inopportune
times or for prices higher than (in the case of put options) or lower than (in
the case of call options) current market values, limit the amount of
appreciation the Pennsylvania Bond Fund can realize on its investments or cause
the Pennsylvania Bond Fund to hold a security it might otherwise sell. The use
of options and futures transactions entails certain other risks. In particular,
the variable degree of correlation between price movements of futures contracts
and price movements in the related portfolio position of the Pennsylvania Bond
Fund create the possibility that losses on the hedging instrument may be greater
than gains in the value of such Fund's position. In addition, futures and
options markets may not be liquid at all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Pennsylvania Bond Fund might not be able to close out a transaction without
incurring substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of hedging transactions would reduce net asset
value, and possible income, and such losses can be greater than if the hedging
transactions had not been utilized.
General Characteristics of Options. Put options and call options
typically have similar structural characteristics and operational mechanics
regardless of the underlying instrument on which they are purchased or sold.
Thus, the following general discussion relates to each of the particular types
of options discusses in greater detail below and in the Pennsylvania Bond Fund's
Prospectus. In addition, many hedging transactions involving options require
segregation of the Pennsylvania Bond Fund's assets in special accounts, as
described further below.
With certain exception, exchange-listed options generally settle by
physical delivery of the underlying security or currency, although in the future
cash settlement may become available. Index options are cash settled for the net
amount, if any, by which the option is "in-the-money" (i.e., where the value of
the underlying instrument exceeds, in the case of a call option, or is less
than, in the case of a put option, the exercise price of the option) at the time
the option is exercised. Frequently, rather than taking or making delivery of
the underlying instrument through the process of exercising the option, listed
options are closed by entering into offsetting purchase or sale transactions
that do not result in
B-12
<PAGE> 118
ownership of the new option. The Pennsylvania Bond Fund's ability to close out
its position as a purchaser or seller of a put or call option is dependent in
part, upon the liquidity of the option market. In addition, the hours of trading
for listed options may not coincide with the hours during which the underlying
financial instruments are traded. To the extent that the option markets close
before the markets for the underlying financial instruments, significant price
and rate movements can take place in the underlying markets that cannot be
reflected in the option markets.
Exchange-listed options generally have standardized terms and
performance mechanics unlike over-the-counter traded options. The Pennsylvania
Bond Fund currently expects to purchase and sell only exchange traded options.
Exchange-traded options generally are guaranteed by the clearing agency which is
the issuer or counterparty to such options. This guarantee usually is supported
by a daily payment system (i.e., variation margin requirements) operated by the
clearing agency in order to reduce overall credit risk. As a result, unless the
clearing agency defaults, there is relatively little counterparty credit risk
associated with options purchased on an exchange.
All options written by the Pennsylvania Bond Fund must be "covered"
(i.e., the Pennsylvania Bond Fund must own the securities or futures contract
subject to a call option or must meet the asset segregation requirements) as
long as the call is outstanding. Even though the Pennsylvania Bond Fund will
receive the option premium to help protect it against loss, a call option
written by the Pennsylvania Bond Fund exposes such Fund during the term of the
option to possible loss of opportunity to realize appreciation in the market
price of the underlying security or instrument and may require the Fund to hold
a security or instrument which it might otherwise have sold. With respect to put
options written by the Pennsylvania Bond Fund, such Fund will place high quality
liquid debt securities in a segregated account to cover its obligations under
such put option and will monitor the value of the assets in such account and its
obligations under the put option daily.
Futures Contracts. As discussed in the Prospectus of the Pennsylvania
Bond Fund, such Fund may enter into futures contracts. This investment technique
is designed primarily to act as a substitute for a position in the underlying
security and to hedge against anticipated future changes in market conditions or
interest rates which otherwise might adversely affect the value of securities
which such the Pennsylvania Bond Fund holds or intends to purchase. For example,
when interest rates are expected to rise or market values of portfolio
securities are expected to fall, the Pennsylvania Bond Fund can seek through the
sale of futures contracts to offset a decline in the value of its portfolio
securities. When interest rates are expected to fall or market values are
expected to rise, the Pennsylvania Bond Fund, through the
B-13
<PAGE> 119
purchase of such contracts, can attempt to secure better rates or prices for the
Fund than might later be available in the market when it effects anticipated
purchases.
The acquisition of put and call options on futures contracts will,
respectively, give the Pennsylvania Bond Fund the right (but not the
obligation), for a specified price, to sell or to purchase the underlying
futures contract, upon exercise of the option, at any time during the option
period.
Futures transactions involve brokerage costs and require the
Pennsylvania Bond Fund to segregate liquid assets, such as cash, U.S. Government
securities or other liquid high grade debt obligations, to cover its performance
under such contracts. The Pennsylvania Bond Fund may lose the expected benefit
of futures transactions if interest rates or securities prices move in an
unanticipated manner. Such unanticipated changes may also result in poorer
overall performance than if the Fund had not entered into any futures
transactions. In addition, the value of the Pennsylvania Bond Fund's futures
positions may not prove to be perfectly or even highly correlated with the value
of its portfolio securities, limiting the Fund's ability to hedge effectively
against interest rate and/or market risk and giving rise to additional risks.
There is no assurance of liquidity in the secondary market for purposes of
closing out futures positions.
Regulatory Restrictions. To the extent required to comply with
Securities and Exchange Commission Release No. IC-10666, when purchasing a
futures contract or writing a put option, the Pennsylvania Bond Fund will
maintain in a segregated account cash or liquid high-grade securities equal to
the value of such contracts.
To the extent required to comply with Commodity Futures Trading
Commission Regulation 4.5 and thereby avoid being classified as a "commodity
pool operator," the Pennsylvania Bond Fund will not enter into a futures
contract or purchase an option thereon if immediately thereafter the initial
margin deposits for futures contracts held by such Fund plus premiums paid by it
for open options on futures would exceed 5% of the liquidation value of such
Fund's total assets after taking into account unrealized profits and unrealized
losses on any contracts entered into. The Pennsylvania Bond Fund will not engage
in transactions in futures contracts or options thereon for speculation, but
only to attempt to hedge against changes in market conditions affecting the
values of securities which such Fund holds or intends to purchase.
Securities of Other Investment Companies. Each Fund may invest in
securities issued by other investment companies. Each Fund currently intends to
limit its investments so that, as determined immediately after a securities
purchase is made: (a)
B-14
<PAGE> 120
not more than 5% of the value of its total assets will be invested in the
securities of any one investment company; (b) not more than 10% of the value of
its total assets will be invested in the aggregate in securities of investment
companies as a group; and (c) not more than 3% of the outstanding voting stock
of any one investment company will be owned by such Fund. As a shareholder of
another investment company, a Fund would bear, along with other shareholders,
its pro rata portion of that company's expenses, including advisory fees. These
expenses would be in addition to the advisory and other expenses that such Fund
bears directly in connection with its own operations. Investment companies in
which Pennsylvania Bond Fund may investment may also impose a sales or
distribution charge in connection with the purchase or redemption of their
shares and other types of commissions or charges. Such charges will be payable
by such Fund and, therefore, will be borne directly by shareholders of such
Fund.
Investment Restrictions
The Funds' investment objectives are non-fundamental policies and may
be changed without a vote of the shareholders of the applicable Fund. In
addition to the fundamental investment policies listed in the Prospectuses, the
following investment restrictions may be changed only by a vote of the majority
of the outstanding Shares of a Fund (as defined under "ADDITIONAL INFORMATION -
Vote of a Majority of the Outstanding Shares").
In addition to the investment restrictions set forth in the Prospectus,
each Fund may not:
1. Purchase securities on margin, except for use of short- term
credit necessary for clearance of purchases of portfolio securities and except
as may be necessary to make margin payments in connection with derivative
securities transactions;
2. Underwrite the securities issued by other persons, except to
the extent that the Fund may be deemed to be an underwriter under certain
securities laws in the disposition of "restricted securities;"
3. Purchase or sell real estate (although investments in
marketable securities of companies engaged in such activities and securities
secured by real estate or interests therein are not prohibited by this
restriction); and
4. Purchase or sell commodities or commodities contracts, except
to the extent disclosed in the current Prospectus of such Fund.
B-15
<PAGE> 121
The following additional investment restrictions may be changed without
the vote of a majority of the outstanding Shares of the Funds. Each Fund may
not:
1. Purchase securities of other investment companies, except (a)
in connection with a merger, consolidation, acquisition or reorganization, and
(b) to the extent permitted by the 1940 Act, or pursuant to any exemptions
therefrom;
2. Purchase or retain the securities of an issuer if the officers
or trustees of the Group, or the officers or directors of the Adviser, who each
owns beneficially more than .5% of the outstanding securities of such issuer,
together own beneficially more than 5% of such securities; and
3. Mortgage or hypothecate the Fund's assets in excess of
one-third of such Fund's total assets.
Furthermore, the Money Market Fund may not engage in any short sales.
In addition, the Pennsylvania Bond Fund may not engage in short sales of any
securities at any time if, immediately after and as a result of the short sale,
the market value of securities sold short by the Pennsylvania Bond Fund would
exceed 25% of the value of the Pennsylvania Bond Fund's total assets.
If any percentage restriction or requirement described above is
satisfied at the time of investment, a later increase or decrease in such
percentage resulting from a change in asset value will not constitute a
violation of such restriction or requirement. However, should a change in net
asset value or other external events cause a Fund's investments in illiquid
securities, repurchase agreements with maturities in excess of seven days and
other instruments in such Fund which are not readily marketable to exceed the
limit set forth in that Fund's Prospectus for its investment in illiquid
securities, such Fund will act to cause the aggregate amount of such securities
to come within such limit as soon as reasonably practicable. In such an event,
however, no Fund would be required to liquidate any portfolio securities where
such Fund would suffer a loss on the sale of such securities.
Portfolio Turnover
The portfolio turnover rate for each Fund is calculated by dividing the
lesser of a Fund's purchases or sales of portfolio securities for the year by
the monthly average value of the portfolio securities. The Commission requires
that the calculation exclude all securities whose remaining maturities at the
time of acquisition were one year or less.
Because the Money Market Fund intends to invest substantially all of
its assets in securities with maturities of less than one
B-16
<PAGE> 122
year and because the Commission requires such securities to be excluded from the
calculation of portfolio turnover rate, the portfolio turnover with respect to
the Money Market Fund is expected to be no greater than 10%.
The portfolio turnover rate for the Pennsylvania Bond Fund for its
first fiscal period ending June 30, 1997, is estimated to be less than 100%. The
portfolio turnover rate for the Pennsylvania Bond Fund may vary greatly from
year to year as well as within a particular year, and may also be affected by
cash requirements for redemptions of Shares. High portfolio turnover rates will
generally result in higher transaction costs, including brokerage commissions,
to the Pennsylvania Bond Fund and may result in additional tax consequences to
the Pennsylvania Bond Fund's Shareholders. Portfolio turnover will not be a
limiting factor in making investment decisions.
NET ASSET VALUE
The Money Market Fund has elected to use the amortized cost method of
valuation pursuant to Rule 2a-7 under the 1940 Act. This involves valuing an
instrument at its cost initially and thereafter assuming a constant amortization
to maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. This method may result in
periods during which value, as determined by amortized cost, is higher or lower
than the price the Money Market Fund would receive if it sold the instrument.
The value of securities in the Money Market Fund can be expected to vary
inversely with changes in prevailing interest rates.
Pursuant to Rule 2a-7, the Money Market Fund will maintain a
dollar-weighted average portfolio maturity appropriate to the Money Market
Fund's objective of maintaining a stable net asset value per share, provided
that the Money Market Fund will not purchase any security with a remaining
maturity of more than 397 days (thirteen months) (securities subject to
repurchase agreements may bear longer maturities) nor maintain a dollar-weighted
average portfolio maturity which exceeds 90 days. The Group's Board of Trustees
has also undertaken to establish procedures reasonably designed, taking into
account current market conditions and the investment objective of the Money
Market Fund, to stabilize the net asset value per share of the Money Market Fund
for purposes of sales and redemptions at $1.00. These procedures include review
by the Trustees, at such intervals as they deem appropriate, to determine the
extent, if any, to which the net asset value per share of the Money Market Fund
calculated by using available market quotations deviates from $1.00 per Share.
In the event such deviation exceeds one-half of one percent, Rule 2a-7 requires
that the Board of Trustees promptly consider what action, if any, should be
B-17
<PAGE> 123
initiated. If the Trustees believe that the extent of any deviation from the
Money Market Fund's $1.00 amortized cost price per Share may result in material
dilution or other unfair results to new or existing investors, they will take
such steps as they consider appropriate to eliminate or reduce, to the extent
reasonably practicable, any such dilution or unfair results. These steps may
include selling portfolio instruments prior to maturity, shortening the average
portfolio maturity, withholding or reducing dividends, reducing the number of
the Money Market Fund's outstanding Shares without monetary consideration, or
utilizing a net asset value per share determined by using available market
quotations.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds are sold on a continuous basis by BISYS, and BISYS
has agreed to use appropriate efforts to solicit all purchase orders. In
addition to purchasing Shares directly from BISYS, Shares may be purchased
through procedures established by BISYS in connection with the requirements of
accounts at the Adviser or the Adviser's affiliated entities (collectively,
"Entities"). Customers purchasing Shares of the Funds may include officers,
directors, or employees of the Adviser or the Entities.
The Group may suspend the right of redemption or postpone the date of
payment for Shares during any period when (a) trading on the Exchange is
restricted by applicable rules and regulations of the Commission, (b) the
Exchange is closed for other than customary weekend and holiday closings, (c)
the Commission has by order permitted such suspension, or (d) an emergency
exists as a result of which (i) disposal by the Group of securities owned by it
is not reasonably practical, or (ii) it is not reasonably practical for the
Group to determine the fair value of its net assets.
MANAGEMENT OF THE GROUP
Trustees and Officers
Overall responsibility for management of the Group rests with its Board
of Trustees. The Trustees elect the officers of the Group to supervise actively
its day-to-day operations.
The names of the Trustees and officers of the Group, their addresses,
and principal occupations during the past five years are as follows:
B-18
<PAGE> 124
Position(s) Held Principal Occupation
Name, Address and Age With the Group During Past 5 Years
- --------------------- ---------------- --------------------
Walter B. Grimm* Chairman, From June, 1992 to present,
3435 Stelzer Road President and employee of BISYS Fund
Columbus, Ohio 43219 Trustee Services Limited Partnership
Age: 51 (formerly The Winsbury
Company); from July, 1981 to
June, 1992, President of
Leigh Investments Consulting
(investment firm).
Nancy E. Converse* Trustee and Since June, 1990, employee of
3435 Stelzer Road Assistant BISYS Fund Services Limited
Columbus, Ohio 43219 Secretary Partnership (formerly The
Age: 47 Winsbury Company) or BISYS
Fund Services Ohio, Inc.
(formerly The Winsbury
Service Corporation).
Maurice G. Stark Trustee Consultant; from 1979 to
7662 Cloister Drive December, 1994, Vice
Columbus, Ohio 43235 President-Finance and Chief
Age: 61 Financial Officer, Battelle
Memorial Institute
(scientific research and
development service
corporation).
James H. Woodward, Ph.D. Trustee Since July 1991, Chancellor
The University of North of The University of North
Carolina at Charlotte Carolina at Charlotte.
Charlotte, NC 28223
Age: 56
Chalmers P. Wylie Trustee From April, 1993 to present,
754 Stonewood Court of Counsel with Emens,
Columbus, Ohio 43235 Kegler, Brown, Hill & Ritter
Age: 75 (law firm); from January,
1993 to present, Adjunct
Professor at The Ohio State
University; from January,
1967 to January, 1993, Member
of the United States House of
Representatives for the 15th
District.
J. David Huber Vice President Since January, 1996,
3435 Stelzer Road President of BISYS Fund
Columbus, Ohio 43219 Services Division of BISYS
Age: 50 Fund Services Limited
Partnership; from June, 1987
to December, 1995, employee
of BISYS Fund Services
Limited Partnership (formerly
The Winsbury Company); from
September, 1988 to present,
Vice President of BISYS Fund
Services Ohio, Inc. (formerly
The Winsbury Service
Corporation).
B-19
<PAGE> 125
William J. Tomko Vice President From April, 1987 to present,
3435 Stelzer Road employee of BISYS Fund
Columbus, Ohio 43219 Services Limited Partnership
Age: 37 (formerly The Winsbury
Company).
Stephen G. Mintos Treasurer From January, 1987 to
3435 Stelzer Road present, employee of BISYS
Columbus, Ohio 43219 Fund Services Limited
Age: 42 Partnership (formerly The
Winsbury Company).
George Stevens Secretary From September, 1996 to
3435 Stelzer Road present, employee of BISYS
Columbus, Ohio 43219 Fund Services Limited
Age: 45 Partnership; from September,
1995 to August, 1996,
consultant on bank investment
products and activities; from
June 1980 to September, 1995,
employee of AmSouth Bank.
Alaina V. Metz Assistant From June, 1995 to present,
3435 Stelzer Road Secretary employee of BISYS Fund
Columbus, Ohio 43219 Services Limited Partnership;
Age: 29 prior to June, 1995,
supervisor at Alliance
Capital Management, L.P.
(investment management firm).
- -------------------
*Mr. Grimm and Ms. Converse are each considered to be an "interested
person" of the Group as defined in the 1940 Act.
As of the date of this Statement of Additional Information, the Group's
officers and Trustees, as a group, own less than 1% of either Fund's Shares.
No officer or employee of BISYS or BISYS Fund Services, Inc. receives
any compensation from the Group for acting as 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 each Fund for acting as
Administrator and may receive fees pursuant to the Administrative Services Plan
described below. BISYS Fund Services, Inc. receives fees from the Funds for
acting as transfer agent and for providing certain fund accounting services.
Messrs. Grimm, Huber, Mintos, Tomko and Stevens, Ms. Converse and Ms. Metz are
employees of BISYS.
The following table sets forth information regarding all compensation
paid by the Group to its Trustees for their services as trustees during the
fiscal year ended June 30, 1996. The Group has no pension or retirement plans.
B-20
<PAGE> 126
COMPENSATION TABLE
<TABLE>
<CAPTION>
Aggregate Total Compensation
Name and Position Compensation From the Group
With the Group From the Group and the Fund Complex*
- -------------- -------------- ---------------------
<S> <C> <C>
Walter B. Grimm $ 0 $ 0
Trustee
Nancy E. Converse $ 0 $ 0
Trustee
Maurice G. Stark $7,772.17 $7,772.17
Trustee
Michael M. VanBuskirk(1) $7,772.17 $7,772.17
Trustee
James H. Woodward, Ph.D $ 0 $ 0
Trustee
Chalmers P. Wylie $7,772.17 $7,772.17
Trustee
</TABLE>
*For purposes of this Table, Fund Complex means one or more mutual
funds, including the Funds, which have a common investment adviser or affiliated
investment advisers or which hold themselves out to the public as being related.
(1) Mr. VanBuskirk resigned his position as a trustee of the Group
effective May 3, 1996.
Ms. Converse and Dr. Woodward were elected trustees of the Group on
June 28, 1996.
Investment Adviser
Investment advisory and management services are provided to the Funds
by Martindale Andres & Company, Inc. (the "Adviser"), pursuant to an Investment
Advisory Agreement dated as of July 9, 1996, as amended as of January 29, 1997.
Under the Investment Advisory Agreement, the Adviser has agreed to provide
investment advisory services as described in the Prospectuses. For the services
provided and expenses assumed pursuant to the Investment Advisory Agreement, the
Money Market Fund pays the Adviser a fee, computed daily and paid monthly, at
the annual rate of forty one-hundredths of one percent (.40%) of the average
daily net assets of the Money Market Fund, and the Pennsylvania Bond Fund pays
the
B-21
<PAGE> 127
Adviser a fee, computed daily and paid monthly, at the annual rate of sixty
one-hundredths of one percent (.60%) of the average daily net assets of the
Pennsylvania Bond Fund. Pursuant to such Investment Advisory Agreement, the
Adviser also provides investment advisory and management services to three other
funds of the Group: The KeyPremier Established Growth Fund (the "Established
Growth Fund"), The KeyPremier Intermediate Term Income Fund (the "Income Fund"),
and The KeyPremier Aggressive Growth Fund (the "Aggressive Growth Fund"). The
Established Growth Fund pays the Adviser a fee, computed daily and paid monthly,
at the annual rate of seventy-five one-hundredths of one percent (.75%) of the
average daily net assets of the Established Growth Fund; the Income Fund pays
the Adviser a fee, computed daily and paid monthly, at the annual rate of sixty
one-hundredths of one percent (.60%) of the average daily net assets of that
Fund; and the Aggressive Growth Fund pays the Adviser a fee, computed daily and
paid monthly, at the annual rate of one percent (1.00%) of the average daily net
assets of the Aggressive Growth Fund. The Adviser may from time to time
voluntarily reduce all or a portion of its advisory fee with respect to a Fund
to increase the net income of that Fund available for distribution as dividends.
For the year ended June 30, 1996, the Adviser had not received any
compensation under the Advisory Agreement since neither Fund had yet commenced
operations.
Unless sooner terminated, the Investment Advisory Agreement will
continue in effect with respect to a Fund until July 9, 1998, and from year to
year thereafter, for successive annual periods ending on July 9th, if, as to
that Fund, such continuance is approved at least annually by the Group's Board
of Trustees or by vote of a majority of the outstanding Shares of that Fund (as
defined under "GENERAL INFORMATION - Miscellaneous" in such Fund's Prospectus),
and a majority of the Trustees who are not parties to the Investment Advisory
Agreement or interested persons (as defined in the 1940 Act) of any party to the
Investment Advisory Agreement by votes cast in person at a meeting called for
such purpose. The Investment Advisory Agreement is terminable as to a Fund at
any time on 60 days' written notice without penalty by the Trustees, by vote of
a majority of the outstanding Shares of that Fund, or by the Adviser. The
Investment Advisory Agreement also terminates automatically in the event of any
assignment, as defined in the 1940 Act.
The Investment Advisory Agreement provides that the Adviser shall not
be liable for any error of judgment or mistake of law or for any loss suffered
by a Fund in connection with the performance of the Investment Advisory
Agreement, except a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith, or gross negligence on the part of the Adviser in the
B-22
<PAGE> 128
performance of its duties, or from reckless disregard by the Adviser of its
duties and obligations thereunder.
The Adviser has agreed that the Funds and the Group may use the name
"KeyPremier" on a royalty-free basis and the Adviser has reserved to itself the
right to grant the non-exclusive right to use the name "KeyPremier" to any other
person. At such time as the Investment Advisory Agreement is no longer in
effect, the Adviser may require the Funds to cease using the name "KeyPremier."
Portfolio Transactions
Pursuant to the Investment Advisory Agreement, the Adviser determines,
subject to the general supervision of the Board of Trustees of the Group and in
accordance with the Funds' investment objectives and restrictions, which
securities are to be purchased and sold by each Fund, and which brokers and
dealers are to be eligible to execute the Funds' portfolio transactions.
Purchases and sales of portfolio securities with respect to a Fund usually are
principal transactions in which portfolio securities are normally purchased
directly from the issuer or from an underwriter or market maker for the
securities. Purchases from underwriters of portfolio securities generally
include a commission or concession paid by the issuer to the underwriter, and
purchases from dealers serving as market makers may include the spread between
the bid and asked price. Transactions in the over-the-counter market are
generally principal transactions with dealers. With respect to the
over-the-counter market, the Group, where possible, will deal directly with
dealers who make a market in the securities involved except in those
circumstances where better price and execution are available elsewhere.
Allocation of transactions, including their frequency, to various
brokers and dealers is determined by the Adviser in its best judgment and in a
manner deemed fair and reasonable to Shareholders. The primary consideration is
prompt execution of orders in an effective manner at the most favorable price.
Subject to this consideration, brokers and dealers who provide supplemental
investment research to the Adviser may receive orders for transactions on behalf
of the Funds. The Adviser is authorized to pay a broker-dealer who provides such
brokerage and research services a commission for executing each such Fund's
brokerage transactions which is in excess of the amount of commission another
broker would have charged for effecting that transaction if, but only if, the
Adviser determines in good faith that such commission was reasonable in relation
to the value of the brokerage and research services provided by such broker
viewed in terms of that particular transaction or in terms of all of the
accounts over which it exercises investment discretion. Any such research and
other statistical and factual information provided by brokers to a Fund or to
the Adviser is considered to be in addition to and not
B-23
<PAGE> 129
in lieu of services required to be performed by the Adviser under its agreement
regarding management of the Funds. The cost, value and specific application of
such information are indeterminable and hence are not practicably allocable
among the Funds and other clients of the Adviser who may indirectly benefit from
the availability of such information. Similarly, the Funds may indirectly
benefit from information made available as a result of transactions effected for
such other clients. Under the Investment Advisory Agreement, the Adviser is
permitted to pay higher brokerage commissions for brokerage and research
services in accordance with Section 28(e) of the Securities Exchange Act of
1934. In the event the Adviser does follow such a practice, it will do so on a
basis which it believes is fair and equitable to the Group and the Funds.
Except as otherwise disclosed to the Shareholders of the Funds and as
permitted by applicable laws, rules and regulations, the Group will not, on
behalf of a Fund, execute portfolio transactions through, acquire portfolio
securities issued by, make savings deposits in, or enter into repurchase or
reverse repurchase agreements with the Adviser, Keystone, BISYS, or their
affiliates, and will not give preference to the Adviser's or Keystone's
correspondents with respect to such transactions, securities, savings deposits,
repurchase agreements, and reverse repurchase agreements.
Investment decisions for each Fund are made independently from those
for other funds of the Group or any other investment company or account managed
by the Adviser. Any such other fund, investment company or account may also
invest in the same securities as the Group on behalf of a Fund. When a purchase
or sale of the same security is made at substantially the same time on behalf of
a Fund and another fund of the Group, investment company or account, the
transaction will be averaged as to price and available investments will be
allocated as to amount in a manner which the Adviser believes to be equitable to
the Fund and such other fund, investment company or account. In some instances,
this investment procedure may adversely affect the price paid or received by a
Fund or the size of the position obtained by a Fund. To the extent permitted by
law, the Adviser may aggregate the securities to be sold or purchased for a Fund
with those to be sold or purchased for other funds of the Group, investment
companies or accounts in order to obtain best execution. As provided by the
Investment Advisory Agreement, in making investment recommendations for the
Funds, the Adviser will not inquire or take into consideration whether an issuer
of securities proposed for purchase or sale by the Group is a customer of the
Adviser, its parent or its subsidiaries or affiliates and, in dealing with its
customers, the Adviser, its parent, subsidiaries, and affiliates will not
inquire or take into
B-24
<PAGE> 130
consideration whether securities of such customers are held by the Funds or any
other fund of the Group.
Glass-Steagall Act
In 1971, the United States Supreme Court held in Investment Company
Institute v. Camp that the Federal statute commonly referred to as the
Glass-Steagall Act prohibits a national bank from operating a mutual fund for
the collective investment of managing agency accounts. Subsequently, the Board
of Governors of the Federal Reserve System (the "Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision: (a)
forbid a bank holding company registered under the Federal Bank Holding Company
Act of 1956 (the "Holding Company Act") or any non-bank affiliate thereof from
sponsoring, organizing, or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a holding company or affiliate from acting as investment adviser, transfer
agent, and custodian to such an investment company. In 1981, the United States
Supreme Court held in Board of Governors of the Federal Reserve System v.
Investment Company Institute that the Board did not exceed its authority under
the Holding Company Act when it adopted its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisers to registered closed-end investment companies. In the Board
of Governors case, the Supreme Court also stated that if a national bank
complied with the restrictions imposed by the Board in its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisers to investment companies, a national bank
performing investment advisory services for an investment company would not
violate the Glass-Steagall Act.
The Adviser believes that it possesses the legal authority to perform
the services for the Funds contemplated by the Prospectuses, this Statement of
Additional Information and the Investment Advisory Agreement without violation
of applicable statutes and regulations. Future changes in either Federal or
state statutes and regulations relating to the permissible activities of banks
or bank holding companies and the subsidiaries or affiliates of those entities,
as well as further judicial or administrative decisions or interpretations of
present and future statutes and regulations, could prevent or restrict the
Adviser from continuing to perform such services for the Group. In addition,
current state securities laws on the issue of the registration of banks as
brokers or dealers may differ from the interpretation of federal law, and banks
and financial institutions may be required to register as dealers pursuant to
the laws of a specific state. Depending upon the nature of any changes in the
services which could be provided by the Adviser, the Board of Trustees of the
Group would review the
B-25
<PAGE> 131
Group's relationship with the Adviser and consider taking all action necessary
in the circumstances.
Should future legislative, judicial, or administrative action prohibit
or restrict the proposed activities of the Adviser and/or the Adviser's
affiliated and correspondent banks in connection with Customer purchases of
Shares of a Fund, those banks might be required to alter materially or
discontinue the services offered by them to Customers. It is not anticipated,
however, that any change in the Group's method of operations would affect its
net asset value per share or result in financial losses to any Customer.
Administrator
BISYS serves as administrator (the "Administrator") to the Funds
pursuant to a Management and Administration Agreement dated July 9, 1996, as
amended as of January 29, 1997 (the "Administration Agreement"). The
Administrator assists in supervising all operations of the Funds (other than
those performed by the Adviser under the Investment Advisory Agreement, by The
Bank of New York under the Custody Agreement and by BISYS Fund Services, Inc.
under the Transfer Agency Agreement and Fund Accounting Agreement). The
Administrator is a broker-dealer registered with the Commission, and is a member
of the National Association of Securities Dealers, Inc. The Administrator
provides financial services to institutional clients.
Under the Administration Agreement, the Administrator has agreed to
maintain office facilities; furnish statistical and research data, clerical,
certain bookkeeping services and stationery and office supplies; prepare the
periodic reports to the Commission on Form N-SAR or any replacement forms
therefor; compile data for, prepare for execution by the Funds and file all of
the Funds' federal and state tax returns and required tax filings other than
those required to be made by the Funds' custodian and Transfer Agent; prepare
compliance filings pursuant to state securities laws with the advice of the
Group's counsel; assist to the extent requested by the Group with the Group's
preparation of its Annual and Semi-Annual Reports to Shareholders and its
Registration Statement (on Form N-1A or any replacement therefor); compile data
for, prepare and file timely Notices to the Commission required pursuant to Rule
24f-2 under the 1940 Act; keep and maintain the financial accounts and records
of the Funds, including calculation of daily expense accruals; determine the
actual variance from $1.00 of the Money Market Fund's net asset value per share;
and generally assist in all aspects of the Funds' operations other than those
performed by the Adviser under the Investment Advisory Agreement, by The Bank of
New York under the Custody Agreement and by BISYS Fund Services, Inc. under the
Transfer Agency Agreement and Fund Accounting Agreement. Under the
Administration Agreement, the
B-26
<PAGE> 132
Administrator may delegate all or any part of its responsibilities thereunder.
The Administrator receives a fee from each Fund for its services as
Administrator and expenses assumed pursuant to the Administration Agreement,
equal to a fee, calculated daily and paid periodically, at the annual rate equal
to eleven and one-half one-hundredths of one percent (.115%) of that Fund's
average daily net assets.
For the fiscal year ended June 30, 1996, the Administrator had not
received any compensation under the Administration Agreement since neither of
the Funds had yet commenced operations.
Unless sooner terminated as provided therein, the Administration
Agreement has an initial term expiring on July 9, 1999, and thereafter shall be
renewed automatically for successive one-year terms, unless written notice not
to renew is given by the non-renewing party to the other party at least 60 days
prior to the expiration of the then-current term. The Administration Agreement
is terminable with respect to a Fund upon mutual agreement of the parties to the
Administration Agreement; through a failure to renew at the end of a one-year
term; upon 180 days' written notice by the Group after the initial term but only
in connection with the reorganization of the Funds into another registered
management investment company; and for cause (as defined in the Administration
Agreement) by the party alleging cause, on not less than 60 days' notice by the
Group's Board of Trustees or by the Administrator.
The Administration Agreement provides that the Administrator shall not
be liable for any error of judgment or mistake of law or any loss suffered by a
Fund in connection with the matters to which the Administration Agreement
relates, except a loss resulting from willful misfeasance, bad faith, or
negligence in the performance of its duties, or from the reckless disregard by
the Administrator of its obligations and duties thereunder.
Distributor
BISYS serves as agent for each Fund in the distribution of its Shares
pursuant to a Distribution Agreement dated July 9, 1996, as amended as of
January 29, 1997 (the "Distribution Agreement"). Unless otherwise terminated,
the Distribution Agreement has an initial term expiring on July 9, 1998, and
thereafter shall be renewed automatically for successive annual periods ending
July 9th if approved at least annually (i) by the Group's Board of Trustees or
by the vote of a majority of the outstanding Shares of the Funds, and (ii) by
the vote of a majority of the Trustees of the Group who are not parties to the
Distribution Agreement or interested persons (as defined in the 1940 Act) of any
party to the Distribution Agreement, cast in person at a meeting called for the
B-27
<PAGE> 133
purpose of voting on such approval. The Distribution Agreement may be
terminated in the event of any assignment, as defined in the 1940 Act.
In its capacity as Distributor, BISYS solicits orders for the sale of
Shares, advertises and pays the costs of advertising, office space and the
personnel involved in such activities. BISYS receives no compensation under the
Distribution Agreement with the Group but may retain all or a portion of any
sales charge imposed upon a purchase of Shares.
Administrative Services Plan
As described in the Prospectuses, the Group has also adopted an
Administrative Services Plan (the "Services Plan") under which each Fund is
authorized to pay certain financial institutions, including the Adviser, its
correspondent and affiliated banks, and BISYS (a "Service Organization"), to
provide certain ministerial, record keeping, and administrative support services
to their customers who own of record or beneficially Shares in the Funds.
Payments to such Service Organizations are made pursuant to Servicing Agreements
between the Group and the Service Organization. The Services Plan authorizes
each Fund to make payments to Service Organizations in an amount, on an annual
basis, of up to 0.25% of the average daily net asset value of that Fund. The
Services Plan has been approved by the Board of Trustees of the Group, including
a majority of the Trustees who are not interested persons of the Group (as
defined in the 1940 Act) and who have no direct or indirect financial interest
in the operation of the Services Plan or in any Servicing Agreements thereunder
(the "Disinterested Trustees"). The Services Plan may be terminated as to a Fund
by a vote of a majority of the Disinterested Trustees. The Trustees review
quarterly a written report of the amounts expended pursuant to the Services Plan
and the purposes for which such expenditures were made. The Services Plan may be
amended by a vote of the Trustees, provided that any material amendments also
require the vote of a majority of the Disinterested Trustees. For so long as the
Services Plan is in effect, selection and nomination of those Disinterested
Trustees shall be committed to the discretion of the Group's Disinterested
Trustees. All Servicing Agreements may be terminated at any time without the
payment of any penalty by a vote of a majority of the Disinterested Trustees.
The Services Plan will continue in effect for successive one-year periods,
provided that each such continuance is specifically approved by a majority of
the Board of Trustees, including a majority of the Disinterested Trustees. As of
the date hereof, there are no Servicing Agreements in place with respect to the
Funds.
B-28
<PAGE> 134
Custodian
The Bank of New York, 48 Wall Street, New York, New York, 10286, serves
as custodian (the "Custodian") to the Funds pursuant to the Custody Agreement
dated as of July 9, 1996, as amended as of January 29, 1997. The Custodian's
responsibilities include safeguarding and controlling each Fund's cash and
securities, handling the receipt and delivery of securities, and collecting
interest and dividends on each Fund's investments.
Transfer Agency and Fund Accounting Services
BISYS Fund Services, Inc. serves as transfer agent and dividend
disbursing agent (the "Transfer Agent") for the Funds pursuant to the Transfer
Agency Agreement dated July 9, 1996, as amended as of January 29, 1997. Pursuant
to such Agreement, the Transfer Agent, among other things, performs the
following services in connection with the Funds' shareholders of record:
maintenance of shareholder records for each of the Funds' Shareholders of
record; processing shareholder purchase and redemption orders; processing
transfers and exchanges of Shares of the Funds on the Shareholder files and
records; processing dividend payments and reinvestments; and assistance in the
mailing of Shareholder reports and proxy solicitation materials. For such
services the Transfer Agent receives a fee based on the number of shareholders
of record. For the fiscal year ended June 30, 1996, the Transfer Agent received
no compensation from the Group for services as transfer agent for the Funds
since the Funds had not yet commenced operations.
In addition, BISYS Fund Services, Inc. provides certain fund accounting
services to each of the Funds pursuant to a Fund Accounting Agreement dated July
9, 1996, as amended as of January 29, 1997. BISYS Fund Services, Inc. receives a
fee from each Fund for such services equal to the greater of (a) a fee computed
at an annual rate of three one-hundredths of one percent (.03%) of that Fund's
average daily net assets, or (b) the annual fee of $30,000 for the Money Market
Fund and $35,000 for the Pennsylvania Bond Fund. Under such Agreement, BISYS
Fund Services, Inc. maintains the accounting books and records for the Funds,
including journals containing an itemized daily record of all purchases and
sales of portfolio securities, all receipts and disbursements of cash and all
other debits and credits, general and auxiliary ledgers reflecting all asset,
liability, reserve, capital, income and expense accounts, including interest
accrued and interest received, and other required separate ledger accounts;
maintains a monthly trial balance of all ledger accounts; performs certain
accounting services for the Funds, including calculation of the net asset value
per share, calculation of the dividend and capital gain distributions, if any,
and of yield, reconciliation of cash movements with the Funds' custodian,
affirmation to the Funds'
B-29
<PAGE> 135
custodian of all portfolio trades and cash settlements, verification and
reconciliation with the Funds' custodian of all daily trade activity; provides
certain reports; obtains dealer quotations, prices from a pricing service or
matrix prices on all portfolio securities in order to mark the portfolio to the
market; and prepares an interim balance sheet, statement of income and expense,
and statement of changes in net assets for the Funds.
Unless sooner terminated as provided therein, the Fund Accounting
Agreement has an initial term expiring on July 9, 1999, and thereafter shall be
renewed automatically for successive one-year terms, unless written notice not
to renew is given by the nonrenewing party to the other party at least 60 days
prior to the expiration of the then-current term. The Fund Accounting Agreement
is terminable with respect to a Fund upon mutual agreement of the parties to the
Fund Accounting Agreement; upon 180 days' written notice by the Group after the
initial term but only in connection with the reorganization of the Funds into
another registered management investment company; and for cause (as defined in
the Fund Accounting Agreement) by the party alleging cause, on not less than 60
days' notice by the Group's Board of Trustees or by BISYS Fund Services, Inc.
The Fund Accounting Agreement provides that BISYS Fund Services, Inc.
shall not be liable for any error of judgment or mistake of law or any loss
suffered by a Fund in connection with the matters to which the Fund Accounting
Agreement relates, except a loss resulting from willful misfeasance, bad faith,
or negligence in the performance of its duties, or from the reckless disregard
by BISYS Fund Services, Inc. of its obligations and duties thereunder.
For the fiscal year ended June 30, 1996, BISYS Fund Services, Inc.
earned no fees with respect to its fund accounting services to the Funds since
the Funds had not yet commenced operations.
Auditors
KPMG Peat Marwick LLP, Two Nationwide Plaza, Columbus, Ohio 43215, has
been selected as the independent auditors for the Funds and as such will audit
the financial statements of the Funds for the periods as of and ending June 30,
1997.
Legal Counsel
Baker & Hostetler LLP, 65 East State Street, Columbus, Ohio 43215 is
counsel to the Group and will pass upon the legality of the Shares offered
hereby.
B-30
<PAGE> 136
ADDITIONAL INFORMATION
Description of Shares
The Group is an Ohio business trust. The Group was organized on April
25, 1988, and the Group's Declaration of Trust was filed with the Secretary of
State of Ohio on April 25, 1988. The Declaration of Trust authorizes the Board
of Trustees to issue an unlimited number of shares, which are shares of
beneficial interest, without par value. The Group presently has seventeen series
of shares, one of which represents interests in the Money Market Fund and one of
which represents interests in the Pennsylvania Bond Fund. The other fifteen
series are Riverside Capital Money Market Fund, Riverside Capital Value Equity
Fund, Riverside Capital Fixed Income Fund, Riverside Capital Tennessee Municipal
Obligations Fund, Riverside Capital Low Duration Government Securities Fund,
Riverside Capital Growth Fund, the Established Growth Fund, the Income Fund, the
Aggressive Growth Fund, 1st Source Monogram U.S. Treasury Obligations Money
Market Fund, 1st Source Monogram Diversified Equity Fund, 1st Source Monogram
Income Equity Fund, 1st Source Monogram Special Equity Fund, 1st Source Monogram
Income Fund and 1st Source Monogram Intermediate Tax-Free Bond Fund. The Group's
Declaration of Trust authorizes the Board of Trustees to divide or redivide any
unissued shares of the Group into one or more additional series by setting or
changing in any one or more respects their respective preferences, conversion or
other rights, voting power, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption.
Shares have no subscription or preemptive rights and only such
conversion or exchange rights as the Board of Trustees may grant in its
discretion. When issued for payment as described in the Prospectuses and this
Statement of Additional Information, the Shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of the Group,
shareholders of a fund are entitled to receive the assets available for
distribution belonging to that fund, and a proportionate distribution, based
upon the relative asset values of the respective funds, of any general assets
not belonging to any particular fund which are available for distribution.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Group shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each fund affected by the matter. For purposes of determining whether the
approval of a majority of the outstanding shares of a fund will be required in
connection with a matter, a fund will be deemed to be affected by a matter
unless it is clear that the interests of each
B-31
<PAGE> 137
fund in the matter are identical, or that the matter does not affect any
interest of the fund. Under Rule 18f-2, the approval of an investment advisory
agreement or any change in investment policy would be effectively acted upon
with respect to a fund only if approved by a majority of the outstanding shares
of such fund. However, Rule 18f-2 also provides that the election of Trustees
may be effectively acted upon by shareholders of the Group voting without regard
to series.
As of March 3, 1997, the following is the only entity known to the
Group who owns of record or beneficially 5% or more of the outstanding Shares of
either of the Funds: Keystone Financial, Inc., 1315 Eleventh Avenue, P.O. Box
2450, Altoona, Pennsylvania 16601 owned beneficially and of record 99.86% of the
issued and outstanding Shares of the Money Market Fund and 98.85% of the issued
and outstanding Shares of Pennsylvania Bond Fund.
Vote of a Majority of the Outstanding Shares
As used in the Prospectuses and this Statement of Additional
Information, a "vote of a majority of the outstanding Shares" of a 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 that Fund present at a meeting
at which the holders of more than 50% of the votes attributable to Shareholders
of record of such Fund are represented in person or by proxy, or (b) the holders
of more than 50% of the outstanding votes of Shareholders of that Fund.
Additional General Tax Information
Each of the seventeen funds of the Group is treated as a separate
entity for federal income tax purposes and intends to qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"), for so long as such qualification is in the best interest of that
fund's shareholders. In order to qualify as a regulated investment company, a
Fund must, among other things: derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities, or currencies; derive less than 30% of its gross income from the
sale or other disposition of stock, securities, options, future contracts or
foreign currencies held less than three months; and diversify its investments
within certain prescribed limits. In addition, to utilize the tax provisions
specially applicable to regulated investment companies, a Fund must distribute
to its Shareholders at least 90% of its investment company taxable income for
the year. In general, the Fund's investment company taxable income will be its
taxable income subject to certain adjustments and excluding the excess of any
net long-term capital gain for the taxable year over the net short-term capital
loss, if any, for such year.
B-32
<PAGE> 138
A non-deductible 4% excise tax is imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they otherwise have 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. The balance
of such income must be distributed during the next calendar year. If
distributions during a calendar year were less than the required amount, the
Fund would be subject to a non-deductible excise tax equal to 4% of the
deficiency.
Although each Fund expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all federal income taxes,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
located, or in which it is otherwise deemed to be conducting business, a Fund
may be subject to the tax laws of such states or localities. In addition, if for
any taxable year a Fund does not qualify for the special tax treatment afforded
regulated investment companies, all of its taxable income will be subject to
federal tax at regular corporate rates (without any deduction for distributions
to its Shareholders). In such event, dividend distributions would be taxable to
Shareholders to the extent of earnings and profits, and would be eligible for
the dividends received deduction for corporations.
It is expected that each Fund will distribute annually to Shareholders
all or substantially all of that Fund's net ordinary income and net realized
capital gains and that such distributed net ordinary income and distributed net
realized capital gains will be taxable income to Shareholders for federal income
tax purposes, even if paid in additional Shares of that Fund and not in cash.
Distribution by a Fund of the excess of net long-term capital gain over
net short-term capital loss, if any, is taxable to Shareholders as long-term
capital gain in the year in which it is received, regardless of how long the
Shareholder has held the Shares. Such distributions are not eligible for the
dividends-received deduction.
Federal taxable income of individuals is subject to graduated tax rates
of 15%, 28%, 31%, 36% and 39.6%. Further, the marginal tax rate may be in excess
of 39.6%, because adjustments reduce or eliminate the benefit of the personal
exemption and itemized deductions for individuals with gross income in excess of
certain threshold amounts.
Capital gains of individuals are subject to tax at the same rates
applicable to ordinary income; however, the tax rate on long- term capital gains
of individuals cannot exceed 28%. Capital
B-33
<PAGE> 139
losses may be used to offset capital gains. In addition, individuals may deduct
up to $3,000 of net capital loss each year to offset ordinary income. Excess net
capital loss may be carried forward and deducted in future years.
Federal taxable income of corporations in excess of $75,000 up to $10
million is subject to a 34% tax rate; however, because the benefit of lower tax
rates on a corporation's taxable income of less than $75,000 is phased out for
corporations with income in excess of $100,000 but lower than $335,000, a
maximum marginal tax rate of 39% may result. Federal taxable income of
corporations in excess of $10 million is subject to a tax rate of 35%. Further,
a corporation's federal taxable income in excess of $15 million is subject to an
additional tax equal to 3% of taxable income over $15 million, but not more than
$100,000.
Capital gains of corporations are subject to tax at the same rates
applicable to ordinary income. Capital losses may be used only to offset capital
gains and excess net capital loss may be carried back three years and forward
five years.
Certain corporations are entitled to a 70% dividends received deduction
for distributions from certain domestic corporations. Because all of the Funds'
net investment income is expected to be derived from earned interest, it is
anticipated that no distributions from either Fund will qualify for the 70%
dividends received deduction.
Foreign taxes may be imposed on the Money Market Fund by foreign
countries with respect to its income from foreign securities. Since less than
50% in value of the Money Market Fund's total assets at the end of its fiscal
year are expected to be invested in stocks or securities of foreign
corporations, the Money Market Fund will not be entitled under the Code to pass
through to its Shareholders their pro rata share of the foreign taxes paid by
the Money Market Fund. These taxes will be taken as a deduction by the Money
Market Fund.
Each Fund may be required by federal law to withhold and remit to the
U.S. Treasury 31% of taxable dividends, if any, and capital gain distributions
to any Shareholder, and the proceeds of redemption or the values of any
exchanges of Shares of the Fund, if such Shareholder (1) fails to furnish the
Fund with a correct taxpayer identification number, (2) under-reports dividend
or interest income, or (3) fails to certify to the Fund that he or she is not
subject to such withholding. An individual's taxpayer identification number is
his or her Social Security number.
Information set forth in the Prospectuses and this Statement of
Additional Information which relates to Federal taxation is only a summary of
some of the important Federal tax considerations
B-34
<PAGE> 140
generally affecting purchasers of Shares of the Funds. No attempt has been made
to present a detailed explanation of the Federal income tax treatment of the
Funds or their Shareholders and this discussion is not intended as a substitute
for careful tax planning. Accordingly, potential purchasers of Shares of a Fund
are urged to consult their tax advisers with specific reference to their own tax
situation. In addition, the tax discussion in the Prospectuses and this
Statement of Additional Information is based on tax laws and regulations which
are in effect on the date of the Prospectuses and this Statement of Additional
Information; such laws and regulations may be changed by legislative or
administrative action.
Information as to the Federal income tax status of all distributions
will be mailed annually to each Shareholder.
Additional Tax Information With Respect to the Pennsylvania Bond Fund
The Pennsylvania Bond Fund is not intended to constitute a balanced
investment program and is not designed for investors seeking capital
appreciation or maximum tax-exempt income irrespective of fluctuations in
principal. Shares of the Pennsylvania Bond Fund would not be suitable for
tax-exempt institutions and may not be suitable for retirement plans qualified
under Section 401 of the Code, H.R. 10 plans, and individual retirement
accounts, since such plans and accounts are generally tax-exempt and, therefore,
would not gain any additional benefit from all or a portion of the Pennsylvania
Bond Fund's dividends being tax-exempt and such dividends would be ultimately
taxable to the beneficiaries when distributed to them. In addition, the
Pennsylvania Bond Fund may not be appropriate investments for entities which are
"substantial users," or "related persons" thereof, of facilities financed by
private activity bonds held by the Pennsylvania Bond Fund.
The Code permits a regulated investment company which invests in Exempt
Securities to pay to its Shareholders "exempt-interest dividends," which are
excluded from gross income for federal income tax purposes, if at the close of
each quarter of its taxable year at least 50% of its total assets consist of
Exempt Securities.
An exempt-interest dividend is any dividend or part thereof (other than
a capital gain dividend) paid by the Pennsylvania Bond Fund that is derived from
interest received by the Pennsylvania Bond Fund that is excluded from gross
income for federal income tax purposes, net of certain deductions, provided the
dividend is designated as an exempt-interest dividend in a written notice mailed
to Shareholders not later than sixty days after the close of the Pennsylvania
Bond Fund's taxable year. The percentage of the total dividends paid by the
Pennsylvania Bond Fund during any
B-35
<PAGE> 141
taxable year that qualifies as exempt-interest dividends will be the same for
all Shareholders of the Pennsylvania Bond Fund receiving dividends during such
year. Exempt-interest dividends shall be treated by the Pennsylvania Bond Fund's
Shareholders as items of interest excludable from their gross income for Federal
income tax purposes under Section 103(a) of the Code. However, a Shareholder is
advised to consult his tax adviser with respect to whether exempt-interest
dividends retain the exclusion under Section 103(a) of the Code if such
Shareholder is a "substantial user" or a "related person" to such user under
Section 147(a) of the Code with respect to any of the Exempt Securities held by
the Pennsylvania Bond Fund. 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 shall be
disallowed to the extent of the amount of such exempt-interest dividend.
In general, interest on indebtedness incurred or continued by a
Shareholder to purchase or carry Shares is not deductible for federal income tax
purposes if the Pennsylvania Bond Fund distributes exempt-interest dividends
during the Shareholder's taxable year. A Shareholder of the Pennsylvania Bond
Fund that is a financial institution may not deduct interest expense
attributable to indebtedness incurred or continued to purchase or carry Shares
of the Pennsylvania Bond Fund if the Pennsylvania Bond Fund distributes
exempt-interest dividends during the Shareholder's taxable year. Certain federal
income tax deductions of property and casualty insurance companies holding
Shares of the Pennsylvania Bond Fund and receiving exempt-interest dividends may
also be adversely affected. In certain limited instances, the portion of Social
Security benefits received by a Shareholder which may be subject to federal
income tax may be affected by the amount of tax-exempt interest income,
including exempt-interest dividends received by Shareholders of the Pennsylvania
Bond Fund.
In the event the Pennsylvania Bond Fund realizes long-term capital
gains, the Pennsylvania Bond Fund intends to distribute any realized net
long-term capital gains annually. If the Pennsylvania Bond Fund distributes such
gains, the Pennsylvania Bond Fund will have no tax liability with respect to
such gains, and the distributions will be taxable to Shareholders as long-term
capital gains regardless of how long the Shareholders have held their Shares.
Any such distributions will be designated as a capital gain dividend in a
written notice mailed by the Pennsylvania Bond Fund to the Shareholders not
later than sixty days after the close of the Pennsylvania Bond Fund's taxable
year. It should be noted, however, that capital gains are taxed like ordinary
income except that net capital gains of individuals are subject to a maximum
federal income tax rate of 28%. Net capital gains are the excess of net
long-term capital gains over net short-term capital losses. Any net short-term
capital gains are taxed at ordinary income tax
B-36
<PAGE> 142
rates. If a Shareholder receives a capital gain dividend with respect to any
Share and then sells the Share before he has held it for more than six months,
any loss on the sale of the Share is treated as long-term capital loss to the
extent of the capital gain dividend received.
Interest earned on 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. Since the Pennsylvania
Bond Fund may invest up to 20% of its net assets in municipal securities the
interest on which may be treated as a tax preference item, a portion of the
exempt-interest dividends received by Shareholders from the Pennsylvania Bond
Fund may be treated as tax preference items in computing the alternative minimum
tax to the extent that distributions by the Pennsylvania Bond Fund are
attributable to such obligations. 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
earnings and profits over pre-book alternative minimum taxable income. Adjusted
current earnings and profits would include exempt-interest dividends distributed
by the Pennsylvania Bond Fund to corporate Shareholders. For individuals the
alternative minimum tax rate is 26% on alternative minimum taxable income up to
$175,000 and 28% on the excess of $175,000; for corporations the alternative
minimum tax rate is 20%.
For taxable years of corporations beginning before 1996, the Superfund
Revenue Act of 1986 imposes an additional tax (which is deductible for federal
income tax purposes) on a corporation at a rate of 0.12 of one percent on the
excess over $2,000,000 of such corporation's "modified alternative minimum
taxable income", which would include a portion of the exempt-interest dividends
distributed by the Pennsylvania Bond Fund to such corporation. In addition,
exempt-interest dividends distributed to certain foreign corporations doing
business in the United States could be subject to a branch profits tax imposed
by Section 884 of the Code.
Distributions of exempt-interest dividends by the Pennsylvania Bond
Fund may be subject to state and local taxes even though a substantial portion
of such distributions may be derived from interest on obligations which, if
received directly, would be exempt from such taxes. The Pennsylvania Bond Fund
will report to its Shareholders annually after the close of its taxable year the
percentage and source, on a state-by-state basis, of interest income earned on
municipal obligations held by the Pennsylvania Bond Fund during the preceding
year. Shareholders are advised to consult their tax advisers concerning the
application of state and local taxes.
B-37
<PAGE> 143
As indicated in the Prospectus, the Pennsylvania Bond Fund may acquire
rights regarding specified portfolio securities under puts. See "INVESTMENT
OBJECTIVES AND POLICIES -- Additional Information on Portfolio Instruments -
Puts" in this Statement of Additional Information. The policy of the
Pennsylvania Bond Fund is to limit its acquisition of puts to those under which
it will be treated for federal income tax purposes as the owner of the Exempt
Securities acquired subject to the put and the interest on the Exempt Securities
will be tax-exempt to it. Although the Internal Revenue Service has issued a
published ruling that provides some guidance regarding the tax consequences of
the purchase of puts, there is currently no guidance available from the Internal
Revenue Service that definitively establishes the tax consequences of many of
the types of puts that the Pennsylvania Bond Fund could acquire under the 1940
Act. Therefore, although the Pennsylvania Bond Fund will only acquire a put
after concluding that it will have the tax consequences described above, the
Internal Revenue Service could reach a different conclusion.
Under Section 1256 of the Code, gain or loss realized by the
Pennsylvania Bond Fund from certain financial futures and options transactions
will be treated as 60% long-term capital gain or loss and 40% short-term capital
gain or loss. Gain or loss will arise upon exercise or lapse of such futures and
options as well as from closing transactions. In addition, any such futures and
options remaining unexercised at the end of the Pennsylvania Bond Fund's taxable
year will be treated as sold for their then fair market value, resulting in
additional gain or loss to the Pennsylvania Bond Fund characterized in the
manner described above.
Offsetting positions held by the Pennsylvania Bond Fund involving
certain futures contracts or options transactions may be considered, for tax
purposes, to constitute "straddles." Straddles are defined to include
"offsetting positions" in actively traded personal property. The tax treatment
of straddles is governed by Sections 1092 and 1258 of the Code, which, in
certain circumstances, overrides or modifies the provisions of Section 1256. As
such, all or a portion of any short or long-term capital gain from certain
straddle and/or conversion transactions may be recharacterized as ordinary
income.
If the Pennsylvania Bond Fund were treated as entering into straddles
by reason of its engaging in futures or options transactions, such straddles
would be characterized as "mixed straddles" if the futures or options comprising
a part of such straddles were governed by Section 1256 of the Code. The
Pennsylvania Bond Fund may make one or more elections with respect to mixed
straddles. If no election is made, to the extent the straddle rules apply to
positions established by the Pennsylvania Bond Fund, losses realized by the
Pennsylvania Bond Fund will be deferred to the extent of unrealized gain in any
offsetting
B-38
<PAGE> 144
positions. Moreover, as a result of the straddle and conversion transaction
rules, short-term capital losses on straddle positions may be recharacterized as
long-term capital losses and long-term capital gains may be recharacterized as
short-term capital gain or ordinary income.
Investment by the Pennsylvania Bond Fund in securities issued at a
discount or providing for deferred interest or for payment of interest in the
form of additional obligations could, under special tax rules, affect the
amount, timing and character of distributions to Shareholders. For example, the
Pennsylvania Bond Fund could be required to take into account annually a portion
of the discount (or deemed discount) at which such securities were issued and to
distribute such portion in order to maintain its qualification as a regulated
investment company. In that case, the Pennsylvania Bond Fund may have to dispose
of securities which it might otherwise have continued to hold in order to
generate cash to satisfy these distribution requirements.
Income itself exempt from Federal income taxation may be considered in
addition to taxable income when determining whether Social Security payments
received by a Shareholder are subject to federal income taxation.
Seven-Day Yield of the Money Market Fund
The standardized seven-day yield for the Money Market Fund is computed
by determining the net change, exclusive of capital changes, in the value of a
hypothetical preexisting account in the Money Market Fund having a balance of
one Share at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from Shareholder accounts, and dividing the difference by
the value of the account at the beginning of the base period to obtain the base
period return, and then multiplying the base period return by (365/7). The net
change in the account value of the Money Market Fund includes the value of
additional Shares purchased with dividends from the original Share, dividends
declared on both the original Share and any such additional Shares, and all
fees, other than nonrecurring account or sales charges, that are charged to all
Shareholder accounts in proportion to the length of the base period and assuming
the Money Market Fund's average account size. The capital changes to be excluded
from the calculation of the net change in account value are realized gains and
losses from the sale of securities and unrealized appreciation and depreciation.
The 30-day yield is calculated as described above except that the base period is
30 days rather than seven days.
The effective yield for the Money Market Fund is computed by
compounding the base period return, as calculated above, by adding 1 to the base
period return raising the sum to a power equal to 365 divided by seven and
subtracting 1 from the result.
B-39
<PAGE> 145
For the seven-day period ended December 31, 1996, the seven-day yield
and the seven-day effective yield for the Money Market Fund were 5.15% and
5.28%, respectively. For the 30-day period then ended, the 30-day yield and the
30-day effective yield for the Money Market Fund were 5.08% and 5.20%,
respectively.
Yield of the Pennsylvania Bond Fund
As summarized in the Prospectus under the heading "PERFORMANCE
INFORMATION," the yield of the Pennsylvania Bond Fund is computed by annualizing
net investment income per share for a recent 30-day period and dividing that
amount by the Pennsylvania Bond Fund Share's maximum offering price (reduced by
any undeclared earned income expected to be paid shortly as a dividend) on the
last trading day of that period. Net investment income will reflect amortization
of any market value premium or discount of fixed income securities (except for
obligations backed by mortgages or other assets) and may include recognition of
a pro rata portion of the stated dividend rate of dividend paying portfolio
securities. The yield of the Pennsylvania Bond Fund will vary from time to time
depending upon market conditions, interest rates, the composition of the
Pennsylvania Bond Fund's portfolio and operating expenses of the Group allocated
to the Pennsylvania Bond Fund. These factors and possible differences in the
methods used in calculating yield should be considered when comparing the
Pennsylvania Bond Fund's yield to yields published for other investment
companies and other investment vehicles. Yield should also be considered
relative to changes in the value of the Pennsylvania Bond Fund's Shares and to
the relative risks associated with the investment objectives and policies of the
Pennsylvania Bond Fund.
In addition, tax equivalent yields are computed by dividing that
portion of the Pennsylvania Bond Fund's yield (as computed above) which is
tax-exempt by one minus a stated income tax rate and adding that result to that
portion, if any, of the yield of the Pennsylvania Bond Fund which is not
tax-exempt.
For the 30-day period ended December 31, 1996, the yield and tax
equivalent yield for the Pennsylvania Bond Fund, reflecting imposition of the
maximum sales load, were 4.67% and 7.73%, respectively and without the sales
load, 4.89% and 8.10%, respectively.
Tax-Free vs. Taxable Income
The table below shows the effect, as of the date hereof, of the tax
status of bonds on the tax equivalent yield received by their holders under the
regular Federal income tax and the Pennsylvania Personal Income Tax laws. They
give the approximate yield a taxable security must earn for residents of
Pennsylvania, at various income brackets to produce after-tax yields equivalent
to those of tax exempt bonds yielding varying rates from 4% to 10%. This table,
however, does not reflect the phase out of itemized deductions for certain high
income taxpayers.
B-40
<PAGE> 146
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Single Return $0 - $24,650 $24,650 - $ 59,750 - $124,650 - $271,050 -
59,750 124,650 271,050
- --------------------------------------------------------------------------------------------------------------------------------
Joint Return $0 - $41,200 $41,200 - $ 99,600 - $151,750 - $271,050 -
96,600 151,750 271,050
- --------------------------------------------------------------------------------------------------------------------------------
If your combined
federal and state
tax bracket is... 17.38% 30.02% 32.99% 37.79% 41.29%
- --------------------------------------------------------------------------------------------------------------------------------
And you have a tax- Then you'll be earning the
exempt investment equivalent of a taxable
yielding... investment yielding...
- --------------------------------------------------------------------------------------------------------------------------------
4.00% 4.84% 5.72% 5.97% 6.43% 6.81%
4.50% 5.45% 6.43% 6.72% 7.23% 7.66%
5.00% 6.05% 7.14% 7.46% 8.04% 8.52%
5.50% 6.66% 7.86% 8.21% 8.84% 9.37%
6.00% 7.26% 8.57% 8.95% 9.64% 10.22%
6.50% 7.87% 9.29% 9.70% 10.45% 11.07%
7.00% 8.47% 10.00% 10.45% 11.25% 11.92%
7.50% 9.08% 10.72% 11.19% 12.06% 12.77%
8.00% 9.68% 11.43% 11.94% 12.86% 13.63%
8.50% 10.29% 12.15% 12.68% 13.66% 14.48%
9.00% 10.89% 12.86% 13.43% 14.47% 15.33%
9.50% 11.50% 13.58% 14.18% 15.27% 16.18%
10.00% 12.10% 14.29% 14.92% 16.07% 17.03%
</TABLE>
Calculation of Total Return
As summarized in the Prospectuses under the heading "PERFORMANCE
INFORMATION," average annual total return is a measure of the change in value of
an investment in a Fund over the period covered, which assumes any dividends or
capital gains distributions are reinvested in that Fund immediately rather than
paid to the investor in cash. Average annual total return will be calculated by:
(1) adding to the total number of Shares purchased by a hypothetical $1,000
investment in a Fund (less the maximum sales charge, if any) all additional
Shares which would have been purchased if all dividends and distributions paid
or distributed during the period had been immediately reinvested; (2)
calculating the value of the hypothetical initial investment of $1,000 as of the
end of the period by multiplying the total number of Shares owned at the end of
the period by the net asset value per share on the last trading day of the
period; (3) assuming redemption at the end of the period; and (4) dividing this
account value for the hypothetical investor by the initial $1,000 investment and
annualizing the result for periods of less than one year. A Fund, however, may
also advertise aggregate total return in addition to average annual total
return. Aggregate total return is a measure of the change in value of an
investment in a Fund over the relevant period and is calculated similarly to
average annual total return except that the result is not annualized.
B-41
<PAGE> 147
For the period from commencement of operations (October 7, 1996)
through December 31, 1996, the aggregate total return for the Money Market Fund
was 1.16%. For the period from commencement of operations (October 1, 1996)
through December 31, 1996, the aggregate total return for the Pennsylvania Bond
Fund, reflecting imposition of the maximum sales load, was -2.26%, and,
excluding the maximum sales load, was 2.34%.
Distribution Rates
The Pennsylvania Bond Fund may from time to time advertise current
distribution rates which are calculated in accordance with the method disclosed
in that Fund's Prospectus.
Performance Comparisons
Investors may judge the performance of the Funds by comparing them to
the performance of other mutual funds or mutual fund portfolios with comparable
investment objectives and policies through various mutual fund or market indices
such as those prepared by Dow Jones & Co., Inc. and Standard & Poor's
Corporation and to data prepared by Lipper Analytical Services, Inc., a widely
recognized independent service which monitors the performance of mutual funds.
Comparisons may also be made to indices or data published in Money Magazine,
Forbes, Barron's, The Wall Street Journal, Morningstar, Inc., Ibbotson
Associates, CDA/Wiesenberger, The New York Times, Business Week, U.S.A. Today
and local periodicals. In addition to performance information, general
information about the Funds that appears in a publication such as those
mentioned above may be included in advertisements, sales literature and reports
to shareholders. The Funds may also include in advertisements and reports to
shareholders information discussing the performance of the Adviser in comparison
to other investment advisers and to other institutions.
From time to time, the Group may include the following types of
information in advertisements, supplemental sales literature and reports to
Shareholders: (1) discussions of general economic or financial principles (such
as the effects of inflation, the power of compounding and the benefits of dollar
cost averaging); (2) discussions of general economic trends; (3) presentations
of statistical data to supplement such discussions; (4) descriptions of past or
anticipated portfolio holdings for the Funds; (5) descriptions of investment
strategies for the Funds; (6) descriptions or comparisons of various investment
products, which may or may not include the Funds; (7) comparisons of investment
products (including the Funds) with relevant market or industry indices or other
appropriate benchmarks; (8) discussions of fund rankings or ratings by
recognized rating organizations; and (9) testimonials describing the experience
of persons that have
B-42
<PAGE> 148
invested in a Fund. The Group may also include calculations, such as
hypothetical compounding examples, which describe hypothetical investment
results in such communications. Such performance examples will be based on an
express set of assumptions and are not indicative of the performance of a Fund.
Current yields or total return will fluctuate from time to time and are
not necessarily representative of future results. Accordingly, a Fund's yield or
total return may not provide for comparison with bank deposits or other
investments that pay a fixed return for a stated period of time. Yield and total
return are functions of a Fund's quality, composition and maturity, as well as
expenses allocated to that Fund. Fees imposed upon Customer accounts by the
Adviser, its affiliates or its affiliated or correspondent banks for cash
management services or other services will reduce a Fund's effective yield and
total return to Customers.
Miscellaneous
Individual Trustees are generally elected by the shareholders and,
subject to removal by the vote of two-thirds of the Board of Trustees, serve for
a term lasting until the next meeting of shareholders at which Trustees are
elected. Such meetings are not required to be held at any specific intervals.
Generally, shareholders owning not less than 20% of the outstanding shares of
the Group entitled to vote may cause the Trustees to call a special meeting.
However, the Group has represented to the Commission that the Trustees will call
a special meeting for the purpose of considering the removal of one or more
Trustees upon written request therefor from shareholders owning not less than
10% of the outstanding votes of the Group entitled to vote. 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.
The Group is registered with the Commission as a management investment
company. Such registration does not involve supervision by the Commission of the
management or policies of the Group.
The Prospectuses and this Statement of Additional Information omit
certain of the information contained in the Registration Statement filed with
the Commission. Copies of such information may be obtained from the Commission
upon payment of the prescribed fee.
The Prospectuses and this Statement of Additional Information are not
an offering of the securities herein described in any state in which such
offering may not lawfully be made. No salesman, dealer, or other person is
authorized to give any information or make any representation other than those
contained in the Prospectuses and this Statement of Additional Information.
B-43
<PAGE> 149
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following financial statements are unaudited and contain financial
information regarding two other funds of the Group, The KeyPremier Established
Growth Fund and The KeyPremier Intermediate Term Income Fund. No offer to sell
the shares of these Funds is made hereby or by the Prospectuses.
B-44
<PAGE> 150
THE SESSIONS GROUP
KEYPREMIER FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
INTERMEDIATE
PRIME PENNSYLVANIA ESTABLISHED TERM
MONEY MARKET MUNICIPAL GROWTH INCOME
FUND FUND FUND FUND
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value (cost $102,898,736;
$105,025,259; $101,950,409; and $181,480,352,
respectively)................................... $102,898,736 $106,411,146 $159,249,409 $180,941,609
Repurchase agreements............................. -- -- -- --
------------ ------------ ------------ ------------
Total Investments........................... 102,898,736 106,411,146 159,249,409 180,941,609
Cash.............................................. 2,074,272 -- -- --
Interest and dividends receivable................. -- 1,793,446 216,304 1,966,629
Income and other receivables...................... -- 764 -- --
Receivable from brokers for investments sold...... -- 247,500 -- 7,441,875
Unamortized organization costs.................... 20,589 22,020 17,839 21,079
Prepaid expenses and other assets................. 2,912 2,126 5,297 6,112
------------ ------------ ------------ ------------
Total Assets................................ 104,996,509 108,477,002 159,488,849 190,377,304
------------ ------------ ------------ ------------
LIABILITIES:
Dividends payable................................. 450,739 447,394 271,315 867,149
Accrued expenses and other payables:
Administration fees........................... 3,985 4,149 6,103 7,207
Custodian and accounting fees................. 3,269 3,891 2,722 2,880
Legal and audit fees.......................... 9,802 9,513 3,548 4,174
Printing...................................... 5,171 3,775 -- --
Transfer agent fees........................... 6,682 6,788 2,422 2,410
Registration and filing fees.................. 2,349 633 -- --
Other......................................... 427 397 105 150
------------ ------------ ------------ ------------
Total Liabilities........................... 482,424 476,540 286,215 883,970
------------ ------------ ------------ ------------
NET ASSETS:
Capital........................................... 104,512,330 106,510,905 101,897,711 190,140,035
Distributed in excess of net investment income.... -- (278) (1) (2)
Net unrealized appreciation (depreciation) on
investments..................................... -- 1,385,887 57,299,000 (538,743)
Accumulated undistributed net realized gains
(losses) on investment transactions............. 1,755 103,948 5,924 (107,956)
------------ ------------ ------------ ------------
Net Assets.................................... $104,514,085 $108,000,462 $159,202,634 $189,493,334
============ ============ ============ ============
Outstanding units of beneficial interest
(shares)........................................ 104,512,330 10,437,558 16,229,902 19,188,146
=========== ============ ============ ============
Net asset value--redemption price per share $ 1.00 $ 10.35 $ 9.81 $ 9.88
=========== ============ ============ ============
Maximum Sales Charge.............................. -- 4.50% 4.50% 4.50%
=========== ============ ============ ============
Maximum Offering Price (100%/(100%-Maximum Sales
Charge) of net asset value adjusted to nearest
cent) per share................................. $ 1.00 (a) $ 10.84 $ 10.27 $ 10.35
=========== ============ ============ ============
</TABLE>
- ---------
(a) Offering price and redemption price are the same for the Prime Money Market
Fund.
See notes to financial statements.
B-45
<PAGE> 151
THE SESSIONS GROUP
KEYPREMIER FUNDS
STATEMENTS OF OPERATIONS(a)
DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
INTERMEDIATE
PRIME PENNSYLVANIA ESTABLISHED TERM
MONEY MARKET MUNICIPAL GROWTH INCOME
FUND FUND FUND FUND
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income.......................... $1,257,381 $ 1,098,607 $ 53 $ 836,822
Dividend income.......................... -- 4,799 303,359 67,269
---------- ---------- ---------- -----------
Total Income...................... 1,257,381 1,103,406 303,412 904,091
---------- ---------- ---------- -----------
EXPENSES:
Investment advisory fees................. 96,110 167,165 98,518 93,788
Administration fees...................... 27,632 32,022 15,106 17,976
Custodian and accounting fees............ 9,488 12,328 5,261 5,828
Legal and audit fees..................... 10,436 10,191 4,230 4,960
Organization costs....................... 2,230 1,914 150 180
Trustee fees and expenses................ 1,114 1,053 480 540
Transfer agent fees...................... 6,682 7,875 2,490 2,490
Registration and filing fees............. 2,868 1,023 1,260 1,260
Printing costs........................... 7,998 6,774 2,460 2,950
Other.................................... 1,458 1,302 661 760
---------- ---------- ---------- -----------
Total Expenses........................... 166,016 241,647 130,616 130,732
Less: Expenses voluntarily
reduced...................... (96,110) (167,165) (98,518) (93,788)
---------- ---------- ---------- -----------
Net Expenses............................. 69,906 74,482 32,098 36,944
---------- ---------- ---------- -----------
Net Investment Income.................... 1,187,475 1,028,924 271,314 867,147
---------- ---------- ---------- -----------
REALIZED/UNREALIZED GAINS (LOSSES) ON
INVESTMENTS:
Net realized gains (losses)
investment transactions................ 1,755 111,438 5,924 (107,956)
Change in unrealized appreciation
(depreciation) on investments.......... -- 1,385,887 57,299,000 (538,743)
---------- ---------- ---------- -----------
Net realized/unrealized gains (losses) on
investments............................ 1,755 1,497,325 57,304,924 (646,699)
---------- ---------- ---------- -----------
Change in net assets resulting from
operations............................. $1,189,230 $ 2,526,249 $57,576,238 $ 220,448
========== ========== ========== ===========
</TABLE>
- ---------
(a) Commencement of the Funds began October 7, October 1, November 30, and
November 30, respectively.
See notes to financial statements.
B-46
<PAGE> 152
THE SESSIONS GROUP
KEYPREMIER FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
PRIME PENNSYLVANIA INTERMEDIATE
MONEY MARKET MUNICIPAL ESTABLISHED TERM
FUND FUND GROWTH INCOME FUND
------------ ------------ ------------ ------------
FOR PERIOD FOR PERIOD FOR PERIOD FOR PERIOD
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996(a) 1996(a) 1996(a) 1996(a)
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income.................... $ 1,187,475 $ 1,028,924 $ 271,314 $ 867,147
Net realized gains (losses) on
investments transactions............... 1,755 111,438 5,924 (107,956)
Net change in unrealized appreciation
(depreciation) on investments.......... -- 1,385,887 57,299,000 (538,743)
----------- ------------ ------------ ------------
Change in net assets resulting from
operations............................... 1,189,230 2,526,249 57,576,238 220,448
----------- ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income............... (1,187,475) (1,028,924) (271,314) (867,147)
In excess of net investment income....... -- (278) (1) (2)
From net realized gains on investments... -- (7,490) -- --
----------- ------------ ------------ ------------
Change in net assets from shareholder
distributions............................ (1,187,475) (1,036,692) (271,315) (867,149)
----------- ------------ ------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued.............. 179,091,701 115,331,885 103,428,704 192,848,494
Dividends reinvested..................... -- -- -- --
Cost of shares redeemed.................. (74,579,371) (8,820,980) (1,530,993) (2,708,459)
----------- ------------ ------------ ------------
Change in net assets from capital
transactions............................. 104,512,330 106,510,905 101,897,711 190,140,035
------------ ------------ ------------ ------------
Change in net assets....................... 104,514,085 108,000,462 159,202,634 189,493,334
NET ASSETS:
Beginning of period...................... -- -- -- --
----------- ------------ ------------ ------------
End of period............................ $104,514,085 $108,000,462 $159,202,634 $189,493,334
============ ============= ============ ============
SHARE TRANSACTIONS:
Issued................................... 179,091,701 11,289,561 16,384,743 19,460,390
Reinvested............................... -- -- -- --
Redeemed................................. (74,579,371) (852,003) (154,841) (272,244)
----------- ------------ ------------- ------------
Change in shares........................... 104,512,330 10,437,558 16,229,902 19,188,146
=========== ============ ============ ============
</TABLE>
- ---------
(a) Commencement of the Funds began October 7, October 1, November 30, and
November 30, respectively.
See notes to financial statements.
B-47
<PAGE> 153
THE SESSIONS GROUP
KEYPREMIER PRIME MONEY MARKET FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY
AMOUNT DESCRIPTION VALUE
- ----------- ----------------------------- -------------
<C> <S> <C>
U.S. GOVERNMENT AGENCIES (90.8%):
Federal Home Loan Bank:
$ 5,000,000 5.36%, 1/3/97................ $ 4,998,511
50,000,000 5.46%, 1/3/97................ 49,984,833
Federal Home Loan Mortgage Corp.:
5,000,000 5.37%, 1/2/97................ 4,999,254
Federal National Mortgage Assoc.:
5,000,000 5.44%, 1/6/97................ 4,996,222
5,000,000 5.32%, 1/14/97............... 4,990,395
5,000,000 5.30%, 1/16/97............... 4,988,958
5,000,000 5.30%, 1/17/97............... 4,988,222
U.S. GOVERNMENT AGENCIES, CONTINUED:
Federal National Mortgage Assoc.Continued:
$ 5,000,000 5.37%, 1/21/97............... $ 4,985,083
5,000,000 5.37%, 1/22/97............... 4,984,338
5,000,000 5.27%, 1/23/97............... 4,983,897
-------------
Total U.S. Government Agencies 94,899,713
U.S. TREASURY BILLS (7.7%):
8,000,000 4.40%, 1/2/97................ 7,999,023
-------------
Total(Cost--$102,898,736) (a) $ 102,898,736
=============
</TABLE>
- ---------
Percentages indicated are based on net assets of $104,514,085.
(a) Cost for federal income tax and financial reporting purposes are the same.
See notes to financial statements.
B-48
<PAGE> 154
THE SESSIONS GROUP
KEYPREMIER PENNSYLVANIA MUNICIPAL BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL SECURITY
AMOUNT DESCRIPTION VALUE
- ---------- ----------------------------------------------------------------------------------------- ------------
<C> <S> <C>
MUNICIPAL BONDS (98.0%):
Pennsylvania (93.1%):
$1,330,000 Berks County, Pennsylvania Municipal Authority, 7.10%, 5/15/22, Callable 5/15/04 @ 100... $ 1,522,850
1,000,000 Berks County, Pennsylvania Municipal Authority Hospital Revenues, 5.00%, 10/1/02......... 1,020,000
1,000,000 Bethel Park, Pennsylvania School District, 5.40%, 8/1/00, Callable 8/1/99 @ 100.......... 1,026,250
1,000,000 Bethlehem, Pennsylvania Area School District, Series A, 6.50%, 9/1/00.................... 1,071,250
4,065,000 Bethlehem, Pennsylvania Water Authority, Series A, 6.30%, 11/15/15, Callable 11/15/02 @
100.................................................................................... 4,415,606
1,000,000 Bucks County, Pennsylvania, Series A, 6.00%, 3/1/01...................................... 1,058,750
1,000,000 Bucks County, Pennsylvania Water & Sewer Authority, Series B, 6.50%, 12/1/02,
Callable 12/1/02 @ 100................................................................. 1,097,500
1,900,000 Central Dauphin, Pennsylvania School District, 6.00%, 6/1/01............................. 2,018,750
1,875,000 Chester County, Pennsylvania, 5.60%, 12/15/08, Callable 12/15/03 @ 100................... 1,933,594
1,000,000 Chester County, Pennsylvania, 5.05%, 11/1/08, Callable 11/1/06 @ 100..................... 996,250
1,050,000 Chester County, Pennsylvania, 5.15%, 11/1/09, Callable 11/1/06 @ 100..................... 1,046,063
1,250,000 Delaware County, Pennsylvania, 5.40%, 10/1/10, Callable 10/1/05 @ 100.................... 1,256,250
700,000 Delaware County, Pennsylvania Industrial Development Authority, Series A, 8.10%, 12/1/13,
Callable 6/1/97 @ 103.5................................................................ 732,067
2,000,000 Geisinger, Pennsylvania Health Systems Authority, Series B, 7.38%, 7/1/02, Callable
7/1/99 @ 102........................................................................... 2,150,000
1,000,000 Hempfield, Pennsylvania School District, Lancaster County, 6.40%, 8/15/05,
Callable 8/15/02 @ 100................................................................. 1,082,500
3,500,000 Indiana County, Pennsylvania Industrial Development Authority, Series A, 6.00%, 6/1/06... 3,797,500
5,250,000 Indiana County, Pennsylvania Industrial Development Authority, 5.35%, 11/1/10............ 5,282,813
1,000,000 Lewisburg, Pennsylvania Area School District, 4.85%, 3/15/09, Callable 3/15/06 @ 100..... 967,500
500,000 Lycoming County, Pennsylvania Hospital Authority, Series B, 7.40%, 7/1/99................ 536,875
1,000,000 Montgomery County, Pennsylvania, Series B, 5.20%, 10/15/11, Callable 10/15/06 @ 100...... 983,750
2,155,000 Northampton County, Pennsylvania Higher Education Authority, 6.90%, 10/15/06,
Callable 10/15/01 @ 102................................................................ 2,381,275
1,000,000 Northampton County, Pennsylvania Higher Education Authority, 6.00%, 9/1/01............... 1,055,000
3,000,000 Pennsbury, Pennsylvania School District, 6.80%, 8/15/14, Callable 8/15/04 @ 100.......... 3,390,000
2,000,000 Pennsylvania Housing Finance Agency, 5.40%, 1/1/00....................................... 2,042,500
3,325,000 Pennsylvania Infrastructure Investment Authority, 6.00%, 9/1/05.......................... 3,603,469
2,000,000 Pennsylvania Infrastructure Investment Authority, 6.00%, 9/1/03.......................... 2,157,500
4,425,000 Pennsylvania Intergovernmental Cooperation Authority, 7.00%, 6/15/14, Callable 6/15/05 @
100.................................................................................... 5,077,688
3,500,000 Pennsylvania State, Series A, 6.70%, 1/1/02, Callable 1/1/01 @ 101.5..................... 3,823,750
3,000,000 Pennsylvania State, 5.38%, 5/15/05....................................................... 3,071,250
3,000,000 Pennsylvania State, 5.30%, 5/1/06, Callable 5/1/04 @ 101.5............................... 3,108,750
1,375,000 Pennsylvania State Higher Education Assistance Agency, Series A, 6.80%, 12/1/00.......... 1,469,531
375,000 Pennsylvania State Higher Education Facilities Authority, Series A, 6.88%, 7/1/99........ 398,437
2,000,000 Pennsylvania State Higher Education Facilities Authority, Series A, 5.90%, 8/15/00....... 2,102,500
750,000 Pennsylvania State Higher Education Facilities Authority, Series A, 6.40%, 1/1/02,
Callable 1/1/97 @100................................................................... 750,000
1,000,000 Pennsylvania State Higher Education Facilities Authority, 7.00%, 5/1/02, Callable 5/1/00
@ 100.................................................................................. 1,085,000
5,000,000 Pennsylvania State Higher Education Facilities Authority, Series A, 5.35%, 1/1/08,
Callable 1/1/06 @ 101.................................................................. 5,068,750
1,750,000 Pennsylvania State Higher Education Facilities Authority, Series D, 7.15%, 6/15/15,
Callable 6/15/00 @ 100................................................................. 1,905,312
</TABLE>
Continued
B-49
<PAGE> 155
THE SESSIONS GROUP
KEYPREMIER PENNSYLVANIA MUNICIPAL BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL SECURITY
AMOUNT DESCRIPTION VALUE
- ---------- ----------------------------------------------------------------------------------------- ------------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
$1,500,000 Pennsylvania State Industrial Development Authority, 5.00%, 7/1/00....................... $ 1,531,875
1,000,000 Pennsylvania State Turnpike, Series J, 6.40%, 12/1/00.................................... 1,072,500
1,000,000 Pennsylvania State Turnpike, Series P, 5.20%, 12/1/00.................................... 1,027,500
1,000,000 Philadelphia, Pennsylvania Gas Works, 5.50%, 7/1/04...................................... 1,045,000
1,000,000 Philadelphia, Pennsylvania Water & Wastewater, 6.25%, 8/1/02............................. 1,085,000
5,250,000 Philadelphia, Pennsylvania Water & Wastewater, 6.25%, 8/1/08............................. 5,775,000
1,000,000 Philadelphia, Pennsylvania Hospitals & Higher Education Facilities Authority, Series A,
6.50%, 2/15/21, Callable 2/15/02 @ 102................................................. 1,101,250
1,000,000 Pittsburgh, Pennsylvania Water & Sewer Authority, Series A, 6.00%, 9/1/16,
Callable 9/1/01 @ 100.................................................................. 1,062,500
1,700,000 Sayre, Pennsylvania Health Care Facilities Authority, Series A, 6.60%, 3/1/01............ 1,833,875
2,200,000 Union County, Pennsylvania Higher Education Facilities Financing Authority, 5.75%,
4/1/00................................................................................. 2,304,500
1,000,000 West Shore, Pennsylvania School District, 6.40%, 9/1/01, Callable 9/1/98 @ 100........... 1,031,250
3,000,000 Westmoreland County, Pennsylvania, 6.70%, 8/1/09, Callable 8/1/01 @ 100.................. 3,270,000
1,850,000 York County, Pennsylvania Industrial Development Authority, 6.25%, 7/1/02................ 1,981,812
------------
100,608,892
------------
Puerto Rico (4.9%):
5,000,000 Puerto Rico Public Building Authority, Series M, 5.70%, 7/1/09........................... 5,262,500
------------
5,262,500
------------
Total Municipal Bonds 105,871,392
------------
VARIABLE RATE BANK ACCOUNT (0.5%):
539,754 Bank Of New York......................................................................... 539,754
------------
Total Variable Rate Bank Account 539,754
------------
Total (Cost--$105,025,259) $106,411,146
============
</TABLE>
- ---------
Percentages indicated are based on net assets of $108,000,462.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.......................... $1,764,899
Unrealized depreciation.......................... (379,012)
----------
Net unrealized appreciation...................... $1,385,887
=========
</TABLE>
See notes to financial statements.
B-50
<PAGE> 156
THE SESSIONS GROUP
KEYPREMIER FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(UNAUDITED)
1. ORGANIZATION:
The Sessions Group (the "Group") was organized on April 25, 1988 as an Ohio
business trust, and is registered under the Investment Company Act of 1940
as amended, (the "1940 Act"), as an open-end management investment company.
The Group is authorized to issue an unlimited number of shares which are
units of beneficial interest, without par value. The Group offers shares of
a number of different series or portfolios, including the following series
for which Martindale Andres & Company, Inc. serves as investment adviser:
shares of the KeyPremier Prime Money Market Fund, KeyPremier Pennsylvania
Municipal Bond Fund, KeyPremier Established Growth, KeyPremier Intermediate
Term Income Fund, (individually, a "Fund" and collectively, the "Funds").
The investment objective of the Prime Money Market Fund is to seek current
income with liquidity and stability of principal.The investment objectives
of the Pennsylvania Municipal Bond Fund are to seek 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 preservation of capital. The investment
objectives for the Established Growth Fund are growth of capital with some
current income as a secondary objective. The investment objective of the
Intermediate Term Income Fund are current income with long-term growth of
capital as a secondary objective.
Shares of the Funds may be sold to customers by the Group's distributor,
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services (the
"Distributor") and its affiliates, to all accounts of correspondent banks
of Keystone Financial, Inc. and to the general public. Martindale Andres &
Company, Inc. serves as investment adviser to the Funds.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by
the Group in the preparation of its financial statements. The policies are
in conformity with generally accepted accounting principles. The
preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of income
and expenses for the period. Actual results could differ from those
estimates.
SECURITIES VALUATION:
Investments of the Prime Money Market Fund are valued at either amortized
cost, which approximates market value, or at original cost, which combined
with accrued interest, approximates market value. Under the amortized cost
method, discount or premium is amortized on a constant basis to the
maturity of the security. In addition, the Fund may not a) purchase any
instrument with a remaining maturity greater than 397 calendar days unless
such investment is subject to a demand feature, or b) maintain a
dollar-weighted average portfolio maturity which exceeds 90 days.
Continued
B-51
<PAGE> 157
THE SESSIONS GROUP
KEYPREMIER FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31,1996
(UNAUDITED)
Investments in common and preferred stocks, corporate bonds, commercial
paper, municipal securities and U.S. Government securities of the
Pennsylvania Municipal Bond Fund, Established Growth Fund and the
Intermediate Term Income Fund, (collectively, "the variable net asset value
funds"), are valued at their market values determined on the basis of the
latest available bid quotation in the principal market (closing sales
prices if the principal market is an exchange or NASDAQ National Market) in
which such securities are normally traded. Investments in investment
companies are valued at their net asset values as reported by such
companies. Other securities for which quotations are not readily available
are valued at their fair value under procedures established by the Group's
Board of Trustees. The differences between the cost and market values of
investments held by the variable net asset value funds are reflected as
either unrealized appreciation or depreciation.
SECURITY TRANSACTIONS AND RELATED INCOME:
Security transactions are accounted for on the date the security is
purchased or sold (trade date). Interest income is recognized on the
accrual basis and includes, where applicable, the amortization of premium
or discount. Dividend income is recorded on the ex-dividend date. Gains or
losses realized on sales of securities are determined by comparing the
identified cost of the security lot sold with the net sales proceeds.
REPURCHASE AGREEMENTS:
The Funds may acquire repurchase agreements from financial institutions
such as banks and broker dealers which Martindale Andres & Company, Inc.
deems creditworthy under guidelines approved by the Board of Trustees,
subject to the seller's agreement to repurchase such securities at a
mutually agreed-upon date and price. The repurchase price generally equals
the price paid by each Fund plus interest negotiated on the basis of
current short-term rates, which may be more or less than the rate on the
underlying portfolio securities. The seller, under a repurchase agreement,
is required to maintain the value of collateral held pursuant to the
agreement at not less than the repurchase price (including accrued
interest). Securities subject to repurchase agreements are held by the
Funds' custodian or another qualified custodian or in the Federal
Reserve/Treasury book-entry system. Repurchase agreements are considered to
be loans by the Funds under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS:
The Funds may borrow for temporary purposes by entering into reverse
repurchase agreements. Pursuant to such agreements, a Fund would sell
portfolio securities to financial institutions such as banks and
broker--dealers, and agree to repurchase them at a mutually agreed-upon
date and price. At the time a Fund enters into a reverse repurchase
agreement, it places in a segregated custodial account assets having a
value equal to the repurchase price (including accrued interest), and will
continually monitor the account to ensure such equivalent value is
maintained at all times. Reverse repurchase agreements are considered to be
borrowing by the Funds under the 1940 Act.
Continued
B-52
<PAGE> 158
THE SESSIONS GROUP
KEYPREMIER FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31,1996
(UNAUDITED)
DIVIDENDS TO SHAREHOLDERS:
Dividends from net investment income are declared daily and paid monthly
and distributable net realized capital gains, if any, are declared and
distributed at least annually for the Prime Money Market Fund. Dividends
from net investment income are declared and paid monthly and distributable
net realized capital gains, if any, are declared and distributed annually
for the Pennsylvania Municipal Bond Fund and the Intermediate Term Income
Fund. Dividends from net investment income are declared and paid quarterly
and distributable net realized capital gains, if any, are declared and
distributed annually for the Established Growth Fund.
Dividends from net investment income and net realized capital gains are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily
due to differing treatments for net operating losses, expiring capital loss
carry forwards, and deferral of certain losses.
FEDERAL INCOME TAXES:
It is the policy of each of the Funds to qualify or continue to qualify as
a regulated investment company by complying with the provisions available
to certain investment companies, as defined in applicable sections of the
Internal Revenue Code, and to make distributions of net investment income
and net realized capital gains sufficient to relieve it from all, or
substantially all, Federal income taxes.
ORGANIZATION COSTS:
All expenses in connection with each Fund's organization and registration
under the 1940 Act and the Securities Act of 1933 were paid by each Fund.
Such expenses are amortized over a period of five years commencing with the
date of the initial public offering.
3. PURCHASES AND SALES OF PORTFOLIO SECURITIES:
Purchases and sales of portfolio securities (excluding short-term
securities) for the variable net asset value funds for the period ended
December 31, 1996, are as follows (commencement of operations of such funds
was October 1, November 30 and November 30, respectively):
<TABLE>
<CAPTION>
PURCHASES SALES
------------ -----------
<S> <C> <C>
PA Municipal Bond Fund........................................ $ 36,348,637 $31,711,442
Established Growth Fund....................................... $ 3,272,009 $ 137,326
Intermediate Income Fund...................................... $253,869,567 $81,969,997
</TABLE>
Continued
B-53
<PAGE> 159
THE SESSIONS GROUP
KEYPREMIER FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31,1996
(UNAUDITED)
4. RELATED PARTY TRANSACTIONS:
Investment advisory services are provided to the Funds by Martindale Andres
& Company, Inc. Under the terms of the investment advisory agreement,
Martindale Andres & Company, Inc. is entitled to receive fees based on a
percentage of the average net assets of each Fund. Martindale Andres &
Company, Inc. has agreed that if the aggregate expenses of the Funds, as
defined, for any fiscal year exceed limitations of any state having
jurisdiction over the Funds, Martindale Andres & Company, Inc. will refund
to the Funds, or otherwise bear, such excess. Such limitation did not
affect the calculation of the investment advisory fees during the period
ended December 31, 1996.
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services
("BISYS"), an Ohio limited partnership, and BISYS Fund Services, Inc.
("BISYS Services") are subsidiaries of The BISYS Group, Inc.
BISYS, with whom certain officers and trustees of the Group are affiliated,
serves the Funds as administrator and distributor. Such officers and
trustees are paid no fees directly by the Funds for serving as officers and
trustees of the Group. Under the terms of the administration agreement,
BISYS's fees are computed daily as a percentage of the average net assets
of each Fund. BISYS Services serves the Funds as transfer agent and mutual
fund accountant.
The Group has adopted an Administrative Services Plan, pursuant to which
each Fund is authorized to pay compensation to banks and other financial
institutions, which may include Martindale Andres & Company, Inc., its
correspondent and affiliated banks and BISYS, for providing ministerial,
record keeping and/or administrative support services to their customers
who are the beneficial or record owners of a Fund. The compensation which
may be paid under the Administrative Services Plan is a fee computed daily
at an annual rate of up to 0.115% of the average daily net asset value of a
Fund. The Group has not implemented such plan as of December 31, 1996.
BISYS is also entitled to receive commissions on sales of shares of the
variable net asset value funds. For the period ended December 31, 1996,
BISYS received no commissions on sales of shares of the variable net asset
value funds.
Fees may be voluntarily reduced to assist the Funds in maintaining
competitive expense ratios.
Continued
B-54
<PAGE> 160
THE SESSIONS GROUP
KEYPREMIER FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31,1996
(UNAUDITED)
Information regarding these transactions is as follows for the period ended
December 31, 1996:
<TABLE>
<CAPTION>
PRIME PENNSYLVANIA INTERMEDIATE
MONEY MUNI ESTABLISHED TERM
MARKET BOND GROWTH INCOME
FUND FUND FUND FUND
------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
INVESTMENT ADVISORY FEES:
Annual fee before voluntary fee
reductions (percentage of average net
assets)............................... .40% .60% .75% .60%
Voluntary fee reductions................ $96,110 $167,165 $98,518 $ 93,788
ADMINISTRATION FEES:
Annual fee before voluntary fee
reductions (percentage of average net
assets)............................... .115% .115% .115% .115%
Voluntary fee reductions................ -- -- -- --
FUND ACCOUNTANT FEES.................... $ 7,208 $ 8,353 $ 3,940 $ 4,680
TRANSFER AGENT FEES..................... $ 6,682 $ 7,875 $ 2,490 $ 2,490
</TABLE>
5. ACQUISITION OF COMMON COLLECTIVE TRUST FUNDS
On October 1, 1996, November 30, 1996, and November 30, 1996, respectively,
the Pennsylvania Municipal Bond, Established Growth, and Intermediate Term
Income Funds acquired all of the assets of various common and collective
trust funds maintained by affiliates of Keystone Financial, Inc. The
following is a summary of shares issued, net assets acquired, net asset
value per share and unrealized appreciation as of the dates acquired:
<TABLE>
<CAPTION>
INTERMEDIATE
PENNSYLVANIA ESTABLISHED TERM
MUNI GROWTH INCOME
FUND FUND FUND
------------ ------------ ------------
<S> <C> <C> <C>
Shares......................................... 10,282,956 16,173,916 18,918,934
Net Assets..................................... $104,988,989 $161,739,160 $189,189,347
Net Asset Value................................ $ 10.21 $ 10.00 $ 10.00
Unrealized Appreciation (Depreciation)......... $ 398,186 $ 56,299,092 $ (1,493,470)
</TABLE>
B-55
<PAGE> 161
THE SESSIONS GROUP
KEYPREMIER FUNDS
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<TABLE>
<CAPTION>
PRIME PENNSYLVANIA ESTABLISHED INTERMEDIATE
MONEY MARKET MUNICIPAL GROWTH TERM
FUND FUND FUND INCOME FUND
------------ ------------ ------------ ------------
FOR PERIOD FOR PERIOD FOR PERIOD FOR PERIOD
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996(a) 1996(a) 1996(a) 1996(a)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..... $ 1.00 $ 10.21 $ 10.00 $ 10.00
------------ ------------ ------------ ------------
Investment Activities
Net investment income.................. 0.004 0.04 0.02 0.05
Net realized and unrealized gains
(losses) on investments.............. -- 0.14 (0.19) (0.12)
------------ ------------ ------------ ------------
Total from Investment Activities... 0.004 0.18 (0.17) (0.07)
------------ ------------ ------------ ------------
Distributions
Net investment income.................. (0.004) (0.04) (0.02) (0.05)
Net realized gains..................... -- -- -- --
------------ ------------ ------------ ------------
Total Distributions................ (0.004) (0.04) (0.02) (0.05)
------------ ------------ ------------ ------------
Net Asset Value, End of Period........... $ 1.00 $ 10.35 $ 9.81 $ 9.88
=============== ============ ============== ==============
Total Return (excludes sales charge)..... 1.16%(b) 2.34%(b) 11.75%(b)(d) -0.75%(b)
Ratios/Supplemental Data:
Net Assets, at end of period (000)....... $104,514 $108,000 $159,203 $189,493
Ratio of expenses to average net
assets................................. 0.29%(c) 0.27%(c) 0.24%(c) 0.24%(c)
Ratio of net investment income to average
net assets............................. 4.94%(c) 1.26%(c) 2.07%(c) 5.55%(c)
Ratio of expenses to average net
assets*................................ 1.19%(c) 1.04%(c) 0.94%(c) 1.49%(c)
Ratio of net investment income to average
net assets*............................ 4.04%(c) 0.49%(c) 1.37%(c) 4.30%(c)
Portfolio Turnover....................... -- 30% -- 49%
</TABLE>
- ---------
* During the period certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
(a) Commencement of the Funds began October 7, October 1, November 30, and
November 30, respectively.
(b) Not annualized
(c) Annualized
(d) The quoted return of the Portfolio includes performance of certain
collective trust portfolio ("Commingled") accounts for the period from
January 31, 1995 to the Mutual Funds commencement of operations on November
30, 1996 as adjusted to reflect the expenses associated with the Portfolio.
See notes to financial statements.
B-56
<PAGE> 162
APPENDIX
Commercial Paper Ratings. Commercial paper ratings of Standard & Poor's
Corporation ("S&P") are current assessments of the likelihood of timely payment
of debt considered short term in the relevant market. Commercial paper rated A-1
by S&P indicates that the degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted A-1+. Commercial paper rated A-2 by S&P indicates that capacity for
timely payment on issues is satisfactory. However, the relative degree of safety
is not as high as for issues designated A-1.
Moody's Investors Service, Inc.'s ("Moody's") commercial paper rating
are opinions of the ability of issuers to repay punctually senior debt
obligations which have an original maturity not exceeding one year. The rating
Prime-1 is the highest commercial paper rating assigned by Moody's. Issuers
rated Prime-1 (or supporting institutions) are considered to have a superior
capacity for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics of Prime-1 rated issuers, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variations. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
Commercial paper rated F-1+ by Fitch Investors Service ("Fitch") is
regarded as having the strongest degree of assurance for timely payments.
Commercial paper rated F-1 by Fitch is regarded as having an assurance of timely
payment only slightly less than the strongest rating, i.e., F-1+. Commercial
paper rated F-2 by Fitch is regarded as having a satisfactory degree of
assurance of timely payment, but the margin of safety is not as great as for
issues assigned F-1+ or F-1 ratings.
The description of the two highest short-term debt ratings by Duff &
Phelps, Inc. ("Duff") (Duff incorporates gradations of "1+" (one plus) and "1-"
(one minus) to assist investors in recognizing quality differences within the
highest rating category) are as follows. Duff 1+ is regarded as having the
highest certainty of timely payment. Short-term liquidity, including internal
operating factors and/or access to alternative sources of funds, is outstanding,
and safety is just below risk-free U.S. Treasury
A-1
<PAGE> 163
short-term obligations. Duff 1 is regarded as having a very high certainty of
timely payment. Liquidity factors are excellent and supported by good
fundamental protection factors. Risk factors are minor. Duff 1- is regarded as
having a high certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are minor. Duff 2
is regarded as having a good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
Commercial paper rated A1 by IBCA Limited and its affiliate, IBCA Inc.
(collectively "IBCA") is regarded by IBCA as obligations supported by the
highest capacity for timely repayment. Where issues possess a particularly
strong credit feature, a rating of A1+ is assigned. Obligations rated A2 are
supported by a good capacity for timely repayment.
The following summarizes the description of the two highest short-term
ratings of Thomson BankWatch, Inc. ("Thomson"). TBW-1 is the highest category
and indicates a very high likelihood that principal and interest will be paid on
a timely basis. TBW-2 is the second highest category indicating that while the
degree of safety regarding timely repayment of principal and interest is strong,
the relative degree of safety is not as high as for issues rated "TBW-1."
The plus (+) sign is used after a rating symbol to designate the
relative position of an issuer within the rating category.
Corporate Debt Ratings. A S&P corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong. Debt rated AA has a very
strong capacity to pay interest and to repay principal and differs from the
highest rated issues only in small degree. Debt rated A has a strong capacity to
pay interest and repay principal although it is somewhat more susceptible to
adverse effects of changes in circumstances and economic conditions than debt in
higher rated categories. Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories.
The following summarizes the four highest ratings used by Moody's for
corporate debt. Bonds that are rated Aaa by Moody's are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the
A-2
<PAGE> 164
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues. Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
Bonds that are rated A by Moody's possess many favorable investment attributes
and are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some time in the future.
Bonds that are rated Baa by Moody's are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Moody's applies numerical modifiers (1, 2, and 3) with respect to bonds
rated Aa through Baa. The modifier 1 indicates that the bond being rated ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category.
The following summarizes the four highest long-term debt ratings by
Duff. Debt rated AAA has the highest credit quality. The risk factors are
negligible being only slightly more than for risk-free U.S. Treasury debt. Debt
rated AA has a high credit quality and protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
Debt rated A has protection factors that are average but adequate. However, risk
factors are more variable and greater in periods of economic stress. Debt rated
BBB has below average protection factors but is still considered sufficient for
prudent investment. However, there is considerable variability in risk during
economic cycles.
To provide more detailed indications of credit quality, the ratings AA
to BBB may be modified by the addition of a plus or minus sign to show relative
standing within this major rating category.
The following summarizes the four highest long-term debt ratings by
Fitch (except for AAA ratings, plus or minus signs are used with a rating symbol
to indicate the relative position of the credit within the rating category).
Bonds rated AAA are considered to be investment grade and of the highest credit
quality. The
A-3
<PAGE> 165
obligor has an exceptionally strong ability to pay interest and repay principal,
which is unlikely to be affected by reasonably foreseeable events. Bonds rated
AA are considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issues is generally rated "F-1+." Bonds
rated as A are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings. Bonds rated BBB are considered to
be investment grade and of satisfactory credit quality. The obligor's ability to
pay interest and repay principal is considered to be adequate. Adverse changes
in economic conditions and circumstances, however, are more likely to have
adverse impact on these bonds, and therefore, impair timely payment. The
likelihood that the ratings for these bonds will fall below investment grade is
higher than for bonds with higher ratings.
The following summarizes IBCA's four highest long-term debt ratings.
Obligations rated AAA are those for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly. Obligations
rated AA are those for which there is a very low expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial. Adverse
changes in business, economic, or financial conditions may increase investment
risk albeit not very significantly. Obligations rated A are those for which
there is a low expectation of investment risk. Capacity for timely repayment of
principal and interest is strong, although adverse changes in business, economic
or financial conditions may lead to increased investment risk. Obligations rated
BBB are those for which there is currently a low expectation of investment risk.
Capacity for timely repayment of principal and interest is adequate, although
adverse changes in business, economic, or financial conditions are more likely
to lead to increased investment risk than for obligations in other categories.
The following summarizes Thomson's description of its four highest
long-term debt ratings (Thomson may include a plus (+) or minus (-) designation
to indicate where within the respective category the issue is placed). AAA is
the highest category and indicates that the ability to repay principal and
interest on a timely basis is very high. AA is the second highest category and
indicates a superior ability to repay principal and interest on a timely basis
with limited incremental risk versus issues rated in the highest category. A is
the third highest category and indicates the ability to repay principal and
interest is strong.
A-4
<PAGE> 166
Issues rated "A" could be more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings. BBB is the lowest investment
grade category and indicates an acceptable capacity to repay principal and
interest. Issues rated "BBB" are, however, more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
Municipal Obligations Ratings
The following summarizes the three highest ratings used by Moody's for
state and municipal short-term obligations. Obligations bearing MIG-1 or VMIG-1
designations are of the best quality, enjoying strong protection by established
cash flows, superior liquidity support or demonstrated broad-based access to the
market for refinancing. Obligations rated MIG-2 or VMIG-2 denote high quality
with ample margins of protection although not so large as in the preceding
rating group. Obligations bearing MIG-3 or VMIG-3 denote favorable quality. All
security elements are accounted for but there is lacking the undeniable strength
of the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
S&P SP-1, SP-2, and SP-3 municipal note ratings (the three highest
ratings assigned) are described as follows:
"SP-1": Very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming
safety characteristics will be given a plus (+) designation.
"SP-2": Satisfactory capacity to pay principal and interest.
"SP-3": Speculative capacity to pay principal and interest.
The following summarizes the six highest ratings used by Moody's for
state and municipal bonds:
"Aaa": Bonds judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
"Aa": Bonds judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are
A-5
<PAGE> 167
rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
"A": Bonds which possess many favorable investment attributes
and are to be considered as upper medium-grade obligations.
Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest
a susceptibility to impairment sometime in the future.
"Baa": Bonds which are considered as medium grade obligations,
i.e, they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
"Ba": Bonds which are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very
moderate, and therefore not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
"B": Bonds which generally lack characteristics of the
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
The following summarizes the six highest ratings used by S&P for state
and municipal bonds:
"AAA": Debt which has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.
"AA": Debt which has a very strong capacity to pay interest
and repay principal and differs from the highest rated issues
only in small degree.
"A": Debt which has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories. It differs
from the two higher ratings because:
A-6
<PAGE> 168
General Obligations Bonds -- There is some weakness
in the local economic base, in debt burden, in the balance
between revenues and expenditures, or in quality of
management. Under certain adverse circumstances, any one such
weakness might impair the ability of the issuer to meet debt
obligations at some future date.
Revenue Bonds -- Debt service coverage is good, but
not exceptional. Stability of the pledged revenues could show
some variations because of increased competition or economic
influences on revenues. Basic security provisions, while
satisfactory, are less stringent. Management performance
appears adequate.
"BBB": Of the investment grade, this is the lowest.
General Obligation Bonds -- Under certain adverse
conditions, several of the above factors could contribute to a
lesser capacity for payment of debt service. The difference
between "A" and "BBB" rating is that the latter shows more
than one fundamental weakness, or one very substantial
fundamental weakness, whereas the former shows only one
deficiency among the factors considered.
Revenue Bonds -- Debt coverage is only fair.
Stability of the pledged revenues could show substantial
variations, with the revenue flow possibly being subject to
erosion over time. Basic security provisions are no more than
adequate. Management performance could be stronger.
"BB" and "B": Debt which is regarded as having predominantly
speculative characteristics with respect to capacity to pay
interest and repay principal. BB indicates the least degree of
speculation of the two. While such debt will likely have some
quality and protective characteristics, these are outweighed
by large uncertainties or major risk exposures to adverse
conditions.
"BB": Debt which has less near-term vulnerability to default
than other speculative grade debt. However, it faces major
ongoing uncertainties or exposure to adverse business,
financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal
payment.
"B": Debt which has a greater vulnerability to default but
presently has the capacity to meet interest payments and
principal repayments. Adverse business, financial or economic
conditions would likely impair capacity or willingness to pay
interest and repay principal.
A-7
<PAGE> 169
The following summarizes the six highest ratings used by Fitch for
state and municipal bonds. The ratings represent Fitch's assessment of the
issuer's ability to meet the obligations of a specific debt issue or class of
debt. The ratings take into consideration special features of the issue, its
relationship to other obligations of the issuer, the current financial condition
and operative performance of the issuer and of any guarantor, as well as the
political and economic environment that might affect the issuer's future
financial strength and credit quality.
"AAA": Bonds which are considered to be investment grade and
of the highest credit quality. The obligor has an
exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA": Bonds which are considered to be investment grade and of
very high credit quality. The obligor's ability to pay
interest and repay principal is very strong, although not
quite as strong as bonds rated AAA. Because bonds rated in the
AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these
issuers is generally rated F-1+.
"A": Bonds which are considered to be investment grade and of
high credit quality. The obligor's ability to pay interest and
repay principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
"BBB": Bonds which are considered to be investment grade and
of satisfactory credit quality. The obligor's ability to pay
interest and repay principal is considered to be adequate.
Adverse changes in economic conditions and circumstances,
however, are more likely to have an adverse impact on these
bonds and, therefore, impair timely payment. The likelihood
that the ratings of these bonds will fall below investment
grade is higher than for bonds with higher ratings.
"BB": Bonds which are considered speculative. The obligor's
ability to pay interest and repay principal may be affected
over time by adverse economic changes. However, business and
financial alternatives can be identified which could assist
the obligor in satisfying its debt service requirements.
"B": Bonds which are considered highly speculative. While
bonds in this class are currently meeting debt service
requirements, the probability of continued timely payment of
principal and interest reflects the obligor's
A-8
<PAGE> 170
limited margin of safety and the need for reasonable business
and economic activity throughout the life of the issue.
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
Although the credit analysis is similar to Fitch's bond rating
analysis, the short-term rating places greater emphasis than bond ratings on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
"F-1+": Exceptionally Strong Credit Quality. Issues assigned
this rating are regarded as having the strongest degree of
assurance for timely payment.
"F-1": Very Strong Credit Quality. Issues assigned this rating
reflect an assurance of timely payment only slightly less in
degrees than issues rated F-1+.
"F-2": Good Credit Quality. Issues carrying this rating have a
satisfactory degree of assurance for timely payments, but the
margin of safety is not as great as the F-1+ and F-1
categories.
Definitions of Certain Money Market Instruments
Commercial Paper
Commercial paper consists of unsecured promissory notes issued by
corporations. Issues of commercial paper normally have maturities of less than
nine months and fixed rates of return.
Certificates of Deposit
Certificates of Deposit are negotiable certificates issued against
funds deposited in a commercial bank or a savings and loan association for a
definite period of time and earning a specified return.
Bankers' Acceptances
Bankers' acceptances are negotiable drafts or bills of exchange,
normally drawn by an importer or exporter to pay for specific merchandise, which
are "accepted" by a bank, meaning, in effect, that the bank unconditionally
agrees to pay the face value of the instrument on maturity.
A-9
<PAGE> 171
U.S. Treasury Obligations
U.S. Treasury Obligations are obligations issued or guaranteed as to
payment of principal and interest by the full faith and credit of the U.S.
Government. These obligations may include Treasury bills, notes and bonds, and
issues of agencies and instrumentalities of the U.S. Government, provided such
obligations are guaranteed as to payment of principal and interest by the full
faith and credit of the U.S. Government.
U.S. Government Agency and Instrumentality Obligations
Obligations of the U.S. Government include Treasury bills, certificates
of indebtedness, notes and bonds, and issues of agencies and instrumentalities
of the U.S. Government, such as the Government National Mortgage Association,
the Tennessee Valley Authority, the Farmers Home Administration, the Federal
Home Loan Banks, the Federal Intermediate Credit Banks, the Federal Farm Credit
Banks, the Federal Land Banks, the Federal Housing Administration, the Federal
National Mortgage Association, the Federal Home Loan Mortgage Corporation, and
the Student Loan Marketing Association. Some of these obligations, such as those
of the Government National Mortgage Association, are supported by the full faith
and credit of the U.S. Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the right of the issuer to borrow from
the Treasury; others, such as those of the Student Loan Marketing Association,
are supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations; still others, such as those of the Federal Farm Credit
Banks, are supported only by the credit of the instrumentality. No assurance can
be given that the U.S. Government would provide financial support to U.S.
Government-sponsored instrumentalities if it is not obligated to do so by law.
A-10
<PAGE> 172
1st Source Monogram U.S. Treasury Obligations Money Market Fund
1st Source Monogram Diversified Equity Fund
1st Source Monogram Income Equity Fund
1st Source Monogram Special Equity Fund
1st Source Monogram Income Fund
1st Source Monogram Intermediate Tax-Free Bond Fund
Each an Investment Portfolio of
THE SESSIONS GROUP
Statement of Additional Information
April 1, 1997
This Statement of Additional Information is not a prospectus, but
should be read in conjunction with the prospectus (the "Prospectus") of 1st
Source Monogram U.S. Treasury Obligations Money Market Fund (the "Money Market
Fund"), 1st Source Monogram Diversified Equity Fund (the "Diversified Equity
Fund"), 1st Source Monogram Income Equity Fund (the "Income Equity Fund"), 1st
Source Monogram Special Equity Fund (the "Special Equity Fund"), 1st Source
Monogram Income Fund (the "Income Fund"), and 1st Source Monogram Intermediate
Tax-Free Bond Fund (the "Intermediate Tax-Free Fund") (the Money Market Fund,
the Diversified Equity Fund, the Income Equity Fund, the Special Equity Fund,
the Income Fund and the Intermediate Tax-Free Fund are hereinafter collectively
referred to as the "Funds" and individually as a "Fund"), dated the date hereof.
The Funds are six funds of The Sessions Group (the "Group"). This Statement of
Additional Information is incorporated in its entirety into the Prospectus.
Copies of the Prospectus may be obtained by writing the Group at 3435 Stelzer
Road, Columbus, Ohio 43219, or by telephoning toll free (800) 766-8938.
<PAGE> 173
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
THE SESSIONS GROUP................................................................... B-1
INVESTMENT OBJECTIVES AND POLICIES................................................... B-1
Additional Information on Portfolio Instruments............................. B-1
Investment Restrictions.....................................................B-12
Portfolio Turnover..........................................................B-13
NET ASSET VALUE......................................................................B-14
Valuation of the Money Market Fund..........................................B-14
Valuation of the Other Funds................................................B-15
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.......................................B-15
MANAGEMENT OF THE GROUP..............................................................B-16
Trustees and Officers.......................................................B-16
Investment Adviser..........................................................B-19
Portfolio Transactions......................................................B-22
Glass-Steagall Act..........................................................B-24
Administrator...............................................................B-25
Distributor.................................................................B-27
Administrative Services Plan................................................B-28
Custodian...................................................................B-29
Transfer Agency and Fund Accounting Services................................B-29
Auditors ...................................................................B-30
Legal Counsel...............................................................B-30
ADDITIONAL INFORMATION......................................................B-30
Description of Shares.......................................................B-30
Vote of a Majority of the Outstanding Shares................................B-32
Additional Tax Information..................................................B-33
Seven-Day Yield of the Money Market Fund....................................B-37
Yields of the Other Funds...................................................B-38
Calculation of Total Return.................................................B-39
Distribution Rates..........................................................B-40
Performance Comparisons.....................................................B-40
Miscellaneous...............................................................B-41
FINANCIAL STATEMENTS.................................................................B-43
APPENDIX ............................................................................A-1
</TABLE>
- i -
<PAGE> 174
STATEMENT OF ADDITIONAL INFORMATION
THE SESSIONS GROUP
The Sessions Group (the "Group") is an open-end management investment
company which currently offers 17 separate investment portfolios. This Statement
of Additional Information deals with six of such portfolios, 1st Source Monogram
U.S. Treasury Obligations Money Market Fund (the "Money Market Fund"), 1st
Source Monogram Diversified Equity Fund (the "Diversified Equity Fund"), 1st
Source Monogram Income Equity Fund (the "Income Equity Fund"), 1st Source
Monogram Special Equity Fund (the "Special Equity Fund"), 1st Source Monogram
Income Fund (the "Income Fund") and 1st Source Monogram Intermediate Tax-Free
Bond Fund (the "Intermediate Tax-Free Fund"), each a diversified portfolio of
the Group (the Money Market Fund, the Diversified Equity Fund, the Income Equity
Fund, the Special Equity Fund, the Income Fund and the Intermediate Tax-Free
Fund are hereinafter collectively referred to as the "Funds" and individually as
a "Fund").
Much of the information contained in this Statement of Additional
Information expands upon subjects discussed in the Prospectus. Capitalized terms
not defined herein are defined in the Prospectus. No investment in Shares of a
Fund should be made without first reading the Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
Additional Information on Portfolio Instruments
The following policies supplement the investment objectives and
policies of each Fund as set forth in the Prospectus.
Bank Obligations. Each of the Funds, other than the Money Market Fund,
may invest in bank obligations such as bankers' acceptances, certificates of
deposit, and demand and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange
typically drawn by an importer or exporter to pay for specific merchandise,
which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Bankers' acceptances invested in by the Funds will be those guaranteed by
domestic and foreign banks having, at the time of investment, capital, surplus,
and undivided profits in excess of $100,000,000 (as of the date of their most
recently published financial statements).
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank or a savings and loan association for a
definite period of time and earning a specified return. Certificates of deposit
and demand and time deposits will be those of domestic banks and savings and
loan associations, if (a) at the time of investment the depository institution
has
<PAGE> 175
capital, surplus, and undivided profits in excess of $100,000,000 (as of the
date of its most recently published financial statements), or (b) the principal
amount of the instrument is insured in full by the Federal Deposit Insurance
Corporation.
Commercial Paper. Commercial paper consists of unsecured promissory
notes issued by corporations. Issues of commercial paper normally have
maturities of less than nine months and fixed rates of return.
The Funds, other than the Money Market Fund, will purchase commercial
paper consisting of issues rated at the time of purchase by one or more
appropriate nationally recognized statistical rating organizations ("NRSRO")
(e.g., Standard & Poor's Corporation and Moody's Investors Service, Inc.) in one
of the two highest rating categories for short-term debt obligations. The Funds
may also invest in commercial paper that is not rated but that is determined by
the Adviser or the applicable Sub-Adviser, as the case may be, to be of
comparable quality to instruments that are so rated by an NRSRO that is neither
controlling, controlled by, or under common control with the issuer of, or any
issuer, guarantor, or provider of credit support for, the instruments. For a
description of the rating symbols of the NRSROs, see the Appendix.
Variable Amount Master Demand Notes. Variable amount master demand
notes, in which the Income Fund may invest, are unsecured demand notes that
permit the indebtedness thereunder to vary and provide for periodic adjustments
in the interest rate according to the terms of the instrument. Because master
demand notes are direct lending arrangements between a Fund and the issuer, they
are not normally traded. Although there is no secondary market in the notes, a
Fund may demand payment of principal and accrued interest at any time within 30
days. While such notes are not typically rated by credit rating agencies,
issuers of variable amount master demand notes (which are normally
manufacturing, retail, financial and other business concerns), must satisfy, for
purchase by the Income Fund, the same criteria as set forth above for commercial
paper for such Fund. 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 status and ability to meet payment on demand. In
determining average weighted portfolio maturity, a variable amount master demand
note will be deemed to have a maturity equal to the longer of the period of time
remaining until the next interest rate adjustment or the period of time
remaining until the principal amount can be recovered from the issuer through
demand.
Foreign Investment. Investments in securities issued by foreign
issuers, including ADRs, may subject the Funds to investment risks that differ
in some respects from those related to investment in obligations of U.S.
domestic issuers or in U.S.
B-2
<PAGE> 176
securities markets. Such risks include future adverse political and economic
developments, possible seizure, nationalization, or expropriation of foreign
investments, less stringent disclosure requirements, the possible establishment
of exchange controls or taxation at the source, or the adoption of other foreign
governmental restrictions. A Fund will acquire such securities only when the
Adviser or the applicable Sub-Adviser, as the case may be, believes the risks
associated with such investments are minimal.
U.S. Government Obligations. Each Fund may invest in obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities.
Obligations of certain agencies and instrumentalities of the U.S. Government are
supported by the full faith and credit of the U.S. Treasury; others are
supported by the right of the issuer to borrow from the Treasury; others are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; and still others are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so by law.
Exempt Securities. As stated in the Prospectus, the assets of the
Intermediate Tax-Free Fund will be primarily invested in Exempt Securities.
Under normal market conditions, at least 80% of the net assets of the
Intermediate Tax-Free Fund will be invested in Exempt Securities.
Exempt Securities include debt obligations issued by governmental
entities to obtain funds for various public purposes, such as the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses, and the extension of loans to other
public institutions and facilities.
Among other types of Exempt Securities, the Intermediate Tax-Free Fund
may purchase short-term General Obligation Notes, Tax Anticipation Notes, Bond
Anticipation Notes, Revenue Anticipation Notes, Project Notes, Tax-Exempt
Commercial Paper, Construction Loan Notes and other forms of short-term
tax-exempt loans. Such instruments are issued with a short-term maturity in
anticipation of the receipt of tax funds, the proceeds of bond placements or
other revenues. In addition, the Intermediate Tax-Free Fund may invest in other
types of tax-exempt instruments, such as municipal bonds and pollution control
bonds.
Project Notes are issued by a state or local housing agency and are
sold by the Department of Housing and Urban Development. While the issuing
agency has the primary obligation with respect to its Project Notes, they are
also secured by the full faith and
B-3
<PAGE> 177
credit of the United States through agreements with the issuing authority which
provide that, if required, the federal government will lend the issuer an amount
equal to the principal of and interest on the Project Notes.
As described in the Prospectus, the two principal classifications of
Exempt Securities consist of "general obligation" and "revenue" issues. The
Intermediate Tax-Free Fund may also acquire "moral obligation" issues, which are
normally issued by special purpose authorities. There are, of course, variations
in the quality of Exempt Securities, both within a particular classification and
between classifications, and the yields on Exempt Securities depend upon a
variety of factors, including the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligation and the rating of the issue. Ratings represent the
opinions of an NRSRO as to the quality of Exempt Securities. It should be
emphasized, however, that ratings are general and are not absolute standards of
quality, and Exempt Securities with the same maturity, interest rate and rating
may have different yields, while Exempt Securities of the same maturity and
interest rate with different ratings may have the same yield. Subsequent to
purchase, an issue of Exempt Securities may cease to be rated or its rating may
be reduced below the minimum rating required for purchase. The Adviser will
consider such an event in determining whether the Intermediate Tax-Free Fund
should continue to hold the obligation.
An issuer's obligations under its Exempt Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors, such as the federal bankruptcy code, and laws, if any,
which may be enacted by Congress or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
the enforcement of such obligations or upon the ability of municipalities to
levy taxes. The power or ability of an issuer to meet its obligations for the
payment of interest on and principal of its Exempt Securities may be materially
adversely affected by litigation or other conditions.
Variable and Floating Rate Notes. The Income and the Intermediate
Tax-Free Funds may each acquire variable and floating rate notes, subject to
such Fund's investment objectives, policies and restrictions. A variable rate
note is one whose terms provide for the adjustment of its interest rate on set
dates and which, upon such adjustment, can reasonably be expected to have a
market value that approximates its par value. 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
B-4
<PAGE> 178
rating agencies; however, unrated variable and floating rate notes purchased by
such Funds will be determined by the Adviser to be of comparable quality at the
time of purchase to rated instruments eligible for purchase under that
particular 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 (such issuers include financial, merchandising, bank
holding and other companies) and will continuously monitor their financial
condition. Although there may be no active secondary market with respect to a
particular variable or floating rate note purchased by a Fund, the Fund may
resell the note at any time to a third party. The absence of an active secondary
market, however, could make it difficult for a Fund to dispose of a variable or
floating rate note in the event the issuer of the note defaulted on its payment
obligations and the Fund could, as a result or for other reasons, suffer a loss
to the extent of the default. To the extent that there exists no readily
available market for such note and a Fund is not entitled to receive the
principal amount of a note within seven days, such a note will be treated as an
illiquid security for purposes of calculation of such Fund's limitation on
investments in illiquid securities, as set forth in the respective Fund's
investment restrictions. Variable or floating rate notes may be secured by bank
letters of credit.
Restricted Securities. Securities in which the Diversified Equity,
Income Equity, Special Equity and Income Funds may invest include securities
issued by corporations without registration under the Securities Act of 1933, as
amended (the "1933 Act"), such as securities issued in reliance on the so-called
"private placement" exemption from registration which is afforded by Section
4(2) of the 1933 Act ("Section 4(2) securities"). Section 4(2) securities are
restricted as to disposition under the Federal securities laws, and generally
are sold to institutional investors such as the Funds who agree that they are
purchasing the securities for investment and not with a view to public
distribution. Any resale must also generally be made in an exempt transaction.
Section 4(2) securities are normally resold to other institutional investors
through or with the assistance of the issuer or investment dealers who make a
market in such Section 4(2) securities, thus providing liquidity. Any such
restricted securities will be considered to be illiquid for purposes of a Fund's
limitations on investments in illiquid securities unless, pursuant to procedures
adopted by the Board of Trustees of the Group, the Adviser has determined such
securities to be liquid because such securities are eligible for resale under
Rule 144A under the 1933 Act and are readily saleable. Each such Funds will each
limit its investment in Section 4(2) securities to not more than 10% of its net
assets.
Options Trading. Each of the Diversified Equity Fund, the Income Equity
Fund, the Special Equity Fund and the Income Fund may
B-5
<PAGE> 179
purchase and write (sell) put and call options. 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 such Funds will be valued at the last sale price,
or in the absence of such a price, at the mean between bid and asked price.
When a Fund writes a call 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 a call 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.
Each such Fund may also purchase or sell (write) index options. Index
options (or options on securities indices) are similar in many respects to
options on securities except that an index option gives the holder the right to
receive, upon exercise, cash instead of securities, if the closing level of the
securities index upon which the option is based is greater than, in the case of
a call, or less than, in the case of a put, the exercise price of the option.
Puts. The Intermediate Tax-Free Fund may also 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 Intermediate Tax-Free 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 Intermediate Tax-Free Fund upon its exercise
of a "put" is normally (i) the Intermediate Tax-Free
B-6
<PAGE> 180
Fund's acquisition cost of the Exempt Securities (excluding any accrued interest
which the Intermediate Tax-Free Fund paid on the acquisition), less any
amortized market premium or plus any amortized market or original issue discount
during the period the Intermediate 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 Intermediate Tax-Free Fund to facilitate
the liquidity of its portfolio assets. Puts may also be used to facilitate the
reinvestment of the Intermediate Tax-Free 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 Intermediate Tax-Free 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 Intermediate
Tax-Free 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 Intermediate Tax-Free Fund intends to enter into puts only with
dealers, banks, and broker-dealers which, in the Adviser's opinion, present
minimal credit risks.
Future Contracts. As discussed in the Prospectus, each of the Funds,
other than the Money Market Fund, may enter into futures contracts. This
investment technique is designed primarily to hedge against anticipated future
changes in market conditions which otherwise might adversely affect the value of
securities which a Fund holds or intends to purchase. For example, when interest
rates are expected to rise or market values of portfolio securities are expected
to fall, a Fund can seek through the sale of futures contracts to offset a
decline in the value of its portfolio securities. When interest rates are
expected to fall or market values are expected to rise, a Fund, through the
purchase of such contracts, can attempt to secure better rates or prices for the
Fund than might later be available in the market when it effects anticipated
purchases.
The acquisition of put and call options on futures contracts will,
respectively, give a Fund the right (but not the obligation), for a specified
price, to sell or to purchase the underlying futures contract, upon exercise of
the option, at any time during the option period.
B-7
<PAGE> 181
Futures transactions involve brokerage costs and require a Fund to
segregate liquid assets, such as cash, U.S. Government securities or other
liquid high grade debt obligations, to cover its performance under such
contracts. A Fund may lose the expected benefit of futures transactions if
interest rates, securities prices or foreign exchange rates move in an
unanticipated manner. Such unanticipated changes may also result in poorer
overall performance than if the Fund had not entered into any futures
transactions. In addition, the value of a Fund's futures positions may not prove
to be perfectly or even highly correlated with the value of its portfolio
securities, limiting the Fund's ability to hedge effectively against interest
rate and/or market risk and giving rise to additional risks. There is no
assurance of liquidity in the secondary market for purposes of closing out
futures positions.
Regulatory Restrictions. To the extent required to comply with
Securities and Exchange Commission Release No. IC-10666, when purchasing a
futures contract or writing a put option, a Fund will maintain in a segregated
account cash or liquid high-grade securities equal to the value of such
contracts.
To the extent required to comply with Commodity Futures Trading
Commission Regulation 4.5 and thereby avoid being classified as a "commodity
pool operator," a Fund will not enter into a futures contract or purchase an
option thereon if immediately thereafter the initial margin deposits for futures
contracts held by such Fund plus premiums paid by it for open options on futures
would exceed 5% of such Fund's total assets. A Fund will not engage in
transactions in financial futures contracts or options thereon for speculation,
but only to attempt to hedge against changes in market conditions affecting the
values of securities which such Fund holds or intends to purchase.
When-Issued Securities. As discussed in the Prospectus, the Income Fund
and the Intermediate Tax-Free Fund may each purchase securities on a
"when-issued" basis (i.e., for delivery beyond the normal settlement date at a
stated price and yield). When such Fund agrees to purchase securities on a
"when-issued" basis, the Fund's custodian will set aside cash or liquid
portfolio securities equal to the amount of the commitment in a separate
account. Normally, the Fund's custodian will set aside portfolio securities to
satisfy the purchase commitment, and in such a case, such Fund may be required
subsequently to place additional assets in the separate account in order to
assure that the value of the account remains equal to the amount of the Fund's
commitment. It may be expected that a Fund's net assets will fluctuate to a
greater degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. In addition, because a Fund will set
aside cash or liquid portfolio securities to satisfy its purchase commitments in
the manner described above,
B-8
<PAGE> 182
such Fund's liquidity and the ability of the Adviser to manage it might be
affected in the event its commitments to purchase "when-issued" securities ever
exceeded 25% of the value of its total assets. Under normal market conditions,
however, neither the Income Fund's nor the Intermediate Tax-Free Fund's
commitment to purchase "when-issued" or "delayed-delivery" securities will
exceed 25% of the value of its total assets.
When a Fund engages in "when-issued" transactions, it relies on the
seller to consummate the trade. Failure of the seller to do so may result in
such Fund's incurring a loss or missing the opportunity to obtain a price
considered to be advantageous. The Income Fund and the Intermediate Tax-Free
Fund will each engage in "when-issued" delivery transactions only for the
purpose of acquiring portfolio securities consistent with that Fund's investment
objectives and policies and not for investment leverage.
Mortgage-Related Securities. The Income Fund may, consistent with its
investment objective and policies, invest in mortgage-related securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities or
issued by nongovernmental entities.
Mortgage-related securities, for purposes of the Prospectus and this
Statement of Additional Information, represent pools of mortgage loans assembled
for sale to investors by various governmental agencies such as the Government
National Mortgage Association and government-related organizations such as the
Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation, as well as by nongovernmental issuers such as commercial banks,
savings and loan institutions, mortgage bankers and private mortgage insurance
companies. Although certain mortgage-related securities are guaranteed by a
third party or otherwise similarly secured, the market value of the security,
which may fluctuate, is not so secured. If the Income Fund purchases a
mortgage-related security at a premium, that portion may be lost if there is a
decline in the market value of the security whether resulting from changes in
interest rates or prepayments in the underlying mortgage collateral. As with
other interest-bearing securities, the prices of such securities are inversely
affected by changes in interest rates. However, though the value of a
mortgage-related security may decline when interest rates rise, the converse is
not necessarily true, since in periods of declining interest rates the mortgages
underlying the securities are prone to prepayment, thereby shortening the
average life of the security and shortening the period of time over which income
at the higher rate is received. Conversely, when interest rates are rising, the
rate of prepayment tends to decrease, thereby lengthening the average life of
the security and lengthening the period of time over which income at the lower
rate is received. For these and other reasons, a mortgage-related security's
average
B-9
<PAGE> 183
maturity may be shortened or lengthened as a result of interest rate
fluctuations and, therefore, it is not possible to predict accurately the
security's return to the Income Fund. In addition, regular payments received in
respect of mortgage-related securities include both interest and principal. No
assurance can be given as to the return the Income Fund will receive when these
amounts are reinvested.
The Income Fund may also invest in mortgage-related securities which
are collateralized mortgage obligations structured on pools of mortgage
pass-through certificates or mortgage loans. Mortgage-related securities will
be purchased only if rated in the three highest bond rating categories assigned
by one or more appropriate NRSROs, or, if unrated, which the Adviser deems to be
of comparable quality.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities issued by
the Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed as
to the timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the United States. GNMA is a wholly-owned
U.S. Government corporation within the Department of Housing and Urban
Development. GNMA certificates also are supported by the authority of GNMA to
borrow funds from the U.S. Treasury to make payments under its guarantee.
Mortgage-related securities issued by the Federal National Mortgage Association
("FNMA") include FNMA Guaranteed Mortgage Pass-Through Certificates (also known
as "Fannie Maes") which are solely the obligations of the FNMA and are not
backed by or entitled to the full faith and credit of the United States. FNMA is
a government-sponsored organization owned entirely by private stockholders.
Fannie Maes are guaranteed as to timely payment of the principal and interest by
FNMA. Mortgage-related securities issued by the Federal Home Loan Mortgage
Corporation ("FHLMC") include FHLMC Mortgage Participation Certificates (also
known as "Freddie Macs" or "PCs"). FHLMC is a corporate instrumentality of the
United States, created pursuant to an Act of Congress, which is owned entirely
by Federal Home Loan Banks. Freddie Macs are not guaranteed by the United States
or by any Federal Home Loan Banks and do not constitute a debt or obligation of
the United States or of any Federal Home Loan Bank. Freddie Macs entitle the
holder to timely payment of interest, which is guaranteed by FHLMC. FHLMC
guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. When FHLMC does not guarantee timely
payment of principal, FHLMC may remit the amount due on account of its guarantee
of ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
B-10
<PAGE> 184
Repurchase Agreements. Securities held by each of the Funds may be
subject to repurchase agreements. Under the terms of a repurchase agreement, a
Fund would acquire securities from banks and registered broker-dealers which the
Adviser or the applicable Sub-Adviser, as the case may be, deems creditworthy
under guidelines approved by the Group's Board of Trustees, subject to the
seller's agreement to repurchase such securities at a mutually agreed-upon date
and price. The repurchase price would generally equal the price paid by the Fund
plus interest negotiated on the basis of current short-term rates, which may be
more or less than the rate on the underlying portfolio securities. The seller
under a repurchase agreement will be required to maintain continually the value
of collateral held pursuant to the agreement at not less than the repurchase
price (including accrued interest). This requirement will be continually
monitored by the Adviser. If the seller were to default on its repurchase
obligation or become insolvent, the Fund holding such obligation would suffer a
loss to the extent that the proceeds from a sale of the underlying portfolio
securities were less than the repurchase price under the agreement, or to the
extent that the disposition of such securities by the Fund were delayed pending
court action. Additionally, there is no controlling legal precedent confirming
that a Fund would be entitled, as against a claim by such seller or its receiver
or trustee in bankruptcy, to retain the underlying securities, although the
Board of Trustees of the Group believes that, under the regular procedures
normally in effect for custody of a Fund's securities subject to repurchase
agreements and under federal laws, a court of competent jurisdiction would rule
in favor of the Group if presented with the question. Securities subject to
repurchase agreements will be held by that Fund's custodian or another qualified
custodian or in the Federal Reserve/Treasury book-entry system. Repurchase
agreements are considered to be loans by a Fund under the 1940 Act.
Reverse Repurchase Agreements. As discussed in the Prospectus, each of
the Funds may borrow funds by entering into reverse repurchase agreements in
accordance with that Fund's investment restrictions. Pursuant to such
agreements, a Fund would sell portfolio securities to financial institutions
such as banks and broker-dealers, and agree to repurchase the securities at a
mutually agreed-upon date and price. Each Fund intends to enter into reverse
repurchase agreements only to avoid otherwise selling securities during
unfavorable market conditions to meet redemptions. At the time a Fund enters
into a reverse repurchase agreement, it will place in a segregated custodial
account assets such as U.S. Government securities or other liquid, high grade
debt securities consistent with the Fund's investment restrictions having a
value equal to the repurchase price (including accrued interest), and will
subsequently continually monitor the account to ensure that such equivalent
value is maintained at all times. Reverse repurchase agreements involve the risk
that the market
B-11
<PAGE> 185
value of the securities sold by a Fund may decline below the price at which a
Fund is obligated to repurchase the securities. Reverse repurchase agreements
are considered to be borrowings by a Fund under the 1940 Act.
Securities of Other Investment Companies. Each Fund may invest in
securities issued by other investment companies. Each Fund currently intends to
limit its investments so that, as determined immediately after a securities
purchase is made: (a) not more than 5% of the value of its total assets will be
invested in the securities of any one investment company; (b) not more than 10%
of the value of its total assets will be invested in the aggregate in securities
of investment companies as a group; and (c) not more than 3% of the outstanding
voting stock of any one investment company will be owned by such Fund. As a
shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of that company's expenses, including
advisory fees. These expenses would be in addition to the advisory and other
expenses that such Fund bears directly in connection with its own operations.
Investment companies in which the Funds may investment may also impose a sales
or distribution charge in connection with the purchase or redemption of their
shares and other types of commissions or charges. Such charges will be payable
by such Fund and, therefore, will be borne directly by shareholders.
Investment Restrictions
Each Fund's investment objective is a non-fundamental policy and may be
changed without a vote of the holders of a majority of such Fund's outstanding
Shares. In addition to the fundamental investment policies listed in the
Prospectus, the following investment restrictions may be changed with respect to
a particular Fund only by a vote of the majority of the outstanding Shares of
that Fund (as defined under "ADDITIONAL INFORMATION - Vote of a Majority of the
Outstanding Shares").
In addition to the investment restrictions set forth in the Prospectus,
each of the Funds may not:
1. Purchase securities on margin, except for use of short-term credit
necessary for clearance of purchases of portfolio securities and except as may
be necessary to make margin payments in connection with derivative securities
transactions;
2. Underwrite the securities issued by other persons, except to the
extent that the Fund may be deemed to be an underwriter under certain securities
laws in the disposition of "restricted securities;"
B-12
<PAGE> 186
3. Purchase or sell real estate (although investments in marketable
securities of companies engaged in such activities and securities secured by
real estate or interests therein are not prohibited by this restriction); and
4. Purchase or sell commodities or commodities contracts, except to the
extent disclosed in the current Prospectus of the Fund.
The following additional investment restrictions may be changed without
the vote of a majority of the outstanding Shares of a Fund. Each Fund may not:
1. Purchase securities of other investment companies, except (a) in
connection with a merger, consolidation, acquisition or reorganization, and (b)
to the extent permitted by the 1940 Act, or pursuant to any exemptions
therefrom;
2. Engage in any short sales;
3. Purchase or retain the securities of an issuer if the officers or
trustees of the Group, or the officers or directors of the Adviser, who each
owns beneficially more than .5% of the outstanding securities of such issuer,
together own beneficially more than 5% of such securities; and
4. Mortgage or hypothecate the Fund's assets in excess of one-third of
the Fund's total assets.
If any percentage restriction or requirement described above is
satisfied at the time of investment, a later increase or decrease in such
percentage resulting from a change in asset value will not constitute a
violation of such restriction or requirement. However, should a change in net
asset value or other external events cause a Fund's investments in illiquid
securities, repurchase agreements with maturities in excess of seven days and
other instruments in such Fund which are not readily marketable to exceed the
limit set forth in such Fund's Prospectus for its investment in illiquid
securities, the Fund will act to cause the aggregate amount of such securities
to come within such limit as soon as reasonably practicable. In such an event,
however, such Fund would not be required to liquidate any portfolio securities
where the Fund would suffer a loss on the sale of such securities.
Portfolio Turnover
The portfolio turnover rate for each of the Funds is calculated by
dividing the lesser of a Fund's purchases or sales of portfolio securities for
the year by the monthly average value of the portfolio securities. The
calculation excludes all securities
B-13
<PAGE> 187
whose remaining maturities at the time of acquisition were one year or less.
Because the Money Market Fund intends to invest entirely in securities
with maturities of less than one year and because the Commission requires such
securities to be excluded from the calculation of portfolio turnover rate, the
portfolio turnover with respect to the Money Market Fund is expected to be zero
percent for regulatory purposes. The portfolio turnover rates for each of the
Diversified Equity Fund, the Income Equity Fund, the Special Equity Fund, the
Income Fund and the Intermediate Tax-Free Fund for the current fiscal year
ending June 30, 1997, are estimated to be less than 100%, 70%, 150%, 80% and
30%, respectively. The portfolio turnover rate may vary greatly from year to
year as well as within a particular year, and may also be affected by cash
requirements for redemptions of Shares. High portfolio turnover rates will
generally result in higher transaction costs, including brokerage commissions,
to a Fund and may result in additional tax consequences to a Fund's
Shareholders. Portfolio turnover will not be a limiting factor in making
investment decisions.
NET ASSET VALUE
As indicated in the Prospectus, the net asset value of each Fund is
determined and the Shares of each Fund are priced as of the Valuation Time or
Times (in the case of the Money Market Fund) on each Business Day of that Fund.
A "Business Day" of a Fund is a day on which the New York Stock Exchange is open
for trading and any other day (other than a day on which no Shares of that Fund
are tendered for redemption and no order to purchase any Shares of that Fund is
received) during which there is sufficient trading in portfolio instruments that
such Fund's net asset value per share might be materially affected. The New York
Stock Exchange will not 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.
Valuation of the Money Market Fund
The Money Market Fund has elected to use the amortized cost method of
valuation pursuant to Rule 2a-7 under the 1940 Act. This involves valuing an
instrument at its cost initially and thereafter assuming a constant amortization
to maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. This method may result in
periods during which value, as determined by amortized cost, is higher or lower
than the price the Money Market Fund would receive if it sold the instrument.
The value of securities in the Money Market Fund can be expected to vary
inversely with changes in prevailing interest rates.
B-14
<PAGE> 188
Pursuant to Rule 2a-7, the Money Market Fund will maintain a
dollar-weighted average portfolio maturity appropriate to the Money Market
Fund's objective of maintaining a stable net asset value per share, provided
that the Money Market Fund will not purchase any security with a remaining
maturity of more than 397 days (thirteen months) (securities subject to
repurchase agreements may bear longer maturities) nor maintain a dollar-weighted
average portfolio maturity which exceeds 90 days. The Group's Board of Trustees
has also undertaken to establish procedures reasonably designed, taking into
account current market conditions and the investment objective of the Money
Market Fund, to stabilize the net asset value per share of the Money Market Fund
for purposes of sales and redemptions at $1.00. These procedures include review
by the Trustees, at such intervals as they deem appropriate, to determine the
extent, if any, to which the net asset value per share of the Money Market Fund
calculated by using available market quotations deviates from $1.00 per Share.
In the event such deviation exceeds one-half of one percent, Rule 2a-7 requires
that the Board of Trustees promptly consider what action, if any, should be
initiated. If the Trustees believe that the extent of any deviation from the
Money Market Fund's $1.00 amortized cost price per Share may result in material
dilution or other unfair results to new or existing investors, they will take
such steps as they consider appropriate to eliminate or reduce, to the extent
reasonably practicable, any such dilution or unfair results. These steps may
include selling portfolio instruments prior to maturity, shortening the average
portfolio maturity, withholding or reducing dividends, reducing the number of
the Money Market Fund's outstanding Shares without monetary consideration, or
utilizing a net asset value per share determined by using available market
quotations.
Valuation of the Other Funds
Investments in securities for which market quotations are readily
available are valued based upon their current available prices in the principal
market in which such securities are normally traded. Unlisted securities for
which market quotations are readily available are valued at such market value.
Securities and other assets for which quotations are not readily available are
valued at their fair value as determined in good faith under consistently
applied procedures established by and under the general supervision of the
Trustees of the Group. Short-term securities (i.e., with maturities of 60 days
or less) are valued at either amortized cost or original cost plus accrued
interest, which approximates current value.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of each of the Funds are sold on a continuous basis by BISYS,
and BISYS has agreed to use appropriate efforts to solicit
B-15
<PAGE> 189
all purchase orders. In addition to purchasing Shares directly from BISYS,
Shares may be purchased through procedures established by BISYS in connection
with the requirements of accounts at the Adviser or the Adviser's affiliated
entities (collectively, "Entities"). Customers purchasing Shares of the Funds
may include officers, directors, or employees of the Adviser or the Entities.
The Group may suspend the right of redemption or postpone the date of
payment for Shares during any period when (a) trading on the New York Stock
Exchange (the "Exchange") is restricted by applicable rules and regulations of
the Commission, (b) the Exchange is closed for other than customary weekend and
holiday closings, (c) the Commission has by order permitted such suspension, or
(d) an emergency exists as a result of which (i) disposal by the Group of
securities owned by it is not reasonably practical, or (ii) it is not reasonably
practical for the Group to determine the fair value of its net assets.
MANAGEMENT OF THE GROUP
Trustees and Officers
Overall responsibility for management of the Group rests with its Board
of Trustees. The Trustees elect the officers of the Group to supervise actively
its day-to-day operations.
The names of the Trustees and officers of the Group, their addresses,
and principal occupations during the past five years are as follows:
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation
Name and Address With the Group During Past 5 Years
- ---------------- ---------------- --------------------
<S> <C> <C>
Walter B. Grimm* Chairman, From June, 1992 to present,
3435 Stelzer Road President and employee of BISYS Fund
Columbus, Ohio 43219 Trustee Services Limited Partnership
Age: 51 (formerly The Winsbury
Company); from July, 1981
to June, 1992, President of
Leigh Investments Consulting
(investment firm).
Nancy E. Converse* Trustee and Since June, 1990, employee of
3435 Stelzer Road Assistant BISYS Fund Services Limited
Columbus, Ohio 43219 Secretary Partnership (formerly, The
Age: 47 Winsbury Company) or BISYS
Fund Services Ohio, Inc.
(formerly The Winsbury
Service Corporation).
Maurice G. Stark Trustee Consultant; from 1979 to
7662 Cloister Drive December, 1994, Vice
Columbus, Ohio 43235 President-Finance and Chief
Age: 61 Financial Officer, Battelle
</TABLE>
B-16
<PAGE> 190
<TABLE>
<S> <C> <C>
Memorial Institute (scientific
research and development
service corporation).
James H. Woodward, Ph.D. Trustee Since July 1991, Chancellor
The University of North of The University of North
Carolina at Charlotte Carolina at Charlotte.
Charlotte, NC 28223
Age: 56
Chalmers P. Wylie Trustee From April, 1993 to present,
754 Stonewood Court of Counsel with Emens,
Columbus, Ohio 43235 Kegler, Brown, Hill & Ritter
Age: 75 (law firm); from January,
1993 to present, Adjunct
Professor at The Ohio State
University; from January, 1967
to January, 1993, Member of
the United States House of
Representatives for the 15th District.
J. David Huber Vice President Since January, 1996,
3435 Stelzer Road President of BISYS Fund
Columbus, Ohio 43219 Services Division of BISYS
Age: 50 Fund Services Limited
Partnership; from June,
1987 to December, 1995,
employee of BISYS Fund
Services Limited Partnership
(formerly The Winsbury
Company); from September,
1988 to present, Vice
President of BISYS Fund
Services Ohio, Inc.
(formerly The Winsbury
Service Corporation).
William J. Tomko Vice President From April, 1987 to present,
3435 Stelzer Road employee of BISYS Fund
Columbus, Ohio 43219 Services Limited Partnership
Age: 37 (formerly The Winsbury
Company).
Stephen G. Mintos Treasurer From January, 1987 to
3435 Stelzer Road present, employee of BISYS
Columbus, Ohio 43219 Fund Services Limited
Age: 42 Partnership (formerly The
Winsbury Company).
George L. Stevens Secretary From September, 1996 to
3435 Stelzer Road present, employee of
Columbus, Ohio 43219 BISYS Fund Services Limited
Age: 45 Partnership; from September,
1995 to August, 1996,
consultant on bank investment
products and activities; from
June 1980, to September, 1995,
employee of AmSouth Bank.
</TABLE>
B-17
<PAGE> 191
<TABLE>
<S> <C> <C>
Alaina V. Metz Assistant From June, 1995 to present,
3435 Stelzer Road Secretary employee of BISYS Fund
Columbus, Ohio 43219 Services Limited Partnership;
Age: 28 prior to June 1995,
Supervisor at Alliance
Capital Management, L.P.
(investment management firm).
</TABLE>
- -------------------
*Mr. Grimm and Ms. Converse are each considered to be an "interested
person" of the Group as defined in the 1940 Act.
As of the date of this Statement of Additional Information, the Group's
officers and trustees, as a group, own less than 1% of any Fund's Shares.
No officer or employee of BISYS or BISYS Fund Services, Inc. receives
any compensation from the Group for acting as 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 Funds for acting as
Administrator and pursuant to the Distribution and Shareholder Service Plan
described below, and may receive fees pursuant to the Administrative Services
Plan described below. BISYS Fund Services, Inc. receives fees from the Funds for
acting as transfer agent and for providing certain fund accounting services. Ms.
Converse and Ms. Metz and Messrs. Grimm, Huber, Mintos, Tomko and Stevens are
employees of BISYS.
The following table sets forth information regarding all compensation
paid by the Group to its Trustees for their services as trustees during the
fiscal year ended June 30, 1996. The Group has no pension or retirement plans.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Aggregate Total Compensation
Name and Position Compensation From the Group
With the Group From the Group and the Fund Complex*
- ----------------- -------------- ---------------------
<S> <C> <C>
Walter B. Grimm $0 $0
Trustee
Nancy E. Converse $0 $0
Trustee
Maurice G. Stark $7,772.17 $7,772.17
Trustee
Michael M. VanBuskirk(1) $7,772.17 $7,772.17
Trustee
</TABLE>
B-18
<PAGE> 192
<TABLE>
<S> <C> <C>
James H. Woodward, Ph.D. $0 $0
Trustee
Chalmers P. Wylie $7,772.17 $7,772.17
Trustee
</TABLE>
- ---------------
*For purposes of this Table, Fund Complex means one or more mutual
funds, including the Funds, which have a common investment adviser or affiliated
investment advisers or which hold themselves out to the public as being related.
1 Mr. VanBuskirk resigned his position as trustee of the Group
effective May 3, 1996.
Ms. Converse and Dr. Woodward were elected trustees of the Group on
June 28, 1996.
Investment Adviser
Investment advisory and management services are provided to the Funds
of the Group by 1st Source Bank (the "Adviser"), pursuant to an Investment
Advisory Agreement dated as of August 20, 1996. Under the terms of the
Investment Advisory Agreement, the Adviser has agreed to provide, either
directly or through one or more subadvisers, investment advisory services as
described in the Prospectus of the Funds. For the services provided and expenses
assumed pursuant to the Investment Advisory Agreement, each Fund pays the
Adviser a fee, computed daily and paid monthly, at the following annual rates:
(1) for the Money Market Fund, thirty-five one-hundredths of one percent (0.35%)
of such Fund's average daily net assets; (2) for the Diversified Equity Fund,
one hundred ten one-hundredths of one percent (1.10%) of such Fund's average
daily net assets; (3) for both the Income Equity Fund and the Special Equity
Fund, eighty one-hundredths of one percent (0.80%) of such Fund's average daily
net assets; and (4) for both the Income Fund and the Intermediate Tax-Free Fund,
fifty-five one-hundredths of one percent (0.55%) of such Fund's average daily
net assets. The Adviser may from time to time voluntarily reduce all or a
portion of its advisory fee with respect to a Fund to increase the net income of
that Fund available for distribution as dividends.
Unless sooner terminated, the Investment Advisory Agreement will
continue in effect until August 20, 1998, and year to year thereafter for
successive annual periods ending on August 20, if, as to each Fund, such
continuance is approved at least annually by the Group's Board of Trustees or by
vote of a majority of the outstanding Shares of the relevant Fund (as defined
under "GENERAL INFORMATION - Miscellaneous" in the Funds' Prospectus), and a
majority of the Trustees who are not parties to the Investment
B-19
<PAGE> 193
Advisory Agreement or interested persons (as defined in the 1940 Act) of any
party to the Investment Advisory Agreement by votes cast in person at a meeting
called for such purpose. The Investment Advisory Agreement is terminable as to a
Fund at any time on 60 days' written notice without penalty by the Trustees, by
vote of a majority of the outstanding Shares of that Fund, or by the Adviser.
The Investment Advisory Agreement also terminates automatically in the event of
any assignment, as defined in the 1940 Act.
The Investment Advisory Agreement provides that the Adviser shall not
be liable for any error of judgment or mistake of law or for any loss suffered
by a Fund in connection with the performance of the Investment Advisory
Agreement, except a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith, or gross negligence on the part of the Adviser in the
performance of its duties, or from reckless disregard by the Adviser of its
duties and obligations thereunder.
The Adviser has licensed the name "1st Source Monogram" to the Funds on
a royalty-free basis, and the Adviser has reserved to itself the right to grant
the non-exclusive right to use the name "1st Source Monogram" to any other
person. At such time as the Investment Advisory Agreement is no longer in
effect, the Adviser may require the Funds to cease using the name "1st Source
Monogram."
SUBADVISERS
Pursuant to the terms of the Investment Advisory Agreement, the Adviser
has entered into three separate Sub-Investment Advisory Agreements each dated as
of August 20, 1996 (collectively, the "Sub-Advisory Agreements"). The first
Sub-Advisory Agreement is with Miller Anderson & Sherrerd LLP, One Tower Bridge,
Suite 1100, West Conshohocken, Pennsylvania 19428 ("Miller Anderson"). The
second Sub-Advisory Agreement is with Loomis, Sayles & Company, L.P., 3 First
National Plaza, Suite 5450, Chicago, Illinois 60600 ("Loomis"). The third
Sub-Advisory Agreement is with Columbus Circle Investors, One Station Place,
Stamford, Connecticut 06902 ("Columbus"). Pursuant to the terms of such
Sub-Investment Advisory Agreements, Miller Anderson, Loomis and Columbus have
each been retained by the Adviser to manage the investment and reinvestment of a
portion the assets of the Diversified Equity Fund, subject to the direction and
control of the Adviser and the Group's Board of Trustees.
Under this arrangement, the Sub-Advisers are responsible for the
day-to-day management of the Diversified Equity Fund's assets, investment
performance, policies and guidelines, and maintaining certain books and records,
and the Adviser is responsible for
B-20
<PAGE> 194
selecting and monitoring the performance of each of the Sub-Advisers, and for
reporting the activities of the Sub-Advisers in managing the Diversified Equity
Fund to the Group's Board of Trustees.
For their services provided and expenses assumed pursuant to their
respective Sub-Investment Advisory Agreement with the Adviser, the Sub-Advisers
receive from the Adviser a fee (computed daily and paid monthly as a percentage
of the Diversified Equity Fund's average daily net assets managed by that
Sub-Adviser) at the following annual rates: for Miller Anderson, 0.625% up to
$25,000,000 and 0.375% of the excess over $25,000,000; for Loomis, 0.65% up to
$5,000,000 and 0.50% of the excess over $5,000,000; and for Columbus, 1.00% up
to $10,000,000 and 0.50% of the excess over $10,000,000.
Miller Anderson was founded in 1969 and became wholly owned by The
Morgan Stanley Group, Inc. in December, 1995.
Loomis was founded in 1926 and established its Chicago office in 1952.
Loomis' sole general partner is Loomis, Sayles & Company, Incorporated.
Columbus was founded in 1975 and is a sub-partnership of PIMCO Advisors
L.P., a publicly held limited partnership whose general partner is owned by
Pacific Mutual Life Insurance Company and the managing directors of one of the
subpartnerships of PIMCO Advisors L.P.
Unless sooner terminated, each of the Sub-Investment Advisory
Agreements continue in effect as to the Diversified Equity Fund until August 20,
1998, and thereafter for successive one-year periods ending August 20 of each
year if such continuance is approved at least annually by the Group's Board of
Trustees or by vote of a majority of the outstanding shares of such Fund (as
defined under "GENERAL INFORMATION - Miscellaneous" in the Funds' Prospectus),
and a majority of the Trustees who are not parties to the Sub-Investment
Advisory Agreements or interested persons (as defined in the 1940 Act) of any
party to the Sub-Investment Advisory Agreements by votes cast in person at a
meeting called for such purpose. Each of the Sub-Investment Advisory Agreements
are terminable as to the Diversified Equity Fund at any time on 60 days' written
notice without penalty by the Fund, by vote of a majority of the outstanding
shares of that Fund, or on 60 days' prior written notice from the Subadviser.
Such Agreements also terminate automatically in the event of any assignment, as
defined in the 1940 Act.
Each of the Sub-Investment Advisory Agreements provide that the
respective Sub-Advisers shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Group in
B-21
<PAGE> 195
connection with the performance of their duties, except a loss resulting from a
breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith, or gross
negligence on the part of the respective Sub-Advisers in the performance of
their duties, or from reckless disregard of their duties and obligations
thereunder.
Portfolio Transactions
Pursuant to the Investment Advisory Agreement with respect to each
Fund, other than the Diversified Equity Fund, the Adviser determines, subject to
the general supervision of the Board of Trustees of the Group and in accordance
with each such Fund's investment objective and restrictions, which securities
are to be purchased and sold by a Fund, and which brokers are to be eligible to
execute such Fund's portfolio transactions. Pursuant to the Sub-Investment
Advisory Agreements, the Sub-Advisers determine, subject to the supervision of
the Adviser and the overall general supervision of the Group's Board of Trustees
and in accordance with the Diversified Equity Fund's investment objectives and
policies, which securities are to be purchases and sold by such Fund, and which
brokers are to be eligible to execute such Fund's portfolio transactions.
Purchases and sales of portfolio securities with respect to the Income
Fund, the Intermediate Tax-Free Fund and the Money Market Fund usually are
principal transactions in which portfolio securities are normally purchased
directly from the issuer or from an underwriter or market maker for the
securities. Purchases from underwriters of portfolio securities generally
include a commission or concession paid by the issuer to the underwriter, and
purchases from dealers serving as market makers may include the spread between
the bid and asked price.
Transactions on stock exchanges involve the payment of negotiated
brokerage commissions. Transactions in the over-the-counter market are generally
principal transactions with dealers. With respect to the over-the-counter
market, the Group, where possible, will deal directly with dealers who make a
market in the securities involved except in those circumstances where better
price and execution are available elsewhere.
Allocation of transactions, including their frequency, to various
brokers and dealers is determined by the Adviser or the applicable Sub-Adviser,
as the case may be, in its best judgment and in a manner deemed fair and
reasonable to Shareholders. The primary consideration is prompt execution of
orders in an effective manner at the most favorable price. Subject to this
consideration, brokers and dealers who provide supplemental investment research
to the Adviser or the applicable Sub-Adviser, as the case may be, may receive
orders for transactions on behalf of the Funds. The
B-22
<PAGE> 196
Adviser and each Sub-Adviser are authorized to pay a broker-dealer who provides
such brokerage and research services a commission for executing each such Fund's
brokerage transactions which is in excess of the amount of commission another
broker would have charged for effecting that transaction if, but only if, the
Adviser or Sub-Adviser, as the case may be, determines in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker viewed in terms of that particular transaction
or in terms of all of the accounts over which it exercises investment
discretion. Any such research and other statistical and factual information
provided by brokers to a Fund or to the Adviser or Sub-Adviser, as the case may
be, is considered to be in addition to and not in lieu of services required to
be performed by such Adviser or Sub-Adviser under its respective agreement
regarding management of the Fund. The cost, value and specific application of
such information are indeterminable and hence are not practicably allocable
among the Funds and other clients of the Adviser or Sub-Adviser, as the case may
be, who may indirectly benefit from the availability of such information.
Similarly, the Funds may indirectly benefit from information made available as a
result of transactions effected for such other clients. Under the Investment
Advisory Agreement and Sub-Advisory Agreements, the Adviser and Sub-Advisers are
permitted to pay higher brokerage commissions for brokerage and research
services in accordance with Section 28(e) of the Securities Exchange Act of
1934. In the event the Adviser and/or the Sub-Advisers do follow such a
practice, they will do so on a basis which is fair and equitable to the Group
and the Funds.
While the Adviser and the Sub-Advisers generally seek competitive
commissions, the Group may not necessarily pay the lowest commission available
on each brokerage transaction, for reasons discussed above.
Except as otherwise disclosed to the Shareholders of the Funds and as
permitted by applicable laws, rules and regulations, the Group will not, on
behalf of the Funds, execute portfolio transactions through, acquire portfolio
securities issued by, make savings deposits in, or enter into repurchase or
reverse repurchase agreements with the Adviser, the Sub-Advisers, 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.
Investment decisions for each Fund are made independently from those
for the other Funds, other funds of the Group or any other investment company or
account managed by the Adviser or any of the Sub-Advisers. Any such other fund,
investment company or account may also invest in the same securities as the
Group on behalf of the Funds. When a purchase or sale of the same security is
made at
B-23
<PAGE> 197
substantially the same time on behalf of a Fund and another fund of the Group,
investment company or account, the transaction will be averaged as to price and
available investments will be allocated as to amount in a manner which the
Adviser or the Sub-Adviser, as the case may be, believes to be equitable to the
Fund and such other fund, investment company or account. In some instances, this
investment procedure may adversely affect the price paid or received by a Fund
or the size of the position obtained by a Fund. To the extent permitted by law,
the Adviser and the Sub-Advisers may aggregate the securities to be sold or
purchased for a Fund with those to be sold or purchased for the other Funds or
for other investment companies or accounts in order to obtain best execution. As
provided by the Investment Advisory Agreement and the Sub-Advisory Agreements,
in making investment recommendations for the Funds, neither the Adviser nor any
Sub-Adviser will inquire or take into consideration whether an issuer of
securities proposed for purchase or sale by the Group is a customer of the
Adviser, any Sub-Adviser, any of their parents or subsidiaries or affiliates
and, in dealing with its customers, the Adviser, the Sub-Advisers, their
respective parents, subsidiaries, and affiliates will not inquire or take into
consideration whether securities of such customers are held by the Funds or any
other fund of the Group.
Glass-Steagall Act
In 1971, the United States Supreme Court held in Investment Company
Institute v. Camp that the Federal statute commonly referred to as the
Glass-Steagall Act prohibits a national bank from operating a mutual fund for
the collective investment of managing agency accounts. Subsequently, the Board
of Governors of the Federal Reserve System (the "Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision: (a)
forbid a bank holding company registered under the Federal Bank Holding Company
Act of 1956 (the "Holding Company Act") or any non-bank affiliate thereof from
sponsoring, organizing, or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a holding company or affiliate from acting as investment adviser, transfer
agent, and custodian to such an investment company. In 1981, the United States
Supreme Court held in Board of Governors of the Federal Reserve System v.
Investment Company Institute that the Board did not exceed its authority under
the Holding Company Act when it adopted its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisers to registered closed-end investment companies. In the Board
of Governors case, the Supreme Court also stated that if a national bank
complied with the restrictions imposed by the Board in its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisers to investment
B-24
<PAGE> 198
companies, a national bank performing investment advisory services for an
investment company would not violate the Glass-Steagall Act.
The Adviser believes that it possesses the legal authority to perform
the services for the Funds contemplated by the Prospectus, this Statement of
Additional Information and the Investment Advisory Agreement without violation
of applicable statutes and regulations. Future changes in either Federal or
state statutes and regulations relating to the permissible activities of banks
or bank holding companies and the subsidiaries or affiliates of those entities,
as well as further judicial or administrative decisions or interpretations of
present and future statutes and regulations, could prevent or restrict the
Adviser from continuing to perform such services for the Group. In addition,
current state securities laws on the issue of the registration of banks as
brokers or dealers may differ from the interpretation of federal law, and banks
and financial institutions may be required to register as dealers pursuant to
the laws of a specific state. Depending upon the nature of any changes in the
services which could be provided by the Adviser, the Board of Trustees of the
Group would review the Group's relationship with the Adviser and consider taking
all action necessary in the circumstances.
Should future legislative, judicial, or administrative action prohibit
or restrict the proposed activities of the Adviser and/or the Adviser's
affiliated and correspondent banks in connection with Customer purchases of
Shares of any of the Funds, those banks might be required to alter materially or
discontinue the services offered by them to Customers. It is not anticipated,
however, that any change in the Group's method of operations would affect its
net asset value per share or result in financial losses to any Customer.
Administrator
BISYS serves as administrator (the "Administrator") to the Funds
pursuant to a Management and Administration Agreement dated as of August 20,
1996 (the "Administration Agreement"). The Administrator assists in supervising
all operations of each Fund (other than those performed by the Adviser under the
Investment Advisory Agreement, by the Sub-Advisers under the Sub-Advisory
Agreements, by The Fifth Third Bank under the Custody Agreement and by BISYS
Fund Services, Inc. under the Transfer Agency Agreement and Fund Accounting
Agreement). The Administrator is a broker-dealer registered with the Commission,
and is a member of the National Association of Securities Dealers, Inc. The
Administrator provides financial services to institutional clients.
Under the Administration Agreement, the Administrator has agreed to
maintain office facilities; furnish statistical and research data, clerical,
certain bookkeeping services and
B-25
<PAGE> 199
stationery and office supplies; prepare the periodic reports to the Commission
on Form N-SAR or any replacement forms therefor; compile data for, assist the
Group or its designee in the preparation of, and file all of the Funds' federal
and state tax returns and required tax filings other than those required to be
made by the Funds' custodian and Transfer Agent; prepare compliance filings
pursuant to state securities laws with the advice of the Group's counsel; assist
to the extent requested by the Group with the Group's preparation of its Annual
and Semi-Annual Reports to Shareholders and its Registration Statement (on Form
N-1A or any replacement therefor); compile data for, prepare and file timely
Notices to the Commission required pursuant to Rule 24f-2 under the 1940 Act;
keep and maintain the financial accounts and records of each Fund, including
calculation of daily expense accruals; periodic review of the amount of the
deviation, if any, of the Money Market Fund's current net asset value per share
(calculated using available market quotations or an appropriate substitute that
reflects current market conditions) from such Fund's amortized cost price per
share; and generally assist in all aspects of the Funds' operations other than
those performed by the Adviser under the Investment Advisory Agreement, by the
Sub-Advisers under the Sub-Investment Advisory Agreements, by The Fifth Third
Bank under the Custody Agreement and by BISYS Fund Services, Inc. under the
Transfer Agency and Fund Accounting Agreements. Under the Administration
Agreement, the Administrator may delegate all or any part of its
responsibilities thereunder.
The Administrator receives a fee from each Fund for its services as
Administrator and expenses assumed pursuant to the Administration Agreement,
equal to a fee calculated daily and paid periodically, at the annual rate equal
to twenty one-hundredths of one percent (.20%) of that Fund's average daily net
assets.
Unless sooner terminated as provided therein, the Administration
Agreement has an initial term expiring on August 20, 1999. The Administration
Agreement thereafter shall be renewed automatically for successive one-year
terms, unless written notice not to renew is given by the non-renewing party to
the other party at least 60 days prior to the expiration of the then-current
term. The Administration Agreement is terminable with respect to a particular
Fund only upon mutual agreement of the parties to the Administration Agreement
and for cause (as defined in the Administration Agreement) by the party alleging
cause, on not less than 60 days' notice by the Group's Board of Trustees or by
the Administrator.
The Administration Agreement provides that the Administrator shall not
be liable for any error of judgment or mistake of law or any loss suffered by
any Fund in connection with the matters to which the Administration Agreement
relates, except a loss resulting from willful misfeasance, bad faith, or
negligence in the
B-26
<PAGE> 200
performance of its duties, or from the reckless disregard by the Administrator
of its obligations and duties thereunder.
Distributor
BISYS serves as agent for each of the Funds in the distribution of its
Shares pursuant to a Distribution Agreement dated as of August 20, 1996 (the
"Distribution Agreement"). Unless otherwise terminated, the Distribution
Agreement will continue in effect until August 20, 1998, and year to year
thereafter for successive annual periods ending on August 20, if, as to each
Fund, such continuance is approved at least annually by (i) by the Group's Board
of Trustees or by the vote of a majority of the outstanding shares of that Fund,
and (ii) by the vote of a majority of the Trustees of the Group who are not
parties to the Distribution Agreement or interested persons (as defined in the
1940 Act) of any party to the Distribution Agreement, cast in person at a
meeting called for the purpose of voting on such approval. The Distribution
Agreement may be terminated in the event of any assignment, as defined in the
1940 Act.
In its capacity as Distributor, BISYS solicits orders for the sale of
Shares, advertises and pays the costs of advertising, office space and the
personnel involved in such activities. BISYS receives no compensation under the
Distribution Agreement with the Group, but may retain all or a portion of the
sales charge imposed upon sales of Shares of each of the Funds.
As described in the Prospectus, the Group has adopted a Distribution
and Shareholder Service Plan (the "Plan") with respect to the Funds pursuant to
Rule 12b-1 under the 1940 Act under which each Fund is authorized to pay BISYS
in an amount not in excess, on an annual basis, of 0.25% of the average daily
net asset value of the Shares of that Fund (the "12b-1 Fee"). Payments of the
12b-1 Fee to BISYS will be used (i) to compensate Participating Organizations
(as defined below) for providing distribution assistance relating to a Fund's
Shares, (ii) for promotional activities intended to result in the sale of Shares
and distribution of prospectuses to other than current shareholders, and (iii)
to compensate Participating Organizations for providing shareholder services
with respect to their customers who are, from time to time, beneficial and
record holders of Shares. Participating Organizations include banks (including
affiliates of the Adviser), broker-dealers, the Adviser, BISYS and other
institutions. Payments to such Participating Organizations may be made pursuant
to agreements entered into with BISYS.
As required by Rule 12b-1, the Plan was approved by the initial
Shareholder of each of the Funds and by the Board of Trustees, including a
majority of the Trustees who are not interested persons of any of the Funds and
who have no direct or
B-27
<PAGE> 201
indirect financial interest in the operation of the Plan (the "Independent
Trustees"). The Plan may be terminated as to a Fund by vote of a majority of the
Independent Trustees, or by vote of majority of the outstanding Shares of that
Fund. Any change in the Plan that would materially increase the distribution
cost to a Fund requires Shareholder approval. The Trustees review quarterly a
written report of such costs and the purposes for which such costs have been
incurred. The Plan may be amended by vote of the Trustees including a majority
of the Independent Trustees, cast in person at a meeting called for that
purpose. For so long as the Plan is in effect, selection and nomination of those
Trustees who are not interested persons of the Group shall be committed to the
discretion of such disinterested persons. All agreements with any person
relating to the implementation of the Plan may be terminated at any time on 60
days' written notice without payment of any penalty, by vote of a majority of
the Independent Trustees or by a vote of the majority of the outstanding Shares
of the Fund. The Plan will continue in effect for successive one-year periods,
provided that each such continuance is specifically approved (i) by the vote of
a majority of the Independent Trustees, and (ii) by a vote of a majority of the
entire Board of Trustees cast in person at a meeting called for that purpose.
The Board of Trustees has a duty to request and evaluate such information as may
be reasonably necessary for them to make an informed determination of whether
the Plan should be implemented or continued. In addition the Trustees in
approving the Plan must determine that there is a reasonable likelihood that the
Plan will benefit each Fund and its Shareholders.
The Board of Trustees of the Group believes that the Plan is in the
best interests of each Fund since it encourages Fund growth and maintenance of
Fund assets. As a Fund grows in size, certain expenses, and therefore total
expenses per Share, may be reduced and overall performance per Share may be
improved.
BISYS may enter into, from time to time, Rule 12b-1 Agreements with
selected dealers pursuant to which such dealers will provide certain services in
connection with the distribution of a Fund's Shares including, but not limited
to, those discussed above.
Administrative Services Plan
As described in the Prospectus, the Group has also adopted an
Administrative Services Plan (the "Services Plan") under which each Fund is
authorized to pay certain financial institutions, including the Adviser, its
correspondent and affiliated banks, and BISYS (a "Service Organization"), to
provide certain ministerial, record keeping, and administrative support services
to their customers who own of record or beneficially Shares in a Fund. Payments
to such Service Organizations are made pursuant to Servicing Agreements between
the Group and the Service Organization. The Services Plan
B-28
<PAGE> 202
authorizes each Fund to make payments to Service Organizations in an amount, on
an annual basis, of up to 0.25% of the average daily net asset value of that
Fund. The Services Plan has been approved by the Board of Trustees of the Group,
including a majority of the Trustees who are not interested persons of the Group
(as defined in the 1940 Act) and who have no direct or indirect financial
interest in the operation of the Services Plan or in any Servicing Agreements
thereunder (the "Disinterested Trustees"). The Services Plan may be terminated
as to a Fund by a vote of a majority of the Disinterested Trustees. The Trustees
review quarterly a written report of the amounts expended pursuant to the
Services Plan and the purposes for which such expenditures were made. The
Services Plan may be amended by a vote of the Trustees, provided that any
material amendments also require the vote of a majority of the Disinterested
Trustees. For so long as the Services Plan is in effect, selection and
nomination of those Disinterested Trustees shall be committed to the discretion
of the Group's Disinterested Trustees. All Servicing Agreements may be
terminated at any time without the payment of any penalty by a vote of a
majority of the Disinterested Trustees. The Services Plan will continue in
effect for successive one-year periods, provided that each such continuance is
specifically approved by a majority of the Board of Trustees, including a
majority of the Disinterested Trustees. As of the date hereof, the Group has not
entered into any such servicing agreements.
Custodian
The Fifth Third Bank, 38 Fountain Square Plaza, Cincinnati, Ohio 45263
(the "Custodian"), has been selected to serve as the Funds' custodian pursuant
to the Custody Agreement dated as of August 20, 1996. The Custodian's
responsibilities include safeguarding and controlling the Funds' cash and
securities, handling the receipt and delivery of securities, and collecting
interest and dividends on the Funds' investments.
Transfer Agency and Fund Accounting Services
BISYS Fund Services, Inc. serves as transfer agent and dividend
disbursing agent (the "Transfer Agent") for all of the Funds pursuant to the
Transfer Agency Agreement dated as of August 20, 1996. Pursuant to such
Agreement, the Transfer Agent, among other things, performs the following
services in connection with each Fund's shareholders of record: maintenance of
shareholder records for each of the Fund's shareholders of record; processing
shareholder purchase and redemption orders; processing transfers and exchanges
of shares of the Funds on the shareholder files and records; processing dividend
payments and reinvestments; and assistance in the mailing of shareholder reports
and proxy solicitation materials. For such services the Transfer Agent receives
a fee based on the number of shareholders of record.
B-29
<PAGE> 203
In addition, BISYS Fund Services, Inc. provides certain fund accounting
services to the Funds pursuant to a Fund Accounting Agreement dated as of August
20, 1996. BISYS Fund Services, Inc. receives a fee from each Fund for such
services equal to the greater of (a) a fee computed at an annual rate of three
one-hundredths of one percent (.03%) of that Fund's average daily net assets, or
(b) $50,000 minus the fee paid by such Fund under its Management and
Administration Agreement with BISYS of the same date. Under such Agreement,
BISYS Fund Services, Inc. maintains the accounting books and records for each
Fund, including journals containing an itemized daily record of all purchases
and sales of portfolio securities, all receipts and disbursements of cash and
all other debits and credits, general and auxiliary ledgers reflecting all
asset, liability, reserve, capital, income and expense accounts, including
interest accrued and interest received, and other required separate ledger
accounts; maintains a monthly trial balance of all ledger accounts; performs
certain accounting services for the Fund, including calculation of the net asset
value per share, calculation of the dividend and capital gain distributions, if
any, and of yield, reconciliation of cash movements with the Fund's custodian,
affirmation to the Fund's custodian of all portfolio trades and cash
settlements, verification and reconciliation with the Fund's custodian of all
daily trade activity; provides certain reports; obtains dealer quotations,
prices from a pricing service or matrix prices on all portfolio securities in
order to mark the portfolio to the market; and prepares an interim balance
sheet, statement of income and expense, and statement of changes in net assets
for each Fund.
Auditors
Coopers & Lybrand L.L.P., 100 East Broad Street, Columbus, Ohio 43215,
has been selected as the independent accountants for the Funds and as such will
audit the financial statements of the Funds.
Legal Counsel
Baker & Hostetler LLP, 65 East State Street, Columbus, Ohio 43215 is
counsel to the Group and will pass upon the legality of the Shares offered
hereby.
ADDITIONAL INFORMATION
Description of Shares
The Group is an Ohio business trust. The Group was organized on April
25, 1988, and the Group's Declaration of Trust was filed with the Secretary of
State of Ohio on April 25, 1988. The Declaration of Trust authorizes the Board
of Trustees to issue an
B-30
<PAGE> 204
unlimited number of shares, which are shares of beneficial interest, without par
value. The Group presently has 17 series of shares, one of which represents
interests in the Money Market Fund, one of which represents interests in the
Diversified Equity Fund, one of which represents interests in the Income Equity
Fund, one of which represents interests in the Special Equity Fund, one of which
represents interests in the Income Fund and one of which represents interests in
the Intermediate Tax-Free Fund. The Group's Declaration of Trust authorizes the
Board of Trustees to divide or redivide any unissued shares of the Group into
one or more additional series by setting or changing in any one or more respects
their respective preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption.
Shares have no subscription or preemptive rights and only such
conversion or exchange rights as the Board of Trustees may grant in its
discretion. When issued for payment as described in the Prospectus and this
Statement of Additional Information, the Shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of the Group,
shareholders of a fund are entitled to receive the assets available for
distribution belonging to that fund, and a proportionate distribution, based
upon the relative asset values of the respective funds, of any general assets
not belonging to any particular fund which are available for distribution.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Group shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each fund affected by the matter. For purposes of determining whether the
approval of a majority of the outstanding shares of a fund will be required in
connection with a matter, a fund will be deemed to be affected by a matter
unless it is clear that the interests of each fund in the matter are identical,
or that the matter does not affect any interest of the fund. Under Rule 18f-2,
the approval of an investment advisory agreement or any change in investment
policy would be effectively acted upon with respect to a fund only if approved
by a majority of the outstanding shares of such fund. However, Rule 18f-2 also
provides that the approval of principal underwriting contracts and the election
of Trustees may be effectively acted upon by shareholders of the Group voting
without regard to series.
As of March 3, 1997, the following is the only entity
known to the Group who owns of record or beneficially 5% or more of the
outstanding Shares of any Fund: 1st Source Bank, P.O. Box 1602, South Bend,
Indiana, 46634 owned of record and beneficially 99.6% of the issued and
outstanding Shares of the Income Fund, 99.01% of the issued and outstanding
Shares of the Income Equity Fund, 99.74% of the issued and outstanding Shares of
the Diversified Equity Fund and 98.97% of the issued and outstanding Shares of
the Special Equity Fund.
B-31
<PAGE> 205
Vote of a Majority of the Outstanding Shares
As used in the Prospectus and this Statement of Additional Information,
a "vote of a majority of the outstanding Shares" of a 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 that Fund present at a meeting at which the
holders of more than 50% of the votes attributable to Shareholders of record of
that Fund are represented in person or by proxy, or (b) the holders of more than
50% of the outstanding votes of Shareholders of that Fund.
Additional Tax Information
Each of the Funds is treated as a separate entity for federal income
tax purposes and intends to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986, as amended (the "Code"), for so long as such
qualification is in the best interest of that Fund's shareholders. In order to
qualify as a regulated investment company, each Fund must, among other things:
derive at least 90% of its gross income from dividends, interest, payments with
respect to securities loans, and gains from the sale or other disposition of
securities or foreign currencies, or other income derived with respect to its
business of investing in such stock, securities, or currencies; derive less than
30% of its gross income from the sale or other disposition of stock, securities,
options, future contracts or foreign currencies held less than three months; and
diversify its investments within certain prescribed limits. In addition, to
utilize the tax provisions specially applicable to regulated investment
companies, each Fund must distribute to its Shareholders at least 90% of its
investment company taxable income for the year. In general, a Fund's investment
company taxable income will be its taxable income subject to certain adjustments
and excluding the excess of any net long-term capital gain for the taxable year
over the net short-term capital loss, if any, for such year.
A non-deductible 4% excise tax is imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they otherwise have 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. The balance
of such income must be distributed during the next calendar year. If
distributions during a calendar year were less than the required amount, a Fund
would be subject to a non-deductible excise tax equal to 4% of the deficiency.
Although each Fund expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all
B-32
<PAGE> 206
federal income taxes, depending upon the extent of its activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located, or in which it is otherwise deemed to be
conducting business, a Fund may be subject to the tax laws of such states or
localities. In addition, if for any taxable year a Fund does not qualify for the
special tax treatment afforded regulated investment companies, all of its
taxable income will be subject to federal tax at regular corporate rates
(without any deduction for distributions to its Shareholders). In such event,
dividend distributions would be taxable to Shareholders to the extent of
earnings and profits, and would be eligible for the dividends received deduction
for corporations.
It is expected that each Fund will distribute annually to Shareholders
all or substantially all of the Fund's net ordinary income and net realized
capital gains and that such distributed net ordinary income and distributed net
realized capital gains will be taxable income to Shareholders for federal income
tax purposes, even if paid in additional Shares of the Fund and not in cash.
Distribution by a Fund of the excess of net long-term capital gain over
net short-term capital loss is taxable to Shareholders as long-term capital gain
in the year in which it is received, regardless of how long the Shareholder has
held the Shares. Such distributions are not eligible for the dividends-received
deduction.
Federal taxable income of individuals is subject to graduated tax rates
of 15%, 28%, 31%, 36% and 39.6%. Further, the marginal tax rate may be in excess
of 39.6%, because adjustments reduce or eliminate the benefit of the personal
exemption and itemized deductions for individuals with gross income in excess of
certain threshold amounts.
Capital gains of individuals are subject to tax at the same rates
applicable to ordinary income; however, the tax rate on long-term capital gains
of individuals cannot exceed 28%. Capital losses may be used to offset capital
gains. In addition, individuals may deduct up to $3,000 of net capital loss each
year to offset ordinary income. Excess net capital loss may be carried forward
and deducted in future years.
Federal taxable income of corporations in excess of $75,000 up to $10
million is subject to a 34% tax rate; however, because the benefit of lower tax
rates on a corporation's taxable income of less than $75,000 is phased out for
corporations with income in excess of $100,000 but lower than $335,000, a
maximum marginal tax rate of 39% may result. Federal taxable income of
corporations in excess of $10 million is subject to a tax rate of 35%. Further,
a corporation's federal taxable income in excess of $15 million is
B-33
<PAGE> 207
subject to an additional tax equal to 3% of taxable income over $15 million, but
not more than $100,000.
Capital gains of corporations are subject to tax at the same rates
applicable to ordinary income. Capital losses may be used only to offset capital
gains and excess net capital loss may be carried back three years and forward
five years.
Certain corporations are entitled to a 70% dividends received deduction
for distributions from certain domestic corporations. Each Fund will designate
the portion of any distributions which qualify for the 70% dividends received
deduction. The amount so designated may not exceed the amount received by the
Fund for its taxable year that qualifies for the dividends received deduction.
Because all of the Money Market Fund's, the Income Fund's and the Intermediate
Tax-Free Fund's net investment income is expected to be derived from earned
interest, it is anticipated that no distributions from those Funds will qualify
for the 70% dividends received deduction.
Foreign taxes may be imposed on a Fund by foreign countries with
respect to its income from foreign securities, if any. Since less than 50% in
value of any one Fund's total assets at the end of its fiscal year are expected
to be invested in stocks or securities of foreign corporations, such Fund will
not be entitled under the Code to pass through to its Shareholders their pro
rata share of the foreign taxes paid by the Fund. These taxes will be taken as a
deduction by such Fund.
Each Fund may be required by federal law to withhold and remit to the
U.S. Treasury 31% of taxable dividends, if any, and capital gain distributions
to any Shareholder, and the proceeds of redemption or the values of any
exchanges of Shares of a Fund, if such Shareholder (1) fails to furnish the
Group with a correct taxpayer identification number, (2) under-reports dividend
or interest income, or (3) fails to certify to the Group that he or she is not
subject to such withholding. An individual's taxpayer identification number is
his or her Social Security number.
The Intermediate Tax-Free Fund. The Intermediate Tax-Free Fund is not
intended to constitute a balanced investment program and is not designed for
investors seeking capital appreciation or maximum tax-exempt income irrespective
of fluctuations in principal. Shares of the Intermediate Tax-Free Fund would not
be suitable for tax-exempt institutions and may not be suitable for retirement
plans qualified under Section 401 of the Code, H.R. 10 plans, and individual
retirement accounts, since such plans and accounts are generally tax-exempt and,
therefore, would not gain any additional benefit from all or a portion of the
Intermediate Tax-Free Fund's dividends being tax-exempt and such dividends would
be ultimately taxable to the beneficiaries when distributed to
B-34
<PAGE> 208
them. In addition, the Intermediate Tax-Free Fund may not be appropriate
investments for entities which are "substantial users," or "related persons"
thereof, of facilities financed by private activity bonds held by the
Intermediate Tax-Free Fund.
The Code permits a regulated investment company which invests in Exempt
Securities to pay to its Shareholders "exempt-interest dividends," which are
excluded from gross income for federal income tax purposes, if at the close of
each quarter of its taxable year at least 50% of its total assets consist of
Exempt Securities.
An exempt-interest dividend is any dividend or part thereof (other than
a capital gain dividend) paid by the Intermediate Tax-Free Fund that is derived
from interest received by the Intermediate Tax-Free Fund that is excluded from
gross income for federal income tax purposes, net of certain deductions,
provided the dividend is designated as an exempt-interest dividend in a written
notice mailed to Shareholders not later than sixty days after the close of the
Intermediate Tax-Free Fund's taxable year. The percentage of the total dividends
paid by the Intermediate Tax-Free Fund during any taxable year that qualifies
as exempt-interest dividends will be the same for all Shareholders of the
Intermediate Tax-Free Fund receiving dividends during such year. Exempt-
interest dividends shall be treated by the Intermediate Tax-Free Fund's
Shareholders as items of interest excludable from their gross income for Federal
income tax purposes under Section 103(a) of the Code. However, a Shareholder is
advised to consult his tax adviser with respect to whether exempt-interest
dividends retain the exclusion under Section 103(a) of the Code if such
Shareholder is a "substantial user" or a "related person" to such user under
Section 147(a) of the Code with respect to any of the Exempt Securities held by
the Intermediate Tax-Free Fund. 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 shall be
disallowed to the extent of the amount of such exempt-interest dividend.
In general, interest on indebtedness incurred or continued by a
Shareholder to purchase or carry Shares is not deductible for federal income tax
purposes if the Intermediate Tax-Free Fund distributes exempt-interest dividends
during the Shareholder's taxable year. A Shareholder of the Intermediate
Tax-Free Fund that is a financial institution may not deduct interest expense
attributable to indebtedness incurred or continued to purchase or carry Shares
of the Intermediate Tax-Free Fund if the Intermediate Tax-Free Fund distributes
exempt-interest dividends during the Shareholder's taxable year. Certain federal
income tax deductions of property and casualty insurance companies holding
Shares of the Intermediate Tax-Free Fund and receiving exempt-interest dividends
may also be adversely affected. In certain limited instances, the portion of
B-35
<PAGE> 209
Social Security benefits received by a Shareholder which may be subject to
federal income tax may be affected by the amount of tax-exempt interest income,
including exempt-interest dividends received by Shareholders of the Intermediate
Tax-Free Fund.
In the event the Intermediate Tax-Free Fund realizes long-term capital
gains, such Fund intends to distribute any realized net long-term capital gains
annually. If the Intermediate Tax-Free Fund distributes such gains, such Fund
will have no tax liability with respect to such gains, and the distributions
will be taxable to Shareholders as long-term capital gains regardless of how
long the Shareholders have held their Shares. Any such distributions will be
designated as a capital gain dividend in a written notice mailed by the
Intermediate Tax-Free Fund to the Shareholders not later than sixty days after
the close of the Intermediate Tax-Free Fund's taxable year. It should be noted,
however, that capital gains are taxed like ordinary income except that net
capital gains of individuals are subject to a maximum federal income tax rate of
28%. Net capital gains are the excess of net long-term capital gains over net
short-term capital losses. Any net short-term capital gains are taxed at
ordinary income tax rates. If a Shareholder receives a capital gain dividend
with respect to any Share and then sells the Share before he has held it for
more than six months, any loss on the sale of the Share is treated as long-term
capital loss to the extent of the capital gain dividend received.
For taxable years of corporations beginning before 1996 (and pursuant
to legislation proposed, but not yet enacted, thereafter), the Superfund Revenue
Act of 1986 imposes an additional tax (which is deductible for federal income
tax purposes) on a corporation at a rate of 0.12 of one percent on the excess
over $2,000,000 of such corporation's "modified alternative minimum taxable
income," which would include a portion of the exempt-interest dividends
distributed by the Intermediate Tax-Free Fund to such corporation. In addition,
exempt-interest dividends distributed to certain foreign corporations doing
business in the United States could be subject to a branch profits tax imposed
by Section 884 of the Code.
Distributions of exempt-interest dividends by the Intermediate Tax-Free
Fund may be subject to state and local taxes even though a substantial portion
of such distributions may be derived from interest on obligations which, if
received directly, would be exempt from such taxes. The Intermediate Tax-Free
Fund will report to its Shareholders annually after the close of its taxable
year the percentage and source, on a state-by-state basis, of interest income
earned on municipal obligations held by the Intermediate Tax-Free Fund during
the preceding year. Shareholders are advised to consult their tax advisers
concerning the application of state and local taxes.
B-36
<PAGE> 210
As indicated in the Prospectus, the Intermediate Tax-Free Fund may
acquire rights regarding specified portfolio securities under puts. See
"INVESTMENT OBJECTIVES AND POLICIES -- Additional Information on Portfolio
Instruments - Puts" in this Statement of Additional Information. The policy of
the Intermediate Tax-Free Fund is to limit its acquisition of puts to those
under which it will be treated for federal income tax purposes as the owner of
the Exempt Securities acquired subject to the put and the interest on the Exempt
Securities will be tax-exempt to it. Although the Internal Revenue Service has
issued a published ruling that provides some guidance regarding the tax
consequences of the purchase of puts, there is currently no guidance available
from the Internal Revenue Service that definitively establishes the tax
consequences of many of the types of puts that the Intermediate Tax-Free Fund
could acquire under the 1940 Act. Therefore, although the Intermediate Tax-Free
Fund will only acquire a put after concluding that it will have the tax
consequences described above, the Internal Revenue Service could reach a
different conclusion.
Income itself exempt from Federal income taxation may be considered in
addition to taxable income when determining whether Social Security payments
received by a Shareholder are subject to federal income taxation.
General. Information set forth in the Prospectus and this Statement of
Additional Information which relates to Federal taxation is only a summary of
some of the important Federal tax considerations generally affecting purchasers
of Shares of a Fund. No attempt has been made to present a detailed explanation
of the Federal income tax treatment of a Fund or its Shareholders and this
discussion is not intended as a substitute for careful tax planning.
Accordingly, potential purchasers of Shares of a Fund are urged to consult their
tax advisers with specific reference to their own tax situation.
In addition, the tax discussion in the Prospectus and this Statement of
Additional Information is based on tax laws and regulations which are in effect
on the date of the Prospectus and this Statement of Additional Information; such
laws and regulations may be changed by legislative or administrative action.
Information as to the Federal income tax status of all distributions
will be mailed annually to each Shareholder.
Seven-Day Yield of the Money Market Fund
The standardized seven-day yield for the Money Market Fund is computed
by determining the net change, exclusive of capital changes, in the value of a
hypothetical preexisting account in the Money Market Fund having a balance of
one Share at the beginning of
B-37
<PAGE> 211
the period, subtracting a hypothetical charge reflecting deductions from
Shareholder accounts, and dividing the difference by the value of the account at
the beginning of the base period to obtain the base period return, and then
multiplying the base period return by (365/7). The net change in the account
value of the Money Market Fund includes the value of additional Shares purchased
with dividends from the original Share, dividends declared on both the original
Share and any such additional Shares, and all fees, other than nonrecurring
account or sales charges, that are charged to all Shareholder accounts in
proportion to the length of the base period and assuming the Money Market Fund's
average account size. The capital changes to be excluded from the calculation of
the net change in account value are realized gains and losses from the sale of
securities and unrealized appreciation and depreciation. The 30-day yield is
calculated as described above except that the base period is 30 days rather than
seven days.
The effective yield for the Money Market Fund is computed by
compounding the base period return, as calculated above, by adding 1 to the base
period return raising the sum to a power equal to 365 divided by seven and
subtracting 1 from the result.
Yields of the Other Funds
As summarized in the Prospectus under the heading "PERFORMANCE
INFORMATION," yields of the Funds, other than the Money Market Fund, will be
computed by annualizing net investment income per share for a recent 30-day
period and dividing that amount by a Fund Share's maximum offering price
(reduced by any undeclared earned income expected to be paid shortly as a
dividend) on the last trading day of that period. Net investment income will
reflect amortization of any market value premium or discount of fixed income
securities (except for obligations backed by mortgages or other assets) and may
include recognition of a pro rata portion of the stated dividend rate of
dividend paying portfolio securities. The yield will vary from time to time
depending upon market conditions, the composition of the particular Fund's
portfolio and operating expenses of the Group allocated to each Fund. These
factors and possible differences in the methods used in calculating yield should
be considered when comparing a Fund's yield to yields published for other
investment companies and other investment vehicles. Yield should also be
considered relative to changes in the value of a Fund's Shares and to the
relative risks associated with the investment objectives and policies of each of
the Funds.
In addition, with respect to the Intermediate Tax-Free Fund, tax
equivalent yields will be computed by dividing that portion of such Fund's yield
(as computed above) which is tax-exempt by one minus a stated income tax rate
and adding that result to that portion, if any, of the yield of that Fund which
is not tax-exempt.
B-38
<PAGE> 212
For the 30-day period ended December 31, 1996, the yields for the
Income Equity Fund and the Income Fund were 2.19% and 5.16%, respectively,
assuming the imposition of the maximum sales charge, and 2.30% and 5.38%,
respectively, excluding the effect of any sales charge. For such period, there
are no yields for the Money Market Fund or the Intermediate Tax-Free Income
Fund since such Funds had not yet commenced operations.
Calculation of Total Return
As summarized in the Prospectus under the heading "PERFORMANCE
INFORMATION," average annual total return is a measure of the change in value of
an investment in a Fund over the period covered, which assumes any dividends or
capital gains distributions are reinvested in the Fund immediately rather than
paid to the investor in cash. Average annual total return will be calculated by:
(1) adding to the total number of Shares purchased by a hypothetical $1,000
investment in that Fund all additional Shares which would have been purchased if
all dividends and distributions paid or distributed during the period had been
immediately reinvested; (2) calculating the value of the hypothetical initial
investment of $1,000 as of the end of the period by multiplying the total number
of Shares owned at the end of the period by the net asset value per share on the
last trading day of the period; (3) assuming redemption at the end of the
period; and (4) dividing this account value for the hypothetical investor by the
initial $1,000 investment and annualizing the result for periods of less than
one year. Each Fund, however, may also advertise aggregate total return in
addition to average annual total return. Aggregate total return is a measure of
the change in value of an investment in a Fund over the relevant period and is
calculated similarly to average annual total return except that the result is
not annualized.
For the one year, five year and ten year periods ended December 31,
1996, and the respective periods from commencement of operations to December 31,
1996, the average annual total returns for the Diversified Equity Fund, the
Income Equity Fund, the Special Equity Fund and the Income Fund are set forth in
the following table. Such performance information includes the prior performance
of the respective CIFs for such Funds during those periods which had been
restated to reflect the estimated fees for those Funds.
B-39
<PAGE> 213
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------
With Maximum Sales Load(1) Without Sales Load
-------------------------- ------------------
Since 10 Since
Fund 1 Year 5 Year 10 Year Inception 1 Year 5 Year Year Inception
---- ------ ------ ------- --------- ------ ------ ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Diversified 13.19% 11.02% 12.15% 11.15% 19.13% 12.17% 12.73% 11.65%
Equity(2)
Income 11.67% 13.93% 11.56% 12.54% 17.59% 15.09% 12.12% 13.07%
Equity(3)
Special 15.98% 12.17% 15.39% 13.60% 22.07% 13.32% 15.98% 14.12%
Equity(3)
Income(2) -1.55% 5.21% 6.45% 7.22% 2.55% 6.07% 6.88% 7.69%
</TABLE>
- -------------
(1) The maximum sales load for the Diversified Equity, Income Equity and
Special Equity Funds is 5.00%. For the Income Fund, the maximum sales
load is 4.00%.
(2) Commenced operations June 30, 1985.
(3) Commenced operations November 30, 1985.
For the period ended December 31, 1996, there is no total return
information for the Money Market Fund or the Intermediate Tax-Free Income Fund
since such Funds had not yet commenced operations. And of course, past
performance is no guarantee as to future performance.
Distribution Rates
Each of the Funds, other than the Money Market Fund, may from time to
time advertise current distribution rates which are calculated in accordance
with the method disclosed in the Prospectus.
Performance Comparisons
Investors may judge the performance of the Funds by comparing them to
the performance of other mutual funds or mutual fund portfolios with comparable
investment objectives and policies through various mutual fund or market indices
such as those prepared by Dow Jones & Co., Inc. and Standard & Poor's
Corporation and to data prepared by Lipper Analytical Services, Inc., a widely
recognized independent service which monitors the performance of mutual funds.
Comparisons may also be made to indices or data published in Money Magazine,
Forbes, Barron's, The Wall Street Journal, Morningstar, Inc., Ibbotson
Associates, CDA/Wiesenberger, The New York Times, Business Week, U.S.A. Today
and local periodicals. In addition to performance information, general
information about these Funds that appears in a publication such as those
mentioned above may be included in advertisements, sales
B-40
<PAGE> 214
literature and reports to shareholders. The Funds may also include in
advertisements and reports to shareholders information discussing the
performance of the Adviser in comparison to other investment advisers and to
other banking institutions.
From time to time, the Group may include the following types of
information in advertisements, supplemental sales literature and reports to
Shareholders: (1) discussions of general economic or financial principles (such
as the effects of inflation, the power of compounding and the benefits of dollar
cost averaging); (2) discussions of general economic trends; (3) presentations
of statistical data to supplement such discussions; (4) descriptions of past or
anticipated portfolio holdings for one or more of the Funds within the Group;
(5) descriptions of investment strategies for one or more of such Funds; (6)
descriptions or comparisons of various investment products, which may or may not
include the Funds; (7) comparisons of investment products (including the Funds)
with relevant market or industry indices or other appropriate benchmarks; (8)
discussions of fund rankings or ratings by recognized rating organizations; and
(9) testimonials describing the experience of persons that have invested in one
or more of the Funds. The Group may also include calculations, such as
hypothetical compounding examples, which describe hypothetical investment
results in such communications. Such performance examples will be based on an
express set of assumptions and are not indicative of the performance of any
Fund. In addition, the Intermediate Tax-Free Fund may include in its
advertisements charts comparing various tax-free yields to taxable yield
equivalents at different income levels.
Current yields or total return will fluctuate from time to time and are
not necessarily representative of future results. Accordingly, a Fund's yield or
total return may not provide for comparison with bank deposits or other
investments that pay a fixed return for a stated period of time. Yield and total
return are functions of a Fund's quality, composition and maturity, as well as
expenses allocated to such Fund. Fees imposed upon Customer accounts by the
Adviser or its affiliated or correspondent banks for cash management services
will reduce a Fund's effective yield and total return to Customers.
Miscellaneous
Individual Trustees are generally elected by the Shareholders and,
subject to removal by the vote of two-thirds of the Board of Trustees, serve for
a term lasting until the next meeting of shareholders at which Trustees are
elected. Such meetings are not required to be held at any specific intervals.
Generally, shareholders owning not less than 20% of the outstanding shares of
the Group entitled to vote may cause the Trustees to call a special meeting.
However, the Group has represented to the Commission that
B-41
<PAGE> 215
the Trustees will call a special meeting for the purpose of considering the
removal of one or more Trustees upon written request therefor from shareholders
owning not less than 10% of the outstanding votes of the Group entitled to vote.
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.
The Group is registered with the Commission as a management investment
company. Such registration does not involve supervision by the Commission of the
management or policies of the Group.
The Prospectus and this Statement of Additional Information omit
certain of the information contained in the Registration Statement filed with
the Commission. Copies of such information may be obtained from the Commission
upon payment of the prescribed fee.
The Prospectus and this Statement of Additional Information are not an
offering of the securities herein described in any state in which such offering
may not lawfully be made. No salesman, dealer, or other person is authorized to
give any information or make any representation other than those contained in
the Prospectus and this Statement of Additional Information.
B-42
<PAGE> 216
FINANCIAL STATEMENTS
B-43
<PAGE> 217
THE SESSIONS GROUP
1ST SOURCE MONOGRAM FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
DIVERSIFIED SPECIAL INCOME
EQUITY EQUITY INCOME EQUITY
FUND FUND FUND FUND
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value (cost $55,146,136; $24,173,510;
$48,295,225; and $28,424,948, respectively)................. $65,683,448 $26,071,582 $48,303,209 $33,576,629
----------- ----------- ----------- -----------
Cash.......................................................... -- -- 2,840 --
Interest and dividends receivable............................. 68,252 16,060 682,897 148,886
Income and other receivables.................................. -- -- 5,833 5,119
Receivable from brokers for investments sold.................. 111,049 -- -- --
Unamortized organization costs................................ 13,389 4,741 10,499 6,706
Prepaid expenses and other assets............................. 2,184 702 1,317 3,141
----------- ----------- ----------- -----------
Total Assets............................................ 65,878,322 26,093,085 49,006,595 33,740,481
----------- ----------- ----------- -----------
LIABILITIES:
Payable to brokers for investments purchased.................. 105,156 -- -- 1,118,915
Accrued expenses and other payables:
Investment advisory fees.................................. 61,600 17,556 22,914 22,072
Administration fees....................................... 4,319 1,673 3,215 2,140
Custodian and accounting fees............................. 1,835 1,559 1,398 960
Legal and audit fees...................................... 16,200 5,970 12,417 7,570
Transfer agent fees....................................... 6,826 6,077 5,738 5,981
Registration and filing fees.............................. 1,089 1,513 1,161 2,155
Other..................................................... 650 270 483 319
----------- ----------- ----------- -----------
Total Liabilities....................................... 197,675 34,618 47,326 1,160,112
----------- ----------- ----------- -----------
NET ASSETS:
Capital....................................................... 53,849,964 24,563,728 49,032,402 26,610,288
Undistributed (distributed in excess of) net investment
income...................................................... (15,302) (4,870) 969 4,988
Net unrealized appreciation on investments.................... 10,537,312 1,898,072 7,984 5,151,681
Accumulated undistributed net realized gains (losses) on
investment transactions..................................... 1,308,673 (398,463) (82,086) 813,412
----------- ----------- ----------- -----------
Net Assets................................................ $65,680,647 $26,058,467 $48,959,269 $32,580,369
=========== =========== =========== ===========
Outstanding units of beneficial interest (shares)............. 6,280,137 2,688,604 4,812,756 3,035,244
=========== =========== =========== ===========
Net asset value--redemption price per share $ 10.46 $ 9.69 $ 10.17 $ 10.73
=========== =========== =========== ===========
Maximum Sales Charge.......................................... 5.00% 5.00% 4.00% 5.00%
=========== =========== =========== ===========
Maximum Offering Price (100%/(100%-Maximum Sales Charge) of
net asset value adjusted to nearest cent) per share......... $ 11.01 $ 10.20 $ 10.59 $ 11.29
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
B-44
<PAGE> 218
THE SESSIONS GROUP
1ST SOURCE MONOGRAM FUNDS
STATEMENTS OF OPERATIONS
FOR PERIOD ENDED DECEMBER 31, 1996 (A)
(UNAUDITED)
<TABLE>
<CAPTION>
DIVERSIFIED SPECIAL INCOME
EQUITY EQUITY INCOME EQUITY
FUND FUND FUND FUND
----------- ---------- -------- ----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income.............................. $ 1,222 $ 41,056 $871,853 $ 101,517
Dividend income.............................. 273,706 50,160 17,869 258,821
----------- ---------- -------- ----------
Total Income............................ 274,928 91,216 889,722 360,338
----------- ---------- -------- ----------
EXPENSES:
Investment advisory fees..................... 203,061 57,893 73,128 67,739
Administration fees.......................... 36,921 14,473 26,592 16,935
12b-1 fees................................... 46,151 18,094 33,240 21,178
Custodian and accounting fees................ 14,158 5,304 6,362 4,712
Legal and audit fees......................... 16,200 5,970 12,417 7,570
Organization costs........................... 2,130 747 1,629 1,004
Trustees' fees and expenses.................. 900 309 663 422
Transfer agent fees.......................... 7,760 6,489 6,465 6,626
Registration and filing fees................. 1,700 1,957 1,713 2,646
Printing costs............................... 6,090 2,459 4,554 3,294
Other........................................ 1,310 485 802 821
----------- ---------- -------- ----------
Total Expenses............................... 336,381 114,180 167,565 132,947
Less: Expenses voluntarily reduced...... (46,151) (18,094) (33,240) (21,178)
Net Expenses............................ 290,230 96,086 134,325 111,769
----------- ---------- -------- ----------
Net Investment Income........................ (15,302) (4,870) 755,397 248,569
----------- ---------- -------- ----------
REALIZED/UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investment
transactions............................... 2,641,501 402,552 (82,086) 972,001
Change in unrealized appreciation
(depreciation) on investments.............. 10,537,312 1,898,072 7,984 5,151,681
----------- ---------- -------- ----------
Net realized (unrealized) gains on
investments................................ 13,178,813 2,300,624 (74,102) 6,123,682
----------- ---------- -------- ----------
Change in net assets resulting from
operations................................. $13,163,511 $2,295,754 $681,295 $6,372,251
=========== ========== ======== ==========
</TABLE>
- ---------
(a) Commencement of the Funds began September 20, September 19, September 23,
September 24, respectively.
See notes to financial statements.
B-45
<PAGE> 219
THE SESSIONS GROUP
1ST SOURCE MONOGRAM FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
DIVERSIFIED SPECIAL INCOME
EQUITY FUND EQUITY FUND INCOME FUND EQUITY FUND
------------ ------------ ------------ ------------
FOR PERIOD FOR PERIOD FOR PERIOD FOR PERIOD
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 (A) 1996 (A) 1996 (A) 1996 (A)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income.............................. $ (15,302) $ (4,870) $ 755,397 $ 248,569
Net realized gains (losses) on investments
transactions..................................... 2,641,501 402,552 (82,086) 972,001
Net change in unrealized appreciation
(depreciation) on investments.................... 10,537,312 1,898,072 7,984 5,151,681
----------- ----------- ----------- -----------
Change in net assets resulting from operations....... 13,163,511 2,295,754 681,295 6,372,251
----------- ----------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income......................... -- -- (754,428) (243,581)
In excess of net investment income................. -- -- -- --
From net realized gains on investments............. (1,332,828) (402,552) -- (158,589)
In excess of net realized gains on investments..... -- (398,463) -- --
----------- ----------- ----------- -----------
Change in net assets from shareholder
distributions...................................... (1,332,828) (801,015) (754,428) (402,170)
----------- ----------- ----------- -----------
CAPITAL TRANSACTIONS:
Proceeds from shares issued........................ 66,356,782 28,579,625 57,187,896 31,920,854
Dividends reinvested 1,332,616 800,775 754,124 402,085
Cost of shares redeemed............................ (13,839,434) (4,816,672) (8,909,618) (5,712,651)
----------- ----------- ----------- -----------
Change in net assets from capital transactions..... 53,849,964 24,563,728 49,032,402 26,610,288
----------- ----------- ----------- -----------
Change in net assets............................... 65,680,647 26,058,467 48,959,269 32,580,369
NET ASSETS:
Beginning of period................................ 0 0 0 0
----------- ----------- ----------- -----------
End of period...................................... $65,680,647 $26,058,467 $48,959,269 $32,580,369
=========== =========== =========== ===========
SHARE TRANSACTIONS:
Issued............................................. 7,508,928 3,076,523 5,619,664 3,556,123
Reinvested......................................... 125,956 82,639 73,986 37,959
Redeemed........................................... (1,354,747) (470,559) (880,894) (558,838)
----------- ----------- ----------- -----------
Change in shares..................................... 6,280,137 2,688,603 4,812,756 3,035,244
=========== =========== =========== ===========
</TABLE>
- ---------
(a) Commencement of the Funds began September, 20, September 19, September 23,
September 24, respectively.
See notes to financial statements.
B-46
<PAGE> 220
THE SESSIONS GROUP
1ST SOURCE MONOGRAM DIVERSIFIED EQUITY
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SECURITY
SHARES DESCRIPTION VALUE
- ---------- ------------------------------- ------------
<C> <S> <C>
COMMON STOCKS (95.2%):
Aerospace/Defense (3.4%):
11,900 Boeing Co...................... $ 1,265,863
4,700 Lockheed Martin Corp........... 430,050
3,900 Raytheon Co.................... 187,688
3,400 Textron, Inc................... 320,450
------------
2,204,051
------------
Apparel (0.6%):
2,800 Talbots, Inc................... 80,150
4,400 VF Corp........................ 297,000
------------
377,150
------------
Automotive Parts (0.8%):
4,100 Eaton Corp..................... 285,975
5,000 TRW, Inc....................... 247,500
------------
533,475
------------
Banks (4.3%):
5,700 Bank of New York, Inc.......... 192,374
9,500 Chase Manhattan Corp........... 847,874
1,500 Crestar Financial Corp......... 111,562
5,478 First Chicago NBD Corp......... 294,442
2,500 First Union Corp............... 184,999
2,400 Mellon Bank Corp............... 170,399
5,300 NationsBank Corp............... 518,074
2,300 Republic New York Corp......... 187,737
5,800 Signet Banking Corp............ 178,349
3,000 Standard Federal Bancorp....... 170,624
------------
2,856,434
------------
Business Equip & Services (1.2%):
32,850 CUC International, Inc. (b).... 780,188
------------
Chemicals (4.5%):
3,200 Cabot Corp..................... 80,400
1,900 Dow Chemical Co................ 148,913
3,500 E. I. du Pont de Nemours &
Co........................... 330,313
3,500 FMC Corp. (b).................. 245,438
7,500 Great Lakes Chemical Corp...... 350,625
18,900 Monsanto Corp.................. 734,738
14,000 Morton International, Inc...... 570,500
5,700 Rhone Poulene S.A.............. 193,088
3,900 Rohm & Haas Co................. 318,338
------------
2,972,353
------------
Coal (0.4%):
7,600 MAPCO, Inc..................... 258,400
------------
Computers (6.9%):
8,100 Apple Computer, Inc. (b)....... 169,088
4,500 Cabletron Systems, Inc. (b).... 149,625
3,400 Compaq Computer Corp. (b)...... 252,450
<CAPTION>
SECURITY
SHARES DESCRIPTION VALUE
- ---------- ------------------------------- ------------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Computers, continued:
8,500 Dell Computer Corp. (b)........ $ 451,563
13,600 HBO & Co....................... 807,500
5,600 Honeywell, Inc................. 368,200
6,200 Intel Corp..................... 811,813
5,400 International Business Machines
Corp......................... 815,400
11,400 Seagate Technology, Inc. (b)... 450,300
10,000 Stratus Computer, Inc. (b)..... 272,500
------------
4,548,439
------------
Computer Software (6.0%):
17,500 Cisco Systems, Inc. (b)........ 1,113,438
6,225 Computer Associates
International, Inc........... 309,694
5,600 First Data Corp................ 204,400
5,600 Fiserv, Inc. (b)............... 205,800
11,800 Microsoft Corp. (b)............ 974,975
5,600 Netscape Communications Corp.
(b).......................... 318,500
12,475 Oracle Corp. (b)............... 520,831
5,800 Parametric Technology Corp.
(b).......................... 297,975
------------
3,945,613
-----------
Cosmetics & Toiletries (0.9%):
3,600 Avon Products, Inc............. 205,650
4,600 Gillette Co.................... 357,650
------------
563,300
------------
Electrical Equipment (0.3%):
4,738 Molex Inc...................... 168,791
------------
Electronic Components (1.2%):
8,200 Adaptec, Inc. (b).............. 328,000
7,200 LSI Logic Corp. (b)............ 192,600
5,100 Tektronix, Inc................. 261,375
------------
781,975
------------
Engines--Internal Combustion (0.6%):
9,300 Cummins Engine Co., Inc........ 427,800
------------
Financial Services (5.0%):
7,300 Associates First Capital
Corp......................... 322,112
5,100 Capital One Financial Corp..... 183,599
2,400 Citicorp....................... 247,199
3,313 Dean Witter Discover & Co...... 219,485
1,400 Federal Home Loan Mortgage
Corp......................... 154,174
5,700 Federal National Mortgage
Assoc........................ 212,324
8,400 Great Western Financial
Corp......................... 243,599
10,500 Green Tree Financial Corp...... 405,562
3,400 Merrill Lynch & Co., Inc....... 277,099
</TABLE>
Continued
B-47
<PAGE> 221
THE SESSIONS GROUP
1ST SOURCE MONOGRAM DIVERSIFIED EQUITY
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SECURITY
SHARES DESCRIPTION VALUE
- ---------- ------------------------------- ------------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Financial Services, continued:
7,800 MGIC Investment Corp........... $ 592,799
2,700 Salomon, Inc................... 127,237
9,000 Schwab, Charles Corp........... 287,999
------------
3,273,188
------------
Food & Related (0.9%):
9,791 Archer-Daniels-Midland Co...... 215,401
8,100 IBP, Inc....................... 196,424
4,800 Universal Foods Corp........... 169,199
------------
581,024
------------
Forest & Paper Products (0.7%):
1,300 Bowater, Inc................... 48,913
4,000 Kimberly-Clark Corp............ 381,000
------------
429,913
------------
Hospital Supply & Management (0.9%):
11,566 Columbia/HCA Healthcare
Corp......................... 471,315
6,000 Tenet Healthcare Corp. (b)..... 131,250
------------
602,565
------------
Hotels & Gaming (0.7%):
17,800 Hilton Hotels Corp............. 465,025
------------
Household--General Products (0.2%):
4,800 Premark International, Inc..... 106,800
------------
Human Resources (0.2%):
7,400 Olsten Corp.................... 111,925
------------
Insurance (5.5%):
15,800 Allstate Corp.................. 914,425
4,800 American General Corp.......... 196,200
5,100 American International
Group, Inc................... 552,075
3,200 Chubb Corp..................... 172,000
4,100 Everest Reinsurance
Holdings, Inc................ 117,875
11,500 Exel Ltd....................... 435,563
3,000 ITT Hartford Group, Inc........ 202,500
6,500 Old Republic International
Corp......................... 173,875
6,900 Providian Corp................. 354,488
3,400 ReliaStar Financial Corp....... 196,350
2,100 St. Paul Cos., Inc............. 123,113
2,100 Transatlantic Holdings, Inc.... 169,050
------------
3,607,514
------------
Linen Supply & Related Items (0.2%):
2,600 Cintas Corp.................... 152,750
------------
<CAPTION>
SECURITY
SHARES DESCRIPTION VALUE
- ---------- ------------------------------- ------------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Machine Tools & Related Products (0.5%):
9,200 Kennametal, Inc................ $ 357,650
------------
Machinery & Equipment (3.8%):
5,200 Case Corp...................... 283,400
2,000 Caterpillar, Inc............... 150,500
5,700 Deere & Co..................... 231,563
11,700 Halliburton Co................. 704,925
9,300 Harnischfeger Industries,
Inc.......................... 447,563
6,000 Tecumseh Products Co.,......... 344,250
8,100 Thermo Electron Corp. (b)...... 334,125
------------
2,496,326
------------
Manufacturing (1.4%):
5,600 Parker-Hannifin Corp........... 217,000
6,800 Service Corp. International.... 190,400
2,700 Springs Industries, Inc........ 116,100
10,700 TRINOVA Corp................... 389,213
------------
912,713
------------
Medical--HMO (0.5%):
6,800 Foundation Health Corp. (b).... 215,900
4,300 Maxicare Health Plans, Inc.
(b).......................... 95,675
------------
311,575
------------
Medical--Instruments/Products (3.1%):
7,300 Beckman Instruments Inc........ 280,138
10,100 Boston Scientific Corp. (b).... 606,000
6,100 Mallinckrodt, Inc.............. 269,163
12,800 Medtronic, Inc................. 870,400
1,500 Nellcor Puritan Bennrtt, Inc.
(b).......................... 32,813
------------
2,058,514
------------
Medical Services & Supplies (0.8%):
14,100 HEALTHSOUTH Corp. (b).......... 544,613
------------
Mining (0.3%):
5,100 Cyprus Amax Minerals Co........ 119,213
1,100 Potash Corp. of
Saskatchewan, Inc............ 93,500
------------
212,713
------------
Motor Vehicles (1.3%):
13,300 Ford Motor Co.................. 423,938
7,300 General Motors Corp............ 406,975
------------
830,913
------------
Multi--Media (0.4%):
3,500 Walt Disney Co................. 243,688
------------
Office Supplies & Forms (0.2%):
3,400 Standard Register Co........... 110,500
------------
</TABLE>
Continued
B-48
<PAGE> 222
THE SESSIONS GROUP
1ST SOURCE MONOGRAM DIVERSIFIED EQUITY
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SECURITY
SHARES DESCRIPTION VALUE
- ---------- ------------------------------- ------------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Oil & Gas--Domestic (2.5%):
3,300 Amoco Corp..................... $ 265,650
4,400 Atlantic Richfield Co.......... 583,000
2,300 British Petroleum Co., Plc..... 325,163
3,400 Panenergy Corp................. 153,000
13,000 USX--Marathon Group............ 310,375
------------
1,637,188
------------
Oil & Gas--Exploration/Production (4.3%):
16,100 Anadarko Petroleum Corp........ 1,042,475
5,600 Burlington Resources, Inc...... 282,100
8,600 Cross Timbers Oil Co........... 216,075
18,200 Enron Oil & Gas Co............. 459,550
4,300 Repsol SA...................... 163,938
2,700 Transocean Offshore, Inc....... 169,088
5,400 Ultramar Diamond
Shamrock Corp................ 170,775
10,600 Union Pacific Resources Group,
Inc.......................... 310,050
------------
2,814,051
------------
Oil & Gas--Services (5.8%):
25,400 Baker Hughes, Inc.............. 876,300
2,700 El Paso Natural Gas Co......... 136,350
8,400 IMC Global, Inc................ 328,650
35,800 Rowan Cos., Inc. (b)........... 809,975
16,900 Schlumberger Ltd............... 1,687,888
------------
3,839,163
------------
Pharmaceuticals (6.4%):
3,600 American Home Products Corp.... 211,050
8,900 Amgen, Inc. (b)................ 483,938
7,700 Bergen Brunswig Corp. Class
A............................ 219,450
20,400 Biogen, Inc. (b)............... 790,500
3,750 Cardinal Health, Inc........... 218,438
9,900 Lilly, Eli & Co................ 722,700
7,800 Johnson & Johnson.............. 388,050
9,500 Merck & Co., Inc............... 752,875
3,700 Pfizer Inc..................... 306,638
11,200 Somatogen, Inc. (b)............ 123,200
------------
4,216,839
------------
Photographic Equipment (0.7%):
5,500 Eastman Kodak Co............... 441,375
------------
Restaurants (0.7%):
13,700 Boston Chicken, Inc. (b)....... 491,488
------------
Retail (4.7%):
8,500 AutoZone, Inc. (b)............. 233,750
5,700 Dillard Department Stores,
Inc.......................... 175,988
4,000 Home Depot, Inc................ 200,500
<CAPTION>
SECURITY
SHARES DESCRIPTION VALUE
- ---------- ------------------------------- ------------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Retail, continued:
15,700 PETsMART, Inc. (b)............. $ 343,438
14,000 Price/Costco, Inc. (b)......... 351,750
5,500 Safeway, Inc. (b).............. 235,125
19,100 Staples, Inc. (b).............. 344,994
14,900 Starbucks Corp. (b)............ 426,513
8,200 TJX Cos., Inc.................. 388,475
12,800 Toys "R" Us, Inc. (b).......... 384,000
------------
3,084,533
------------
Shoes--Leather (0.4%):
4,700 Nike, Inc., Class B............ 280,825
------------
Steel (0.2%):
2,200 Nucor Corp..................... 112,200
------------
Telecommunications (5.6%):
6,400 Ascend Communications, Inc.
(b).......................... 397,600
8,000 Cascade Communications
Corp. (b).................... 441,000
6,350 Glenayre Technologies, Inc.
(b).......................... 136,921
10,300 Lucent Technologies, Inc....... 476,375
8,200 MCI Communications Corp........ 268,037
11,300 QUALCOMM, Inc. (b)............. 450,588
5,000 Sprint Corp.................... 199,375
6,400 Tellabs, Inc. (b).............. 240,800
5,400 U.S. Robotics Corp. (b)........ 388,800
26,300 WorldCom, Inc. (b)............. 685,444
------------
3,684,940
------------
Tires & Rubber Products (0.7%):
9,300 Goodyear Tire & Rubber Co...... 477,788
------------
Tobacco (1.5%):
7,300 Philip Morris Cos., Inc........ 822,163
5,200 RJR Nabisco Holdings Corp...... 176,800
------------
998,963
------------
Transportation--Air (1.4%):
3,300 AMR Corp. Del (b).............. 290,813
16,100 Southwest Airlines Co.......... 356,213
4,500 UAL Corp. (b).................. 281,250
------------
928,276
------------
Transportation--Rail (0.6%):
2,600 Burlington Northern Santa Fe... 224,575
3,500 CSX Corp....................... 147,875
------------
372,450
------------
Utilities--Electric (1.5%):
7,400 Central Maine Power Co......... 86,025
3,100 CINergy Corp................... 103,463
4,800 DTE Energy Co.................. 155,400
</TABLE>
Continued
B-49
<PAGE> 223
THE SESSIONS GROUP
1ST SOURCE MONOGRAM DIVERSIFIED EQUITY
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SECURITY
SHARES DESCRIPTION VALUE
- ---------- ------------------------------- ------------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Utilities--Electric, continued:
5,600 Entergy Corp................... $ 155,400
4,600 GPU, Inc....................... 154,675
6,400 Peco Energy Co................. 161,600
5,500 Unicom Corp.................... 149,188
------------
965,751
------------
Utilities--Gas & Pipeline (0.5%):
6,500 Sonat, Inc..................... 334,750
------------
Total Common Stocks............ 62,508,458
------------
PREFERRED STOCKS (0.4%):
Forest & Paper Products (0.1%):
2,200 Westvaco Corp.................. 63,250
------------
Oil & Gas (0.3%):
6,700 YPF Sociedad Anonima-Spondored
ADR.......................... 169,175
------------
Total Preferred Stocks......... 232,425
------------
SECURITY
SHARES DESCRIPTION VALUE
- ---------- ------------------------------- ------------
MUTUAL FUNDS (4.5%):
2,094,909 Fountain Square Treasury
Fund......................... $ 2,094,909
847,656 Fountain Square Commercial
Paper Fund................... 847,656
------------
Total Mutual Funds............. 2,942,565
------------
Total (Cost-$55,146,136)....... $ 65,683,448
==========
</TABLE>
- ---------
Percentages indicated are based on net assets of $65,680,647.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.......................... $11,793,034
Unrealized depreciation.......................... (1,255,722)
-----------
Net unrealized appreciation...................... $10,537,312
==========
</TABLE>
(b) Non-income producing securities.
See notes to financial statements.
B-50
<PAGE> 224
THE SESSIONS GROUP
1ST SOURCE MONOGRAM SPECIAL EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY
AMOUNT DESCRIPTION VALUE
- ---------- ------------------------------- ------------
<C> <S> <C>
COMMERCIAL PAPER (4.8%):
$ 600,000 General Electric Capital Corp.
5.40%, 1/31/97............... $ 600,000
645,000 General Electric Capital Corp.
5.25%, 1/3/97................ 645,000
------------
Total Commercial Paper 1,245,000
------------
COMMON STOCKS (83.2%):
Apparel Manufacturers (2.7%):
19,900 Sport-Haley, Inc. (b).......... 249,993
10,400 St. John Knits, Inc............ 452,400
------------
702,393
------------
Banking (2.8%):
11,000 Bank United Corp., Class A..... 294,250
29,000 Commonwealth Bancorp, Inc...... 435,000
------------
729,250
------------
Beer, Wine & Distilled Beverages (0.8%):
20,000 Boston Beer Co., Inc. (b)...... 205,000
------------
Commercial Goods & Services (4.8%):
21,000 CCC Information Services Group
(b).......................... 336,000
25,400 ICTS Holland Productions....... 257,175
10,950 Sykes Enterprises, Inc. (b).... 410,625
21,900 Warrentec Corp. (b)............ 251,850
------------
1,255,650
------------
Communications Equipment (3.6%):
21,000 TALX Corp. (b)................. 173,250
19,000 Sawtek, Inc. (b)............... 752,875
------------
926,125
------------
Computer Software (18.5%):
12,200 Citrix Systems, Inc. (b)....... 476,563
21,000 Digex, Inc. (b)................ 217,875
7,000 ForeFront Group, Inc. (b)...... 38,500
19,000 Geoworks (b)................... 465,500
40,000 Microware Systems Corp. (b).... 570,000
13,100 Netscape Communications
Corp. (b).................... 745,063
91,000 Oak Technology, Inc. (b)....... 1,023,750
35,000 Platinum Technology, Inc.
(b).......................... 476,875
84,500 Ross Systems, Inc. (b)......... 813,312
------------
4,827,438
------------
Educational Services (0.9%):
18,200 Childrens Comprehensive
Services, Inc. (b)........... 238,875
------------
<CAPTION>
SHARES OR
PRINCIPAL SECURITY
AMOUNT DESCRIPTION VALUE
- ---------- ------------------------------- ------------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Electronic Components (11.7%):
21,000 Chips & Technologies, Inc.
(b).......................... $ 383,250
518 Comptronix Corp., Class A
(b).......................... 5
14,700 Micron Technology, Inc......... 428,137
40,900 S 3, Inc. (b).................. 664,625
55,200 Sonic Solutions, Inc. (b)...... 372,600
20,000 Triquint Semiconductor, Inc.
(b).......................... 527,500
14,500 Vitesse Semiconductor (b)...... 659,750
------------
3,035,867
------------
Emerging Technology (1.0%):
19,000 Electric Fuel Corp. (b)........ 133,000
12,000 General Scanning, Inc. (b)..... 141,000
------------
274,000
------------
Environmental Services (0.9%):
7,000 U.S. Filter Corp. (b).......... 222,250
------------
Human Resources (0.9%):
21,900 SOS Staffing Services, Inc.
(b).......................... 229,950
------------
Leisure & Recreational Products (2.4%):
17,600 Cannondale Corp. (b)........... 396,000
12,000 North Face, Inc. (b)........... 231,000
------------
627,000
------------
Medical--Hospitals (0.7%):
49,000 Integrated Medical
Resources (b)................ 189,875
------------
Medical Services & Supplies (10.3%):
8,200 Agouron Pharmaceuticals, Inc. (b).. 555,550
18,000 Cephalon, Inc. (b)............. 369,000
16,000 HEALTHSOUTH Corp. (b).......... 618,000
29,000 ICOS Corp. (b)................. 221,125
28,000 Innotech, Inc. (b)............. 217,000
7,200 Sola International, Inc. (b)... 273,600
12,000 Vivus, Inc. (b)................ 435,000
------------
2,689,275
------------
Oil--Field Services (2.6%):
28,700 Pride Petroleum
Services, Inc. (b)........... 667,275
------------
Retail--Specialty Stores (0.7%):
6,500 Insight Enterprises, Inc.
(b).......................... 182,000
------------
Savings & Loans (10.6%):
18,000 Dime Community
Bancorp, Inc. (b)............ 265,500
13,300 First Bell Bancorp, Inc........ 176,225
</TABLE>
Continued
B-51
<PAGE> 225
THE SESSIONS GROUP
1ST SOURCE MONOGRAM SPECIAL EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY
AMOUNT DESCRIPTION VALUE
- ---------- ------------------------------- ------------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Savings & Loans, continued
18,700 First Federal Savings Bank of
Colorado..................... $ 317,900
16,000 First Savings Bank of
Washington Bancorp, Inc...... 294,000
7,000 GreenPoint Financial Corp...... 330,750
14,000 Home Bancorp of Elgin, Inc.
(b).......................... 189,000
17,500 PFF Bancorp, Inc. (b).......... 260,313
20,000 Provident Financial
Holdings, Inc. (b)........... 280,000
11,700 St. Paul Bancorp, Inc.......... 343,688
7,000 Washington Mutual, Inc......... 303,188
------------
2,760,564
------------
Steel (0.5%):
7,000 Steel Dynamics, Inc. (b)....... 133,875
------------
Telecommunications--Equipment (6.8%):
7,000 Ascend Communications, Inc. (b)... 434,875
16,700 InterVoice, Inc. (b)........... 204,575
17,200 Verilink Corp. (b)............. 571,900
<CAPTION>
SHARES OR
PRINCIPAL SECURITY
AMOUNT DESCRIPTION VALUE
- ---------- ------------------------------- ------------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Telecommunications--Equipment, continued
22,000 WorldCom, Inc. (b)............. $ 573,375
------------
1,784,725
------------
Total Common Stocks 21,681,387
------------
U.S. TREASURY BILLS (6.1%):
$1,600,000 5.04%, 1/30/97................. 1,593,827
------------
Total U.S. Treasury Bills 1,593,827
------------
WARRANTS (0.0%):
5,000 Alza Corp...................... 625
------------
Total Warrants 625
------------
MUTUAL FUNDS (6.0%):
1,164,640 Fountain Square Treasury
Fund......................... 1,164,640
386,103 Fountain Square Commercial
Paper Fund................... 386,103
------------
Total Mutual Funds 1,550,743
------------
Total (cost-$24,173,510)(a) $ 26,071,582
==========
</TABLE>
- ---------
Percentages indicated are based on net assets of $26,058,467.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.......................... $ 3,737,578
Unrealized depreciation.......................... (1,839,506)
-----------
Net unrealized appreciation...................... $ 1,898,072
==========
</TABLE>
(b) Non-income producing securities.
See notes to financial statements.
B-52
<PAGE> 226
THE SESSIONS GROUP
1ST SOURCE INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY
AMOUNT DESCRIPTION VALUE
- ----------- ------------------------------ ------------
<C> <S> <C>
CORPORATE BONDS (37.7%):
Banking (2.1%):
$ 1,000,000 Firstar Corp., 7.15%, 9/1/00,
Callable 9/1/98 @ 100 $ 1,007,661
------------
Financial Services (15.3%):
1,000,000 Associates Corp., 6.75%,
7/15/01..................... 1,004,869
1,000,000 Bear Stearns Co., Inc., 7.63%,
4/15/00..................... 1,031,797
1,250,000 General Electric Capital
Corp., 8.65%, 5/15/09,
Callable 5/15/97 @ 100...... 1,430,690
2,000,000 Lehman Brothers Holding Co.,
7.25%, 10/15/03............. 2,005,968
1,000,000 Salomon, Inc., 7.00%,
1/20/98..................... 1,007,685
1,000,000 Smith Barney Holdings, Inc.,
7.88%, 10/1/99.............. 1,035,493
------------
7,516,502
------------
Industrial Goods & Services (9.3%):
1,500,000 Smithkline Beecham Corp.,
7.50%, 5/1/02............... 1,530,366
2,000,000 Texas Instruments, Inc.,
6.88%, 7/15/00.............. 2,022,616
1,000,000 Union Pacific Resources,
7.00%, 10/15/06............. 1,003,154
------------
4,556,136
------------
Retail--Department Stores (2.6%):
1,250,000 J.C. Penney Co., Inc., 7.38%,
8/15/08..................... 1,268,032
------------
Paper Products (2.1%):
1,000,000 International Paper Co.,
7.00%, 6/1/01............... 1,014,203
------------
Tobacco (4.0%):
2,000,000 Philip Morris Cos., Inc.,
6.80%, 12/1/03.............. 1,970,992
------------
Transportation & Shipping (4.3%):
2,000,000 Norfolk Southern, 7.88%,
2/15/04....................... 2,117,584
------------
Total Corporate Bonds 19,451,110
------------
<CAPTION>
SHARES OR
PRINCIPAL SECURITY
AMOUNT DESCRIPTION VALUE
- ----------- ------------------------------ ------------
<C> <S> <C>
PREFERRED STOCKS (4.0%):
Electrical & Electronic (2.0%):
40,000 Southwestern Public Services,
Series A, 7.85%, 10/21/01,
Callable 10/21/01 @ 25.00... $ 995,000
------------
Food Related (2.0%):
40,000 McDonald's Corp., 7.50%,
9/30/36, Callable 12/31/01 @
25.00....................... 980,000
------------
Total Preferred Stocks 1,975,000
------------
U.S. TREASURY NOTES (27.0%):
$ 1,000,000 5.38%, 5/31/98................ 992,500
2,000,000 5.88%, 11/15/99............... 1,993,750
2,000,000 6.25%, 5/31/00................ 2,008,750
3,000,000 7.75%, 2/15/01................ 3,170,625
5,000,000 6.50%, 10/15/06............... 5,028,125
------------
Total U.S. Treasury Notes 13,193,750
------------
U.S. TREASURY BONDS (6.1%):
3,000,000 5.63%, 11/30/98............... 2,984,064
------------
Total U.S. Treasury Bonds 2,984,064
------------
U.S. GOVERNMENT AGENCIES (20.3%):
Federal Home Loan Mortgage Corp.:
3,000,000 6.89%, 9/26/05................ 2,978,292
2,000,000 6.00%, 9/25/06................ 1,958,080
1,000,000 7.02%, 4/10/06................ 999,094
1,000,000 7.00%, 8/15/07................ 993,300
1,000,000 6.50%, 2/15/08................ 981,805
Government National Mortgage Assoc.:
2,000,000 7.00%, 12/16/06............... 1,995,580
------------
Total U.S. Government Agencies 9,906,151
------------
INVESTMENT COMPANIES (1.6%):
793,135 Fountain Square Treasury
Fund........................ 793,134
------------
Total Investments Companies 793,134
------------
Total (Cost-$48,295,225)(a) $48,303,209
==========
</TABLE>
- ---------
Percentages indicated are based on net assets of $48,959,269
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.......................... $ 340,509
Unrealized depreciation.......................... (332,525)
---------
Net unrealized appreciation...................... $ 7,984
=========
</TABLE>
See notes to financial statements.
B-53
<PAGE> 227
THE SESSIONS GROUP
1ST SOURCE MONOGRAM INCOME EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY
AMOUNT DESCRIPTION VALUE
- ----------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS (82.6%):
Aerospace/Defense (2.8%):
8,000 Raytheon Co................... $ 385,000
12,500 Sundstrand Corp............... 531,250
------------
916,250
------------
Automobiles (1.5%):
15,000 Ford Motor Co................. 478,125
------------
Automotive Parts (1.4%):
28,000 Excel Industries, Inc......... 465,500
------------
Banking (2.4%):
8,800 Fort Wayne National Corp...... 334,400
15,000 Magna Group, Inc.............. 442,500
------------
776,900
------------
Chemicals & Allied Parts (6.5%):
9,000 Betz Laboratories, Inc........ 526,500
20,000 Calgon Carbon Corp............ 245,000
10,000 Great Lakes Chemical Corp..... 467,500
11,000 Lubrizol Corp................. 341,000
25,000 Hanna (M. A.) Co.............. 546,875
------------
2,126,875
------------
Communications Equipment (5.7%):
9,000 General Motors Corp.--Class
H........................... 506,250
5,000 Harris Corp................... 343,125
16,700 L. M. Ericsson Telephone Co.
ADR......................... 504,131
8,000 Motorola, Inc................. 491,000
------------
1,844,506
------------
Computer Services (1.5%):
11,000 Electronic Data Systems
Corp........................ 475,750
------------
Construction--Engineering (1.1%):
10,000 Foster Wheeler Corp........... 371,250
------------
Cosmetics & Toiletries (1.4%):
8,000 Avon Products, Inc............ 457,000
------------
Electrical Equipment (4.9%):
12,000 AMP, Inc...................... 460,500
6,200 Emerson Electric Co........... 599,850
21,000 Esterline Technologies, Corp.
(b)......................... 548,625
------------
1,608,975
------------
Environmental Services (1.7%):
21,100 Browning-Ferris Industries,
Inc......................... 553,875
------------
<CAPTION>
SHARES OR
PRINCIPAL SECURITY
AMOUNT DESCRIPTION VALUE
- ----------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Financial Services (3.7%):
11,000 H & R Block, Inc.............. $ 319,000
10,000 Morgan Stanley Group, Inc..... 571,250
14,480 PIMCO Advisors L. P........... 325,800
------------
1,216,050
------------
Insurance (6.5%):
20,000 Le Salle RE Holdings 585,000
9,000 Lincoln National Corp......... 472,500
17,000 Travelers/Aetna Property &
Casualty Corp............... 601,375
22,000 USF&G Corp.................... 459,250
------------
2,118,125
------------
Machinery & Equipment (1.7%):
6,000 Deere & Co.................... 243,750
15,900 Keystone International,
Inc......................... 319,987
------------
563,737
------------
Medical Equipment & Supplies (0.9%):
10,000 Bard (C. R.), Inc............. 280,000
------------
Mining (4.0%):
30,000 Homestake Mining Co........... 427,500
11,000 IMC Global Strypes............ 441,375
5,000 Potash Corp. of
Saskatchewan, Inc........... 425,000
------------
1,293,875
------------
Oil--Integrated Companies (1.6%):
4,000 Atlantic Richfield Co......... 530,000
------------
Pharmaceuticals (5.8%):
9,000 Abbott Laboratories........... 456,750
6,000 Bristol-Myers Squibb Co....... 652,500
14,700 IVAX Corp..................... 150,675
8,000 Merck & Co., Inc.............. 634,000
------------
1,893,925
------------
Petroleum Refining (3.6%):
8,000 MAPCO, Inc.................... 272,000
10,000 Phillips Petroleum Co......... 442,500
19,000 USX--Marathon Group........... 453,625
------------
1,168,125
------------
Office--Automation & Equipment (0.8%):
5,000 Xerox Corp.................... 263,125
------------
</TABLE>
Continued
B-54
<PAGE> 228
THE SESSIONS GROUP
1ST SOURCE MONOGRAM INCOME EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY
AMOUNT DESCRIPTION VALUE
- ----------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Publishing (3.2%):
17,000 American Greetings Corp....... $ 482,375
7,000 Tribune Co.................... 552,125
------------
1,034,500
------------
Railroad (1.4%):
10,000 Kansas City Southern
Industries, Inc............. 450,000
------------
Real Estate Investment Trust (6.2%):
22,000 Burnham Pacific Properties,
Inc. 330,000
12,000 Hospitality Properties
Trust....................... 348,000
10,000 Prentiss Properties Trust..... 250,000
24,000 Thornburg Mortgage Asset
Corp........................ 513,000
23,800 Wellsford Residential Property
Trust....................... 577,150
------------
2,018,150
------------
Retail (2.9%):
9,000 J.C. Penney Co., Inc.......... 438,750
10,000 Long's Drug Stores, Inc....... 491,250
1 Price/Costco Inc. (b)......... 25
------------
930,025
------------
Steel (1.1%):
10,000 Carpenter Technology Corp..... 366,250
------------
Tires & Rubber Products (1.5%):
25,000 Cooper Tire & Rubber Co....... 493,750
------------
Telecommunications (2.6%):
10,000 Alltel Corp................... 313,750
17,000 US West Communications,
Inc......................... 548,250
------------
862,000
------------
Utilities--Electric (4.2%):
13,000 American Electric Power,
Co.......................... 534,625
16,000 Houston Industries, Inc....... 362,000
22,000 Montana Power Co.............. 470,250
------------
1,366,875
------------
Total Common Stocks 26,923,518
------------
PREFERRED STOCKS (6.3%):
Financial Services (2.1%):
6,000 Conseco, Inc., 7.00%, 2/1/00,
Callable 2/1/99 @ 62.20..... 682,500
------------
<CAPTION>
SHARES OR
PRINCIPAL SECURITY
AMOUNT DESCRIPTION VALUE
- ----------- ------------------------------ ------------
<C> <S> <C>
PREFERRED STOCKS, CONTINUED:
Industrial (1.7%):
8,000 Airtouch Communications,
Series B, 6.00%, 8/16/99.... $ 218,000
14,000 Snyder Oil Corp., Callable
3/31/ 97 @ 25.90............ 339,500
------------
557,500
------------
Retail Stores (0.9%):
6,000 K Mart Preferred, 7.75%,
6/15/16, Callable 6/17/99 @
52.71....................... 292,500
------------
Toys (1.6%):
50,000 Tyco Toys, Inc., Series C,
Callable 7/1/99 @ 5.10...... 506,250
-----------
Total Preferred Stocks 2,038,750
------------
MUTUAL FUNDS (6.1%):
1,037,698 Fountain Square Treasury Fund 1,037,698
950,287 Fountain Square Commercial
Paper Fund.................. 950,287
------------
1,987,985
------------
CONVERTIBLE BONDS (8.1%):
Industrial Goods & Services (4.4%):
$ 300,000 General Instrument Corp.,
5.00%, 6/15/00, Callable
6/15/97 @ 102.14............ 319,500
150,000 IVAC Corp. 6.50%, 11/15/01,
Callable 11/15/97 @
100.93...................... 139,688
450,000 Mascotech 4.50%, 12/15/03,
Callable 12/15/97, @
102.50...................... 363,375
285,000 Oryx Energy Co. 7.50%,
5/15/14, Callable 5/15/98 @
101.50...................... 274,313
400,000 Park Electrochem 5.50%,
3/1/06, Callable 3/1/99 @
102.75...................... 350,000
------------
1,446,876
------------
Metals And Mining (1.2%):
400,000 Coeur D'Alene Mines Corp.
6.38%, 1/31/04, Callable
1/31/97 @ 103.64............ 370,500
------------
Technology (2.5%):
450,000 Integrated Device Technology
5.50%, 6/1/02, Callable
6/2/98 @ 102.75............. 397,125
</TABLE>
Continued
B-55
<PAGE> 229
THE SESSIONS GROUP
1ST SOURCE MONOGRAM INCOME EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY
AMOUNT DESCRIPTION VALUE
- ----------- ------------------------------ ------------
<C> <S> <C>
CONVERTIBLE BONDS, CONTINUED:
Technology, continued:
$ 500,000 Telxon Cvt. 5.75%, 1/1/03,
Callable 1/5/99 @ 103.29.... $ 411,875
------------
809,000
------------
Total Convertible Bonds 2,626,376
------------
Total (Cost--$28,424,948) $ 33,576,629
==========
</TABLE>
- ---------
Percentages indicated are based on net assets of $32,580,369.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.......................... $ 5,839,635
Unrealized depreciation.......................... (687,954)
-----------
Net unrealized appreciation...................... $ 5,151,681
==========
</TABLE>
(b) Non-income producing securities.
See notes to financial statements.
B-56
<PAGE> 230
THE SESSIONS GROUP
1ST SOURCE MONOGRAM FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Unaudited)
1. ORGANIZATION:
The Sessions Group (the "Group") was organized on April 25, 1988 as an Ohio
business trust, and is registered under the Investment Company Act of 1940,
as amended, (the "1940 Act") as an open-end management investment company.
The Group is authorized to issue an unlimited number of shares, which are
units of beneficial interest, without par value. The Group offers shares of
a number of different series or portfolios including the following series
for which 1st Source Bank serves as investment adviser: shares of the 1st
Source Monogram Diversified Equity Fund, 1st Source Monogram Special Equity
Fund, 1st Source Monogram Income Fund, and the 1st Source Monogram Income
Equity Fund (collectively, the "Funds" and individually, a "Fund").
The investment objective for each of the Diversified Equity Fund and the
Special Equity Fund is capital appreciation. The investment objectives of
the Income Equity Fund are capital appreciation with current income as a
secondary objective. The investment objective of the Income Fund is current
income consistent with preservation of capital.
Sales of shares of the Funds may be made to customers of 1st Source Bank
and its affiliates, to all accounts of correspondent banks of 1st Source
Bank and to the general public.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by
the Group in the preparation of its financial statements. The policies are
in conformity with generally accepted accounting principles. The
preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of income
and expenses for the period. Actual results could differ from those
estimates.
SECURITIES VALUATION:
Investments in common and preferred stocks, corporate bonds, commercial
paper, municipal securities and U.S. Government securities of the
Diversified Equity Fund, the Special Equity Fund, the Income Fund, the
Income Equity Fund are valued at their market values determined on the
basis of the latest available bid quotation in the principal market
(closing sales prices if the principal market is an exchange or NASDAQ
Market) in which such securities are normally traded. Investments in
investment companies are valued at their net asset values as reported by
such companies. Other securities for which quotations are not readily
available are valued at their fair value under procedures established by
the Group's Board of Trustees. The differences between the cost and
market values of investments held by the variable net asset value funds
are reflected as either unrealized appreciation or depreciation.
Continued
B-57
<PAGE> 231
THE SESSIONS GROUP
1ST SOURCE MONOGRAM FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1996
(Unaudited)
SECURITY TRANSACTIONS AND RELATED INCOME:
Security transactions are accounted for on the date the security is
purchased or sold (trade date). Interest income is recognized on the
accrual basis and includes, where applicable, the amortization of
premium or discount. Dividend income is recorded on the ex-dividend
date. Gains or losses realized on sales of securities are determined by
comparing the identified cost of the security lot sold with the net
sales proceeds.
REPURCHASE AGREEMENTS:
The Funds may acquire repurchase agreements from financial institutions
such as banks and broker dealers which 1st Source Bank deems
creditworthy under guidelines approved by the Board of Trustees, subject
to the seller's agreement to repurchase such securities at a mutually
agreed-upon date and price. The repurchase price generally equals the
price paid by each Fund plus interest negotiated on the basis of current
short-term rates, which may be more or less than the rate on the
underlying portfolio securities. The seller, under a repurchase
agreement, is required to maintain the value of collateral held pursuant
to the agreement at not less than the repurchase price (including
accrued interest). Securities subject to repurchase agreements are held
by the Funds' custodian or another qualified custodian or in the Federal
Reserve/Treasury book-entry system. Repurchase agreements are considered
to be loans by the Funds under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS:
The Funds may borrow for temporary purposes by entering into reverse
repurchase agreements. Pursuant to such agreements, a Fund would sell
portfolio securities to financial institutions such as banks and
broker/dealers, and agree to repurchase them at a mutually agreed-upon
date and price. At the time a Fund enters into a reverse repurchase
agreement, it places in a segregated custodial account assets having a
value equal to the repurchase price (including accrued interest), and
will continually monitor the account to ensure such equivalent value is
maintained at all times. Reverse repurchase agreements are considered to
be borrowing by the Funds under the 1940 Act.
DERIVATIVES:
A derivative is defined as a financial instrument whose value is derived
from the performance of underlying assets, interest rate and currency
exchange rates, or indices, and include (but are not limited to)
structured debt obligations, interest rate and currency swaps, future
contracts, options, and forward currency contracts. The Funds may invest
in structured debt obligations for the purpose of mitigating interest
rate risk in the portfolio. Such structured debt obligations have
floating interest rates that reset to various indices, which may include
swap rates or floors, and which reset at periodic intervals, as
disclosed in the accompanying Schedules of Portfolio Investments. Risks
of entering into such transactions include the potential inability of
the dealer to meet their obligations and
Continued
B-58
<PAGE> 232
THE SESSIONS GROUP
1ST SOURCE MONOGRAM FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1996
(Unaudited)
unanticipated movements in the value of the security or the underlying
assets or indices. It is possible that the Funds will incur a loss as a
result of their investments in derivative instruments. It is the Fund's
policy to the extent that there exists no readily available market for
such securities, that the investment will be treated as an illiquid
security for purposes of calculating the Funds' limitation on
investments in illiquid securities as set forth in the Funds' investment
restrictions.
DIVIDENDS TO SHAREHOLDERS:
A dividend for each of the Funds, other than the Special Equity Fund, is
declared monthly at the close of business on the day of declaration and
is paid monthly. A dividend for the Special Equity Fund is declared
quarterly at the close of business on the day of declaration and is paid
quarterly. Each such dividend consists of an amount of accumulated
undistributed net income of that Fund as determined necessary or
appropriate by the appropriate officers of the Group.
Dividends from net investment income and net realized capital gains are
determined in accordance with income tax regulations which may differ
from generally accepted accounting principles. These differences are
primarily due to differing treatments for net operating losses, expiring
capital loss carry forwards, and deferral of certain losses.
FEDERAL INCOME TAXES:
It is the policy of each of the Funds to qualify or continue to qualify
as a regulated investment company by complying with the provisions
available to certain investment companies, as defined in applicable
sections of the Internal Revenue Code, and to make distributions of net
investment income and net realized capital gains sufficient to relieve
it from all, or substantially all, Federal income taxes.
ORGANIZATION COSTS:
All expenses in connection with each Fund's organization and
registration under the 1940 Act and the Securities Act of 1933 were paid
by the Funds. Such expenses are amortized over a period of five years
commencing with the date of the initial public offering.
Continued
B-59
<PAGE> 233
THE SESSIONS GROUP
1ST SOURCE MONOGRAM FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1996
(Unaudited)
3. PURCHASES AND SALES OF PORTFOLIO SECURITIES:
Purchases and sales of portfolio securities (excluding short-term
securities) for the period ended December 31, 1996 are as follows
(Commencement of operations for the funds was September 20, 1996, September
19, 1996, September 23, 1996, and September 24, 1996, respectively):
<TABLE>
<CAPTION>
PURCHASES SALES
----------- -----------
<S> <C> <C>
Diversified Equity Fund........................................ $17,556,643 $13,899,698
Special Equity Fund............................................ 9,742,055 7,820,298
Income Fund.................................................... 34,272,558 31,542,418
Income Equity Fund............................................. 8,024,617 4,222,759
</TABLE>
4. RELATED PARTY TRANSACTIONS:
Investment advisory services are provided to the Funds by 1st Source Bank.
Under the terms of the investment advisory agreement, 1st Source Bank is
entitled to receive fees based on a percentage of the average net assets of
each Fund. 1st Source Bank has agreed that if the aggregate expenses of the
Funds, as defined, for any fiscal year exceed limitations of any state
having jurisdiction over the Funds, 1st Source Bank will refund to the
Funds, or otherwise bear, such excess. Such limitation did not affect the
calculation of the investment advisory fees during the period ended
December 31, 1996.
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services
("BISYS"), an Ohio limited partnership, and BISYS Fund Services, Inc.
("BISYS Services") are subsidiaries of The BISYS Group, Inc.
BISYS, with whom certain officers and trustees of the Group are affiliated,
serves the Funds as administrator and distributor. Such officers and
trustees are paid no fees directly by the Funds for serving as officers and
trustees of the Group. Under the terms of the administration agreement,
BISYS fees are computed daily as a percentage of the average net assets of
each Fund. BISYS Services serves the Funds as Transfer Agent and Fund
Accountant.
The Group has adopted a Distribution and Shareholder Service Plan in
accordance with Rule 12b-1 under the 1940 Act, pursuant to which each Fund
is authorized to pay or reimburse BISYS, as distributor, a periodic amount,
calculated at an annual rate not to exceed 0.25% of the average daily net
asset value of each Fund. These fees are used by BISYS to pay banks,
including 1st Source Bank, broker dealers and other institutions, or to
reimburse BISYS or its affiliates, for administration, distribution and
shareholder services in connection with the distribution of Fund shares.
The Group has adopted an Administrative Services Plan, pursuant to which
each Fund is authorized to pay compensation to banks and other financial
institutions, which may include 1st Source Bank, its correspondent and
affiliated banks and BISYS, for providing ministerial, recordkeeping and/or
adminis-
Continued
B-60
<PAGE> 234
THE SESSIONS GROUP
1ST SOURCE MONOGRAM FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1996
(Unaudited)
trative support services to their customers who are the beneficial or
record owners of a Fund. The compensation which may be paid under the
Administrative Services Plan is a fee computed daily at an annual rate of
up to 0.25% of the average daily net asset value of a Fund. The Group has
not implemented such plan as of December 31, 1996.
BISYS is also entitled to receive commissions on sales of shares of the
variable net asset value funds. For the period ended December 31, 1996,
BISYS received $1,222 from commissions earned on sales of shares of the
variable net asset value funds, of which $995 was reallowed to affiliated
broker/dealers.
Fees may be voluntarily reduced to assist the Funds in maintaining
competitive expense ratios.
Information regarding these transactions is as follows for the period ended
December 31, 1996:
<TABLE>
<CAPTION>
DIVERSIFIED SPECIAL INCOME
EQUITY EQUITY INCOME EQUITY
FUND FUND FUND FUND
----------- ------- ------- -------
<S> <C> <C> <C> <C>
INVESTMENT ADVISORY:
Annual fee before voluntary fee reductions
(percentage of average net assets)........ 1.10% .80% .55% .80%
Voluntary fee reductions.................... -- -- -- --
ADMINISTRATION FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets)........ .20% .20% .20% .20%
Voluntary fee reductions.................... -- -- -- --
12B-1 FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets)........ .25% .25% .25% .25%
Voluntary fee reductions.................... $46,151 $18,094 $33,240 $21,178
FUND ACCOUNTANT FEES........................ $ 8,168 $ 5,087 $ 3,626 $ 3,170
TRANSFER AGENT FEES......................... $ 7,760 $ 6,489 $ 6,465 $ 6,626
</TABLE>
5. ACQUISITION OF COMMON TRUST FUNDS
On September 20, 1996, September 19, 1996, September 23, 1996, September
24, 1996, respectively, the Diversified Equity, Special Equity, Income, and
Income Equity Funds acquired all of the assets of the Diversified Equity,
Special Equity Income, and Income Equity Common Trust Funds of 1st Source
Continued
B-61
<PAGE> 235
THE SESSIONS GROUP
1ST SOURCE MONOGRAM FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1996
(Unaudited)
Bank. The following is a summary of shares issued, net assets acquired, net
asset value per share and unrealized appreciation (depreciation) as of the
dates of acquisition:
<TABLE>
<CAPTION>
DIVERSIFIED SPECIAL INCOME
EQUITY EQUITY INCOME EQUITY
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Shares................................ 6,620,301 2,687,767 3,096,895 4,788,284
Net Assets............................ $66,203,008 $26,877,666 $30,968,953 $47,882,850
Net Asset Value....................... $ 10.00 $ 10.00 $ 10.00 $ 10.00
Unrealized Appreciation
(Depreciation)...................... $ 8,888,125 $ 2,343,983 $ (926,960) $ 3,626,554
</TABLE>
Continued
B-62
<PAGE> 236
THE SESSIONS GROUP
1ST SOURCE MONOGRAM FUNDS
FINANCIAL HIGHLIGHTS
(Unaudited)
<TABLE>
<CAPTION>
DIVERSIFIED SPECIAL INCOME
EQUITY EQUITY INCOME EQUITY
------------ ------------ ------------ ------------
FOR PERIOD FOR PERIOD FOR PERIOD FOR PERIOD
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 (C) 1996 (C) 1996 (C) 1996 (C)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................. $ 10.00 $ 10.00 $ 10.00 $ 10.00
------------ ------------ ------------ ------------
INVESTMENT ACTIVITIES
Net investment income.............................. -- -- 0.16 0.08
Net realized gains (losses) on investments......... 0.42 0.16 (0.02) 0.30
Net unrealized gains (losses) on investments....... 0.26 (0.16) 0.19 0.48
------------ ------------ ------------ ------------
Total from Investment Activities................. 0.68 0.00 0.33 0.86
------------ ------------ ------------ ------------
DISTRIBUTIONS
Net investment income.............................. -- -- (0.16) (0.08)
In excess of net investment income................. -- -- -- --
Net realized gains................................. (0.22) (0.16) -- (0.05)
In excess of realized gains........................ -- (0.15) -- --
------------ ------------ ------------ ------------
Total Distributions.............................. (0.22) (0.31) (0.16) (0.13)
------------ ------------ ------------ ------------
Capital transactions................................. -- -- -- --
------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD....................... $ 10.46 $ 9.69 $ 10.17 $ 10.73
============= ============= ============= =============
Total Return (excludes sales charge)................. 8.61%(a) -2.30%(a) 4.38%(a) 10.25%(a)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, at end of period (000)................. $ 65,681 $ 26,058 $ 48,959 $ 32,580
Ratio of expenses to average net assets............ 1.57%(b) 1.33%(b) 1.01%(b) 1.32%(b)
Ratio of net investment income to average net
assets........................................... -0.08%(b) -0.11%(b) 1.31%(b) 2.39%(b)
Ratio of expenses to average net assets*........... 1.82%(b) 1.58%(b) 1.26%(b) 1.57%(b)
Ratio of net investment income to average net
assets*.......................................... -0.33%(b) -0.36%(b) 1.06%(b) 2.14%(b)
Portfolio Turnover Rate............................ 23% 37% 71% 14%
</TABLE>
- ---------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Not annualized. The quoted return of the Portfolio includes performance of
certain collective trust portfolio ("Commingled") accounts for the periods
from June 30, 1985, November 30, 1985, June 30, 1985, and November 30, 1985,
respectively, to the mutual fund's commencement of operations.
(b) Annualized
(c) Commencement of the Funds began September 20, September 19, September 23,
and September 24, respectively.
See notes to financial statements.
B-63
<PAGE> 237
APPENDIX
Commercial Paper Ratings. Commercial paper ratings of Standard & Poor's
Corporation ("S&P") are current assessments of the likelihood of timely payment
of debt considered short term in the relevant market. Commercial paper rated A-1
by S&P indicates that the degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted A-1+. Commercial paper rated A-2 by S&P indicates that capacity for
timely payment on issues is satisfactory. However, the relative degree of safety
is not as high as for issues designated A-1. Commercial paper rated A-3 by S&P
indicates adequate capacity for timely payment. Such paper is, however, more
vulnerable to the adverse effects of changes in circumstances than obligations
carrying the higher designations. Commercial paper rated B by S&P is regarded as
having only speculative capacity for timely payment. Commercial paper rated C by
S&P is regarded as short-term obligations with a doubtful capacity for payment.
Commercial paper rated D by S&P is in payment default. The D rating category is
used when interest payments or principal payments are not made on the date due,
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period.
Moody's Investors Service, Inc.'s ("Moody's") commercial paper rating
are opinions of the ability of issuers to repay punctually senior debt
obligations which have an original maturity not exceeding one year. The rating
Prime-1 is the highest commercial paper rating assigned by Moody's. Issuers
rated Prime-1 (or supporting institutions) are considered to have a superior
capacity for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics of Prime-1 rated issuers, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variations. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. The effects of industry
characteristics and market composition may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and the requirement for relatively high financial leverage.
Adequate
A-1
<PAGE> 238
alternate liquidity is maintained. Issuers rated Not Prime do not fall within
any of the Prime rating categories.
Commercial paper rated F-1+ by Fitch Investors Service ("Fitch") is
regarded as having the strongest degree of assurance for timely payments.
Commercial paper rated F-1 by Fitch is regarded as having an assurance of timely
payment only slightly less than the strongest rating, i.e., F-1+. Commercial
paper rated F-2 by Fitch is regarded as having a satisfactory degree of
assurance of timely payment, but the margin of safety is not as great as for
issues assigned F-1+ or F-1 ratings. Commercial paper rated F-3 by Fitch is
regarded as having characteristics suggesting that the degree of assurance for
timely payment is adequate, however, near-term adverse changes could cause these
securities to be rated below investment grade. Commercial paper rated F-S by
Fitch is regarded as having characteristics suggesting a minimal degree of
assurance for timely payment and is vulnerable to near term adverse changes in
financial and economic conditions. Commercial paper rated D by Fitch is in
actual or imminent payment default.
The description of the three highest short-term debt ratings by Duff &
Phelps, Inc. ("Duff") (Duff incorporates gradations of "1+" (one plus) and "1-"
(one minus) to assist investors in recognizing quality differences within the
highest rating category) are as follows. Duff 1+ is regarded as having the
highest certainty of timely payment. Short-term liquidity, including internal
operating factors and/or access to alternative sources of funds, is outstanding,
and safety is just below risk-free U.S. Treasury short-term obligations. Duff 1
is regarded as having a very high certainty of timely payment. Liquidity factors
are excellent and supported by good fundamental protection factors. Risk factors
are minor. Duff 1- is regarded as having a high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are minor. Duff 2 is regarded as having a good certainty
of timely payment. Liquidity factors and company fundamentals are sound.
Although ongoing funding needs may enlarge total financing requirements, access
to capital markets is good. Risk factors are small. Duff 3 is regarded as having
a satisfactory liquidity and other protection factors qualify issue as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected. Duff 4 is considered as having
speculative investment characteristics. Liquidity is not sufficient to insure
against disruption in debt service. Operating factors and market access may be
subject to a high degree of variation. Duff 5 indicates that the issuer has
failed to meet scheduled principal and/or interest payments.
Commercial paper rated A1 by IBCA Limited and its affiliate, IBCA Inc.
(collectively "IBCA") is regarded by IBCA as obligations supported by the
highest capacity for timely repayment. Where
A-2
<PAGE> 239
issues possess a particularly strong credit feature, a rating of A1+ is
assigned. Obligations rated A2 are supported by a good capacity for timely
repayment. Obligations rated A3 are supported by a satisfactory capacity for
timely repayment. Obligations rated B are those for which there is an
uncertainty as to the capacity to ensure timely repayment. Obligations rated C
are those for which there is a high risk of default or which are currently in
default.
The following summarizes the description of the three highest
short-term ratings of Thomson BankWatch, Inc. ("Thomson"). TBW-1 is the highest
category and indicates a very high likelihood that principal and interest will
be paid on a timely basis. TBW-2 is the second highest category indicating that
while the degree of safety regarding timely repayment of principal and interest
is strong, the relative degree of safety is not as high as for issues rated
"TBW-1." TBW-3 is the lowest investment grade category and indicates that while
more susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest in a
timely fashion is considered adequate. TBW-4 is the lowest rating category and
is regarded as non-investment grade and therefore speculative.
The plus (+) sign is used after a rating symbol to designate the
relative position of an issuer within the rating category.
Corporate Debt Ratings. A S&P corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong. Debt rated AA has a very
strong capacity to pay interest and to repay principal and differs from the
highest rated issues only in small degree. Debt rated A has a strong capacity to
pay interest and repay principal although it is somewhat more susceptible to
adverse effects of changes in circumstances and economic conditions than debt in
higher rated categories.
The following summarizes the three highest ratings used by Moody's for
corporate debt. Bonds that are rated Aaa by Moody's are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues. Bonds
that are rated Aa are judged to be of high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear
A-3
<PAGE> 240
somewhat larger than in Aaa securities. Bonds that are rated A by Moody's
possess many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment some time in the future.
Moody's applies numerical modifiers (1, 2, and 3) with respect to bonds
rated Aa through A. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category.
The following summarizes the three highest long-term debt ratings by
Duff. Debt rated AAA has the highest credit quality. The risk factors are
negligible being only slightly more than for risk-free U.S. Treasury debt. Debt
rated AA has a high credit quality and protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
Debt rated A has protection factors that are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
To provide more detailed indications of credit quality, the ratings
from AA to A may be modified by the addition of a plus or minus sign to show
relative standing within this major rating category.
The following summarizes the three highest long-term debt ratings by
Fitch (except for AAA ratings, plus or minus signs are used with a rating symbol
to indicate the relative position of the credit within the rating category).
Bonds rated AAA are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events. Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issues is generally
rated "F-1+." Bonds rated as A are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
The following summarizes IBCA's three highest long-term debt ratings.
Obligations rated AAA are those for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial, such that
A-4
<PAGE> 241
adverse changes in business, economic or financial conditions are unlikely to
increase investment risk significantly. Obligations rated AA are those for which
there is a very low expectation of investment risk. Capacity for timely
repayment of principal and interest is substantial. Adverse changes in business,
economic, or financial conditions may increase investment risk albeit not very
significantly. Obligations rated A are those for which there is a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is strong, although adverse changes in business, economic or financial
conditions may lead to increased investment risk.
The following summarizes Thomson's description of its three highest
long-term debt ratings (Thomson may include a plus (+) or minus (-) designation
to indicate where within the respective category the issue is placed). AAA is
the highest category and indicates that the ability to repay principal and
interest on a timely basis is very high. AA is the second highest category and
indicates a superior ability to repay principal and interest on a timely basis
with limited incremental risk versus issues rated in the highest category. A is
the third highest category and indicates the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
Municipal Obligations Ratings
The following summarizes the three highest ratings used by Moody's for
state and municipal short-term obligations. Obligations bearing MIG-1 or VMIG-1
designations are of the best quality, enjoying strong protection by established
cash flows, superior liquidity support or demonstrated broad-based access to the
market for refinancing. Obligations rated MIG-2 or VMIG-2 denote high quality
with ample margins of protection although not so large as in the preceding
rating group. Obligations bearing MIG-3 or VMIG-3 denote favorable quality. All
security elements are accounted for but there is lacking the undeniable strength
of the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
S&P SP-1, SP-2, and SP-3 municipal note ratings (the three highest
ratings assigned) are described as follows:
"SP-1": Very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming
safety characteristics will be given a plus (+) designation.
"SP-2": Satisfactory capacity to pay principal and interest.
A-5
<PAGE> 242
"SP-3": Speculative capacity to pay principal and interest.
The following summarizes the three highest ratings used by Moody's for
state and municipal bonds:
"Aaa": Bonds judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
"Aa": Bonds judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in Aaa
securities.
"A": Bonds which possess many favorable investment attributes
and are to be considered as upper medium-grade obligations.
Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest
a susceptibility to impairment sometime in the future.
The following summarizes the three highest ratings used by S&P for
state and municipal bonds:
"AAA": Debt which has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.
"AA": Debt which has a very strong capacity to pay interest
and repay principal and differs from the highest rated issues
only in small degree.
"A": Debt which has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
A-6
<PAGE> 243
Definitions of Certain Money Market Instruments
Commercial Paper
Commercial paper consists of unsecured promissory notes issued by
corporations. Issues of commercial paper normally have maturities of less than
nine months and fixed rates of return.
Certificates of Deposit
Certificates of Deposit are negotiable certificates issued against
funds deposited in a commercial bank or a savings and loan association for a
definite period of time and earning a specified return.
Bankers' Acceptances
Bankers' acceptances are negotiable drafts or bills of exchange,
normally drawn by an importer or exporter to pay for specific merchandise, which
are "accepted" by a bank, meaning, in effect, that the bank unconditionally
agrees to pay the face value of the instrument on maturity.
U.S. Treasury Obligations
U.S. Treasury Obligations are obligations issued or guaranteed as to
payment of principal and interest by the full faith and credit of the U.S.
Government. These obligations may include Treasury bills, notes and bonds, and
issues of agencies and instrumentalities of the U.S. Government, provided such
obligations are guaranteed as to payment of principal and interest by the full
faith and credit of the U.S. Government.
U.S. Government Agency and Instrumentality Obligations
Obligations of the U.S. Government include Treasury bills, certificates
of indebtedness, notes and bonds, and issues of agencies and instrumentalities
of the U.S. Government, such as the Government National Mortgage Association,
the Tennessee Valley Authority, the Farmers Home Administration, the Federal
Home Loan Banks, the Federal Intermediate Credit Banks, the Federal Farm Credit
Banks, the Federal Land Banks, the Federal Housing Administration, the Federal
National Mortgage Association, the Federal Home Loan Mortgage Corporation, and
the Student Loan Marketing Association. Some of these obligations, such as those
of the Government National Mortgage Association, are supported by the full faith
and credit of the U.S. Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the right of the issuer to borrow from
the Treasury; others, such as those of the Student Loan Marketing Association,
are supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations; still others, such as those of the Federal
A-7
<PAGE> 244
Farm Credit Banks, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored instrumentalities if it is not obligated to do so
by law.
A-8
<PAGE> 245
Registration Statement
of
THE SESSIONS GROUP
on
Form N-1A
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
(i) Riverside Capital Money Market Fund
Financial Highlights
(ii) Riverside Capital Value Equity Fund
Financial Highlights
(iii) Riverside Capital Fixed Income Fund
Financial Highlights
(iv) Riverside Capital Tennessee Municipal Obligations Fund
Financial Highlights
(v) Riverside Capital Low Duration Government Securities Fund
Financial Highlights
(vi) Riverside Capital Growth Fund
Financial Highlights
(vii) KeyPremier Prime Money Market Fund
Financial Highlights
(viii) KeyPremier Pennsylvania Municipal Bond Fund
Financial Highlights
C-1
<PAGE> 246
(ix) 1st Source Monogram U.S. Treasury Obligations Money Market
Fund
None
(x) 1st Source Monogram Diversified Equity Fund
Financial Highlights
(xi) 1st Source Monogram Income Equity Fund
Financial Highlights
(xii) 1st Source Monogram Special Equity Fund
Financial Highlights
(xiii) 1st Source Monogram Income Fund
Financial Highlights
(xiv) 1st Source Monogram Intermediate Tax-Free Bond Fund
None
(xv) KeyPremier Established Growth Fund
None
(xvi) KeyPremier Intermediate Term Income Fund
None
(xvii) KeyPremier Aggressive Growth Fund
None
Included in Part B:
(i) Riverside Capital Money Market Fund
Independent Auditors' Report dated August 26, 1996.
Statements of Assets and Liabilities dated June 30, 1996.
Statements of Operations for the year ended June 30, 1996.
Statements of Changes in Net Assets for the years ended June
30, 1996 and 1995.
C-2
<PAGE> 247
Schedule of Portfolio Investments as of June 30, 1996.
Notes to Financial Statements.
Financial Highlights for the years ended June 30, 1996, 1995,
1994, 1993 and 1992.
(ii) Riverside Capital Value Equity Fund
Independent Auditors' Report dated August 26, 1996.
Statements of Assets and Liabilities dated June 30, 1996.
Statements of Operations for the year ended June 30, 1996.
Statements of Changes in Net Assets for the years ended June
30, 1996 and 1995.
Schedule of Portfolio Investments as of June 30, 1996.
Notes to Financial Statements.
Financial Highlights for the years ended June 30, 1996, 1995,
1994 and 1993, and the period from commencement of operations
(October 31, 1991) to June 30, 1992.
(iii) Riverside Capital Fixed Income Fund
Independent Auditors' Report dated August 26, 1996.
Statements of Assets and Liabilities dated June 30, 1996.
Statements of Operations for the year ended June 30, 1996.
Statements of Changes in Net Assets for the years ended June
30, 1996 and 1995.
Schedule of Portfolio Investments as of June 30, 1996.
Notes to Financial Statements.
Financial Highlights for the years ended June 30, 1996, 1995,
1994 and 1993, and the period from
C-3
<PAGE> 248
commencement of operations (October 31, 1991) to June 30,
1992.
(iv) Riverside Capital Tennessee Municipal Obligations Fund
Independent Auditors' Report dated August 26, 1996.
Statements of Assets and Liabilities at June 30, 1996.
Statements of Operations for the year ended June 30, 1996.
Statements of Changes in Net Assets for the years ended June
30, 1996 and 1995.
Schedule of Portfolio Investments as of June 30, 1996.
Notes to Financial Statements.
Financial Highlights for the years ended June 30, 1996, 1995
and 1994, and for the period from commencement of operations
(November 4, 1992) to June 30, 1993.
(v) Riverside Capital Low Duration Government Securities Fund
Independent Auditor's Report dated August 26, 1996.
Statements of Assets and Liabilities at June 30, 1996.
Statements of Operations for the year ended June 30, 1996.
Statements of Changes in Net Assets for the years ended June
30, 1996 and 1995.
Schedule of Portfolio Investments as of June 30, 1996.
Notes to Financial Statements.
Financial Highlights for the year ended June 30, 1996 and
1995, and for the period from commencement of operations
(April 18, 1994) to June 30, 1994.
C-4
<PAGE> 249
(vi) Riverside Capital Growth Fund
Independent Auditor's Report dated August 26, 1996.
Statements of Assets and Liabilities at June 30, 1996.
Statements of Operations for the year ended June 30, 1996.
Statements of Changes in Net Assets for the years ended June
30, 1996 and 1995.
Schedule of Portfolio Investments as of June 30, 1996.
Notes to Financial Statements.
Financial Highlights for the year ended June 30, 1996 and
1995, and for the period from commencement of operations
(April 18, 1994) to June 30, 1994.
(vii) KeyPremier Prime Money Market Fund
Statements of Assets and Liabilities at December 31, 1996
(unaudited).
Statements of Operations for the period ended December 31,
1996 (unaudited).
Statements of Change in Net Assets for the period ended
December 31, 1996 (unaudited).
Schedule of Portfolio Investments as of December 31, 1996
(unaudited).
Notes to Financial Statements as of December 31, 1996
(unaudited).
Financial Highlights for the period from commencement of
operations (October 7, 1996) to December 31, 1996 (unaudited).
(viii) KeyPremier Pennsylvania Municipal Bond Fund
Statements of Assets and Liabilities at December 31, 1996
(unaudited).
statements of Operations for the period ended December 31,
1996 (unaudited).
C-5
<PAGE> 250
Statements of Changes in Net Assets for the period ended
December 31, 1996 (unaudited).
Schedule of Portfolio Investments as of December 31, 1996
(unaudited).
Notes to Financial Statements as of December 31, 1996
(unaudited).
Financial Highlights for the period from commencement of
operations (October 1, 1996) to December 31, 1996 (unaudited).
(ix) 1st Source Monogram U.S. Treasury Obligations Money Market
Fund
To be filed by amendment.
(x) 1st Source Monogram Diversified Equity Fund
Statements of Assets and Liabilities at December 31, 1996
(unaudited).
Statements of Operations for the period ended December 31,
1996 (unaudited).
Statements of Changes in Net Assets for the period ended
December 31, 1996 (unaudited).
Schedule of Portfolio Investments as of December 31, 1996
(unaudited).
Notes to Financial Statements as of December 31, 1996
(unaudited).
Financial Highlights for the period from commencement of
operations (September 20, 1996) to December 31, 1996
(unaudited).
(xi) 1st Source Monogram Income Equity Fund
Statements of Assets and Liabilities at December 31, 1996
(unaudited).
Statements of Operations for the period ended December 31,
1996 (unaudited).
Statements of Changes in Net Assets for the period ended
December 31, 1996 (unaudited).
Schedule of Portfolio Investments as of December 31, 1996
(unaudited).
C-6
<PAGE> 251
Notes to Financial Statements as of December 31, 1996
(unaudited).
Financial Highlights for the period from commencement of
operations (September 24, 1996) to December 31, 1996
(unaudited).
(xii) 1st Source Monogram Special Equity Fund
Statements of Assets and Liabilities at December 31, 1996
(unaudited).
Statements of Operations for the period ended December 31,
1996 (unaudited).
Statements of Changes in Net Assets for the period ended
December 31, 1996 (unaudited).
Schedule of Portfolio Investments as of December 31, 1996
(unaudited).
Notes to Financial Statements as of December 31, 1996
(unaudited).
Financial Highlights for the period from commencement of
operations (September 19, 1996) to December 31, 1996
(unaudited).
(xiii) 1st Source Monogram Income Fund
Statements of Assets and Liabilities at December 31, 1996
(unaudited).
Statements of Operations for the period ended December 31,
1996 (unaudited).
Statements of Changes in Net Assets for the period ended
December 31, 1996 (unaudited).
Schedule of Portfolio Investments as of December 31, 1996
(unaudited).
Notes to Financial Statements as of December 31, 1996
(unaudited).
Financial Highlights for the period from commencement of
operations (September 23, 1996) to December 31, 1996
(unaudited).
(xiv) 1st Source Monogram Intermediate Tax-Free Bond Fund
To be filed by amendment.
C-7
<PAGE> 252
(xv) KeyPremier Established Growth Fund
To be filed by amendment.
(xvi) KeyPremier Intermediate Term Income Fund
To be filed by amendment.
(xvii) KeyPremier Aggressive Growth Fund
To be filed by amendment.
(xviii) All required financial statements are included in Part B
hereof. All other financial statements and schedules are
inapplicable.
(b) Exhibits:
(1) (a) Declaration of Trust, dated as of April 25, 1988, is
incorporated by reference to Exhibit (1)(a) of
Post-Effective Amendment No. 34 to Registrant's
Registration Statement (No. 33-21489) filed on April
25, 1996.
(b) Amendment of Article IV, Section 4.2 of Declaration
of Trust adopted August 15, 1989, is incorporated by
reference to Exhibit (1)(b) of Post-Effective
Amendment No. 34 to Registrant's Registration
Statement (No. 33-21489) filed on April 25, 1996.
(c) Amendment of Article V, Section 5.3 of Declaration of
Trust adopted October 23, 1989, is incorporated by
reference to Exhibit (1)(c) of Post-Effective
Amendment No. 34 to Registrant's Registration
Statement (No. 33-21489) filed on April 25, 1996.
(d) Amendment of Article IV, Section 4.2 of Declaration
of Trust adopted July 23, 1991, is incorporated by
reference to Exhibit (1)(d) of Post-Effective
Amendment No. 34 to Registrant's Registration
Statement (No. 33-21489) filed on April 25, 1996.
(e) Amendment of Article IV, Section 4.2 of Declaration
of Trust as adopted August 13, 1992, is incorporated
by reference to Exhibit (1)(e) of Post-Effective
Amendment No. 34 to Registrant's Registration
Statement (No. 33-21489) filed on April 25, 1996.
C-8
<PAGE> 253
(f) Amendment to Article IV, Section 4.2 of Declaration
of Trust as adopted October 28, 1992, is incorporated
by reference to Exhibit (1)(f) of Post-Effective
Amendment No. 34 to Registrant's Registration
Statement (No. 33-21489) filed on April 25, 1996.
(g) Amendment to Article IV, Section 4.2 of Declaration
of Trust as adopted February 18, 1994, is
incorporated by reference to Exhibit (1)(g) of
Post-Effective Amendment No. 34 to Registrant's
Registration Statement (No. 33-21489) filed on April
25, 1996.
(h) Amendment to Article IV, Section 4.2 of Declaration
of Trust as adopted May 16, 1994, is incorporated by
reference to Exhibit (1)(h) of Post-Effective
Amendment No. 34 to Registrant's Registration
Statement (No. 33-21489) filed on April 25, 1996.
(i) Amendment to Article IV, Section 4.2 of Declaration
of Trust as adopted April 10, 1996, is incorporated
by reference to Exhibit (1)(i) of Post-Effective
Amendment No. 34 to Registrant's Registration
Statement (No. 33-21489) filed on April 25, 1996.
(j) Amendment to Article IV, Section 4.2 of Declaration
of Trust as adopted May 16, 1996, is incorporated by
reference to Exhibit (1)(j) of Post-Effective
Amendment No. 35 to Registrant's Registration
Statement (No. 33-21489) filed on June 6, 1996.
(k) Amendment to Article IV, Section 4.2 of Declaration
of Trust as adopted August 15, 1996, is incorporated
by reference to Exhibit (1)(k) of Post-Effective
Amendment No. 36 to Registrant's Registration
Statement (No. 33-21489) filed on August 16, 1996.
(l) Amendment to Article IV, Section 4.2 of Declaration
of Trust as adopted September 27, 1996 is
incorporated by reference to Exhibit (1)(l) of
Post-Effective Amendment No. 38 to Registrant's
Registration Statement (No. 33- 21489) filed on
November 15, 1996.
(m) Amendment to Article IV, Section 4.2 of Declaration
of Trust as adopted as of January 14, 1997.
C-9
<PAGE> 254
(2) By-Laws are incorporated by reference to Exhibit (2) of
Post-Effective Amendment No. 34 to Registrant's
Registration Statement (No. 33-21489) filed on April 25,
1996.
(3) None.
(4) Certificates for Shares are not issued. Articles IV, V, VI
and VII of the Declaration of Trust, filed as Exhibit 1
hereto, define rights of holders of Shares.
(5) (a) Investment Advisory Agreement dated as of July 19,
1988, between Registrant and National Bank of
Commerce (with respect to Riverside Capital Money
Market Fund) is incorporated by reference to Exhibit
(5)(a) of Post-Effective Amendment No. 34 to
Registrant's Registration Statement (No. 33-21489)
filed on April 25, 1996.
(b) Investment Advisory Agreement dated as of September
20, 1991, between Registrant and National Bank of
Commerce (with respect to Riverside Capital Value
Equity Fund and Riverside Capital Fixed Income Fund)
is incorporated by reference to Exhibit (5)(b) of
Post-Effective Amendment No. 34 to Registrant's
Registration Statement (No. 33-21489) filed on April
25, 1996.
(c) Investment Advisory Agreement dated as of October 27,
1992, between Registrant and National Bank of
Commerce (with respect to Riverside Capital Tennessee
Municipal Obligations Fund) is incorporated by
reference to Exhibit (5)(c) of Post-Effective
Amendment No. 34 to Registrant's Registration
Statement (No. 33-21489) filed on April 25, 1996.
(d) Investment Advisory Agreement dated April 5, 1994, as
amended June 3, 1994, between Registrant and National
Bank of Commerce (with respect to Riverside Capital
Low Duration Government Securities Fund and Riverside
Capital Growth Fund) is incorporated by reference to
Exhibit (5)(d) of Post-Effective Amendment No. 34 to
Registrant's Registration Statement (No. 33-21489)
filed on April 25, 1996.
C-10
<PAGE> 255
(e) Investment Advisory Agreement dated July 9, 1996, as
amended as of January 29, 1997, between Registrant
and Martindale Andres & Company, Inc. (with respect
to the KeyPremier Funds).
(f) Investment Advisory Agreement dated August 20, 1996,
between Registrant and 1st Source Bank (with respect
to the 1st Source Monogram Funds) is incorporated by
reference to Exhibit (5)(f) of Post-Effective
Amendment No. 37 to Registrant's Registration
Statement (No. 33-21489) filed on October 21, 1996.
(g) Sub-Investment Advisory Agreement dated August 20,
1996, between 1st Source Bank and Miller, Anderson
and Sherrerd, LLP (with respect to 1st Source
Monogram Diversified Equity Fund) is incorporated by
reference to Exhibit (5)(g) of Post-Effective
Amendment No. 37 to Registrant's Registration
Statement (No. 33-21489) filed on October 21, 1996.
(h) Sub-Investment Advisory Agreement dated August 20,
1996, between 1st Source Bank and Loomis Sayles &
Company, L.P. (with respect to 1st Source Monogram
Diversified Equity Fund) is incorporated by reference
to Exhibit (5)(h) of Post-Effective Amendment No. 37
to Registrant's Registration Statement (No. 33-21489)
filed on October 21, 1996.
(i) Sub-Investment Advisory Agreement dated August 20,
1996, between 1st Source Bank and Columbus Circle
Investors (with respect to 1st Source Monogram
Diversified Equity Fund) is incorporated by reference
to Exhibit (5)(i) of Post-Effective Amendment No. 37
to Registrant's Registration Statement (No. 33-21489)
filed on October 21, 1996.
(6) (a) Distribution Agreement dated October 1, 1993, as
amended as of June 3, 1994, between Registrant and
The Winsbury Company Limited Partnership is
incorporated by reference to Exhibit (6)(a) of
Post-Effective Amendment No. 30 to Registrant's
Registration Statement (No. 33-21489) filed on August
24, 1994.
(b) Form of Selected Dealer Agreement is incorporated by
reference to Exhibit (6)(b) of Post-Effective
Amendment No. 34 to
C-11
<PAGE> 256
Registrant's Registration Statement (No. 33-21489)
filed on April 25, 1996.
(c) Distribution Agreement dated as of July 9, 1996, as
amended as of January 29, 1997, between Registrant
and BISYS Fund Services Limited Partnership (relating
to the KeyPremier Funds).
(d) Form of Shareholder Services Agreement is
incorporated by reference to Exhibit (6)(d) of
Post-Effective Amendment No. 34 to Registrant's
Registration Statement (No. 33-21489) filed on April
25, 1996.
(e) Distribution Agreement dated as of August 20, 1996,
between Registrant and BISYS Fund Services Limited
Partnership (relating to the 1st Source Monogram
Funds) is incorporated by reference to Exhibit (6)(e)
of Post-Effective Amendment No. 37 to Registrant's
Registration Statement (No. 33-21489) filed on
October 21, 1996.
(7) None.
(8) (a) Custodial Services Agreement dated as of March 1,
1995, between Registrant and National City Bank (with
respect to the Riverside Capital Funds) is
incorporated by reference to Exhibit (8) of
Post-Effective Amendment No. 33 to Registrant's
Registration Statement (No. 33-21489) filed on
October 30, 1995.
(b) Custody Agreement dated July 9, 1996, as amended as
of January 29, 1997, between Registrant and The Bank
of New York (with respect to the KeyPremier Funds).
(c) Custody Agreement dated August 20, 1996, between
Registrant and The Fifth Third Bank (with respect to
the 1st Source Monogram Funds) is incorporated by
reference to Exhibit (8)(c) of Post-Effective
Amendment No. 37 to Registrant's Registration
Statement (No. 33-21489) filed on October 21, 1996.
(d) Cash Management and Related Services Agreement dated
September 24, 1996, as amended as of January 29,
1997, between Registrant and The Bank of New York.
C-12
<PAGE> 257
(9) (a) Management and Administration Agreement dated August
23, 1990, as amended October 27, 1992, between
Registrant and The Winsbury Company Limited
Partnership (with respect to Riverside Capital Money
Market Fund, Riverside Capital Value Equity Fund,
Riverside Capital Fixed Income Fund and Riverside
Capital Tennessee Municipal Obligations Fund) is
incorporated by reference to Exhibit (9)(a) of
Post-Effective Amendment No. 25 to Registrant's
Registration Statement (No. 33-21489) filed on April
27, 1993.
(g) Transfer Agency Agreement dated as of September 1,
1992, as amended as of May 1, 1994, between
Registrant and BISYS Fund Services Ohio, Inc.
(formerly The Winsbury Service Corporation) (with
respect to the Riverside Capital Funds) is
incorporated by reference to Exhibit (9)(g) of
Post-Effective Amendment No. 30 to Registrant's
Registration Statement (No. 33-21489) filed on August
24, 1994.
(h) Fund Accounting Agreement dated February 4, 1993,
between Registrant and The Winsbury Service
Corporation (with respect to Riverside Capital Money
Market Fund, Riverside Capital Equity Fund, Riverside
Capital Fixed Income Fund and Riverside Capital
Tennessee Municipal Obligations Fund) is incorporated
by reference to Exhibit (9)(h) of Post-Effective
Amendment No. 25 to Registrant's Registration
Statement (No. 33-21489) filed on April 27, 1993.
(r) Administrative Services Plan effective October 19,
1993 is incorporated by reference to Exhibit (9)(r)
of Post-Effective Amendment No. 28 to Registrant's
Registration Statement (No. 33-21489) filed on
February 4, 1994.
(s) Servicing Agreement to Administrative Services Plan
dated as of October 19, 1993, between Registrant and
National Bank of Commerce (with respect to Riverside
Capital Money Market Fund, Riverside Capital Equity
Fund, Riverside Capital Fixed Income Fund and
Riverside Capital Tennessee Municipal Obligations
Fund) is incorporated by reference to Exhibit (9)(s)
of Post-Effective Amendment No. 29 to Registrant's
Registration Statement (No. 33-21489) filed on April
4, 1994.
C-13
<PAGE> 258
(u) Management and Administration Agreement between
Registrant and The Winsbury Company Limited
Partnership dated April 5, 1994, as amended as of
June 3, 1994 (with respect to Riverside Capital Low
Duration Government Securities Fund and Riverside
Capital Growth Fund) is incorporated by reference to
Exhibit (9)(u) of Post-Effective Amendment No. 30 to
Registrant's Registration Statement (No. 33-21489)
filed on August 24, 1994.
(v) Fund Accounting Agreement dated April 5, 1994, as
amended June 3, 1994, between Registrant and The
Winsbury Service Corporation (with respect to
Riverside Capital Low Duration Government Securities
Fund and Riverside Capital Growth Fund) is
incorporated by reference to Exhibit (9)(v) of
Post-Effective Amendment No. 30 to Registrant's
Registration Statement (No. 33-21489) filed on August
24, 1994.
(w) Servicing Agreement to Administrative Services Plan
dated April 5, 1994, between Registrant and National
Bank of Commerce (with respect to Riverside Capital
Low Duration Government Securities Fund and Riverside
Capital Growth Fund) is incorporated by reference to
Exhibit (9)(w) of Post-Effective Amendment No. 30 to
Registrant's Registration Statement (No. 33-21489)
filed on August 24, 1994.
(x) Management and Administration Agreement dated July 9,
1996, as amended as of January 29, 1997, between
Registrant and BISYS Fund Services Limited
Partnership (with respect to the KeyPremier Funds).
(y) Fund Accounting Agreement dated July 9, 1996, as
amended as of January 29, 1997, between Registrant
and BISYS Fund Services, Inc. (with respect to the
KeyPremier Funds).
(z) Transfer Agency Agreement dated July 9, 1996, as
amended as of January 29, 1997, between Registrant
and BISYS Fund Services, Inc. (with respect to the
KeyPremier Funds).
(aa) Management and Administration Agreement dated August
20, 1996, between Registrant and BISYS Fund Services
Limited Partnership (with respect to the 1st Source
Monogram Funds) is
C-14
<PAGE> 259
incorporated by reference to Exhibit (9)(aa) of
Post-Effective Amendment No. 37 to Registrant's
Registration Statement (No. 33-21489) filed on
October 21, 1996.
(ab) Fund Accounting Agreement dated August 20, 1996,
between Registrant and BISYS Fund Services, Inc.
(with respect to the 1st Source Monogram Funds) is
incorporated by reference to Exhibit (9)(ab) of
Post-Effective Amendment No. 37 to Registrant's
Registration Statement (No. 33-21489) filed on
October 21, 1996.
(ac) Transfer Agency Agreement dated August 20, 1996,
between Registrant and BISYS Fund Services, Inc.
(with respect to the 1st Source Monogram Funds) is
incorporated by reference to Exhibit (9)(ac) of
Post-Effective Amendment No. 37 to Registrant's
Registration Statement (No. 33-21489) filed on
October 21, 1996.
(ad) Form of Servicing Agreement to Administrative
Services Plan is incorporated by reference to Exhibit
(9)(ad) of Post-Effective Amendment No. 35 to
Registrant's Registration Statement (No. 33-21489)
filed on June 6, 1996.
(10) (a) Opinion of Counsel with respect to shares of
KeyPremier Aggressive Growth Fund is incorporated by
reference to Exhibit (10)(a) of Post-Effective
Amendment No. 38 to Registrant's Registration
Statement (No. 33- 21489) filed on November 15, 1996.
Opinion of Counsel with respect to shares of
KeyPremier Established Growth Fund and KeyPremier
Intermediate Term Income Fund is incorporated by
reference to Exhibit (10)(a) of Post-Effective
Amendment No. 36 to Registrant's Registration
Statement (No. 33-21489) filed on August 16, 1996.
Opinion of Counsel with respect to Shares of 1st
Source Monogram U.S. Treasury Obligations Money
Market Fund, 1st Source Monogram Diversified Equity
Fund, 1st Source Monogram Income Equity Fund, 1st
Source Monogram Special Equity Fund, 1st Source
Monogram Income Fund and 1st Source Monogram
Intermediate Tax-Free Bond Fund is incorporated by
reference to Exhibit (10)(a) of Post-Effective
Amendment No. 35 to Registrant's Registration
Statement (No. 33-21489) filed on June 6, 1996.
Opinion of
C-15
<PAGE> 260
Counsel with respect to Shares of the KeyPremier
Prime Money Market Fund and the KeyPremier
Pennsylvania Municipal Bond Fund is incorporated by
reference to Exhibit (10)(a) of Post-Effective
Amendment No. 34 to Registrant's Registration
Statement (No. 33-21489) filed on April 25, 1996. An
Opinion of Counsel with respect to Shares of
Riverside Capital Money Market Fund, Riverside
Capital Value Equity Fund, Riverside Capital Fixed
Income Fund, Riverside Capital Tennessee Municipal
Obligations Fund, Riverside Capital Low Duration
Government Securities Fund and Riverside Capital
Growth Fund was filed with Registrant's Notice filed
on August 28, 1996, pursuant to Rule 24f-2.
(b) Opinion of Special Counsel with respect to Riverside
Capital Tennessee Municipal Obligations Fund is
incorporated by reference to Exhibit (10)(b) of
Post-Effective Amendment No. 23 to Registrant's
Registration Statement (No. 33-21489) filed on
October 30, 1992.
(11) (a) Consent of KPMG Peat Marwick LLP.
(b) Consent of Burch, Porter & Johnson is incorporated by
reference to Exhibit (11)(b) of Post-Effective
Amendment No. 23 to Registrant's Registration
Statement (No. 33-21489) filed on October 30, 1992.
(c) Consent of Coopers & Lybrand L.L.P.
(12) None.
(13) Purchase Agreement dated as of July 19, 1988, between
Registrant and Winsbury Associates is incorporated by
reference to Exhibit (13) of Pre-Effective Amendment No. 2
to Registrant's Registration Statement (No. 33-21489)
filed on July 21, 1988.
(14) None.
(15) (a) Rule 12b-1 Plan (with respect to the Riverside
Capital Funds) is incorporated by reference to
Exhibit (15)(a) of Pre-Effective Amendment No. 2 to
Registrant's Registration Statement (No. 33-21489)
filed on July 21, 1988.
C-16
<PAGE> 261
(c) Rule 12b-1 Plan (with respect to the 1st Source
Monogram Funds) is incorporated by reference to
Exhibit (15)(c) of Post-Effective Amendment No. 35 to
Registrant's Registration Statement (No. 33-21489)
filed on June 6, 1996.
(h) Rule 12b-1 Agreement dated October 1, 1993, between
The Winsbury Company Limited Partner- ship and
National Bank of Commerce (with respect to Riverside
Capital Money Market Fund, Riverside Capital Equity
Fund, Riverside Capital Fixed Income Fund and
Riverside Capital Tennessee Municipal Obligations
Fund) is incorporated by reference to Exhibit (15)(h)
of Post-Effective Amendment No. 27 to Registrant's
Registration Statement (No. 33-21489) filed on
October 19, 1993.
(m) Rule 12b-1 Agreement dated October 1, 1993, between
The Winsbury Company Limited Partner- ship and
Commerce Investment Corporation (with respect to
Riverside Capital Money Market Fund, Riverside
Capital Value Equity Fund, Riverside Capital Fixed
Income Fund and River- side Capital Tennessee
Municipal Obligations Fund) is incorporated by
reference to Exhibit (15)(m) of Post-Effective
Amendment No. 27 to Registrant's Registration
Statement (No. 33-21489) filed on October 19, 1993.
(n) Rule 12b-1 Agreement dated October 19, 1993, between
Registrant and The Winsbury Company Limited
Partnership (with respect to Riverside Capital Money
Market Fund, Riverside Capital Equity Fund, Riverside
Capital Fixed Income Fund and Riverside Capital
Tennessee Municipal Obligations Fund) is incorporated
by reference to Exhibit (15)(n) of Post-Effective
Amendment No. 28 to Registrant's Registration
Statement (No. 33-21489) filed on February 4, 1994.
(o) Rule 12b-1 Agreement dated as of April 5, 1994,
between The Winsbury Company Limited Partnership and
Commerce Investment Corporation (with respect to
Riverside Capital Low Duration Government Securities
Fund and Riverside Capital Growth Fund) is
incorporated by reference to Exhibit (15)(o) of
Post-Effective Amendment No. 30 to Registrant's
Registration Statement (No. 33-21489) filed on August
24, 1994.
C-17
<PAGE> 262
(p) Rule 12b-1 Agreement dated as of April 5, 1994,
between Registrant and The Winsbury Company Limited
Partnership (with respect to Riverside Capital Low
Duration Government Securities Fund and Riverside
Capital Growth Fund) is incorporated by reference to
Exhibit (15)(p) of Post-Effective Amendment No. 30 to
Registrant's Registration Statement (No. 33-21489)
filed on August 24, 1994.
(s) Rule 12b-1 Agreement dated as of May 16, 1994,
between J.C. Bradford & Co. and The Winsbury Company
Limited Partnership (with respect to the Riverside
Capital Funds) is incorporated by reference to
Exhibit (15)(s) of Post-Effective Amendment No. 30 to
Registrant's Registration Statement (No. 33-21489)
filed on August 24, 1994.
(t) Rule 12b-1 Agreement dated as of May 16, 1994,
between Morgan, Keegan & Co. and The Winsbury Company
Limited Partnership (with respect to the Riverside
Capital Funds) is incorporated by reference to
Exhibit (15)(t) of Post-Effective Amendment No. 30 to
Registrant's Registration Statement (No. 33-21489)
filed on August 24, 1994.
(u) Rule 12b-1 Agreement dated as of August 1, 1994,
between J.J.B. Hilliard, W.L. Lyons, Inc. and The
Winsbury Company Limited Partnership (with respect to
the Riverside Capital Funds) is incorporated by
reference to Exhibit (15)(u) of Post-Effective
Amendment No. 31 to Registrant's Registration
Statement (No. 33-21489) filed on October 14, 1994.
(v) Rule 12b-1 Agreement dated as of August 31, 1994,
between TrustMark Investments, Inc. and The Winsbury
Company Limited Partnership (with respect to the
Riverside Capital Funds) is incorporated by reference
to Exhibit (15)(v) of Post-Effective Amendment No. 31
to Registrant's Registration Statement (No. 33-21489)
filed on October 14, 1994.
(16) (a) Computation of Performance Quotations for Riverside
Capital Money Market Fund is incorporated by
reference to Exhibit (16)(a) of Post-Effective
Amendment No. 27 to Registrant's Registration
Statement (No. 33-21489) filed on October 19, 1993.
C-18
<PAGE> 263
(b) Computation of Performance Quotations for Riverside
Capital Value Equity Fund and Riverside Capital Fixed
Income Fund is incorporated by reference to Exhibit
(16)(b) of Post-Effective Amendment No. 27 to
Registrant's Registration Statement (No. 33-21489)
filed on October 19, 1993.
(f) Computation of Performance Quotations for Riverside
Capital Tennessee Municipal Obligations Fund is
incorporated by reference to Exhibit (16)(f) of
Post-Effective Amendment No. 27 to Registrant's
Registration Statement (No. 33-21489) filed on
October 19, 1993.
(h) Computation of Performance Quotations for Riverside
Capital Low Duration Government Securities Fund and
Riverside Capital Growth Fund is incorporated by
reference to Exhibit (16)(h) of Post-Effective
Amendment No. 33 to Registrant's Registration
Statement (No. 33-21489) filed on October 30, 1995.
(i) Computation of Performance Quotations for KeyPremier
Prime Money Market Fund and KeyPremier Pennsylvania
Municipal Bond Fund. Computation of Performance
Quotations for KeyPremier Established Growth Fund and
KeyPremier Aggressive Growth Fund is incorporated by
reference to Exhibit (16)(i) of Post-Effective
Amendment No. 38 to Registrant's Registration
Statement (No. 33- 21489) filed on November 15, 1996.
Computation of Performance Quotations for KeyPremier
Intermediate Term Income Fund to be filed by
amendment.
(j) Computation of Performance Quotations for 1st Source
Monogram Diversified Equity Fund, 1st Source Monogram
Income Equity Fund, 1st Source Monogram Special
Equity Fund and 1st Source Monogram Income Fund.
Computation of Performance Quotations for 1st Source
Monogram U.S. Treasury Obligations Money Market Fund
and 1st Source Monogram Intermediate Tax-Free Bond
Fund to be filed by amendment.
(17) Financial Data Schedules for KeyPremier Prime Money
Market Fund, KeyPremier Pennsylvania Municipal Bond
Fund, 1st Source Monogram Diversified Equity Fund,
1st Source Monogram Income Equity Fund, 1st Source
Monogram
C-19
<PAGE> 264
Special Equity Fund and 1st Source Monogram Income
Fund. Financial Data Schedules for the Riverside
Capital Funds are incorporated by reference to
Exhibit (17) of Post-Effective Amendment No. 37 to
Registrant's Registration Statement (No. 33-21489)
filed on October 21, 1996. Financial Data Schedules
for the other KeyPremier Funds and the other 1st
Source Monogram Funds to be filed by amendment.
(18) None.
(19) (a) Powers of Attorney of Stephen G. Mintos, Chalmers P.
Wylie, Walter B. Grimm and Maurice G. Stark are
incorporated by reference to Exhibit (17)(a) of
Post-Effective Amendment No. 30 to Registrant's
Registration Statement (No. 33-21489) filed on August
24, 1994.
(b) Consent of Baker & Hostetler LLP.
(c) Power of Attorney of Nancy E. Converse is
incorporated by reference to Exhibit (19)(c) of
Post-Effective Amendment No. 36 to Registrant's
Registration Statement (No. 33-21489) filed on August
16, 1996.
(d) Power of Attorney of James H. Woodward is
incorporated by reference to Exhibit (19)(d) of
Post-Effective Amendment No. 37 to Registrant's
Registration Statement (No. 33-21489) filed on
October 21, 1996.
Item 25. Persons Controlled By or Under Common Control with Registrant
None.
Item 26. Number of Holders of Securities
As of March 3, 1997, the number of record holders of each series of
shares of the Registrant were as follows:
C-20
<PAGE> 265
Title of Series Number of Record Holders
Riverside Capital Money
Market Fund 25
Riverside Capital
Value Equity Fund 148
Riverside Capital
Fixed Income Fund 27
Riverside Capital Tennessee Municipal
Obligations Fund 19
Riverside Capital Low Duration
Government Securities Fund 6
Riverside Capital Growth Fund 53
KeyPremier Prime
Money Market Fund 7
KeyPremier Pennsylvania
Municipal Bond Fund 8
1st Source Monogram U.S. Treasury
Obligations Money Market Fund 0
1st Source Monogram Diversified
Equity Fund 13
1st Source Monogram Income Equity Fund 16
1st Source Monogram Special Equity Fund 27
1st Source Monogram Income Fund 8
1st Source Monogram Intermediate Tax-Free
Bond Fund 0
KeyPremier Established Growth Fund 29
KeyPremier Intermediate Term
Income Fund 15
KeyPremier Aggressive Growth Fund 19
Item 27. Indemnification
Article VI, Section 6.4 of the Registrant's Declaration of Trust, filed
as Exhibit 1 hereto, provides for the indemnification of Registrant's
Trustees and officers. Indemnification of the Group's principal
underwriter, custodians, investment advisers, manager and
administrator, transfer agent and fund accountant is provided for,
respectively, in Section 1.11 of the Distribution Agreements filed as
Exhibits 6(a), 6(c) and 6(e) hereto, Section 8 of the Custodial
Services Agreement filed as Exhibit 8(a) hereto, Article XVII, Section
14 of the Custody Agreement filed as Exhibit 8(b) hereto, Article VIII,
Section 8.1 of the Custody Agreement filed as Exhibit 8(c) hereto,
Section 8 of the Investment Advisory Agreements filed as Exhibits 5(a),
5(b), 5(c), 5(d), 5(e) and 5(f) hereto, Section 4 of the Management and
Administration Agreements filed as Exhibits 9(a), 9(u), 9(x) and 9(aa)
hereto, Section 9 of the Transfer Agency Agreements filed as Exhibits
9(g), 9(z) and 9(ac) hereto, and Section 6 of the Fund Accounting
Agreements filed as
C-21
<PAGE> 266
Exhibits 9(h), 9(v), 9(y) and 9(ab) hereto. As of the effective date of
this Registration Statement, the Group will have obtained from a major
insurance carrier a trustees' and officers' liability policy covering
certain types of errors and omissions. In no event will Registrant
indemnify any of its trustees, officers, employees or agents against
any liability to which such person would otherwise be subject by reason
of his willful misfeasance, bad faith, or gross negligence in the
performance of his duties, or by reason of his reckless disregard of
the duties involved in the conduct of his office or under his agreement
with Registrant. Registrant will comply with Rule 484 under the
Securities Act of 1933 and Release 11330 under the Investment Company
Act of 1940 in connection with any indemnification.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to trustees, officers, and controlling
persons of Registrant pursuant to the foregoing provisions, or
otherwise, Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by Registrant of expenses incurred or paid by a
trustee, officer, or controlling person of Registrant in the successful
defense of any action, suit, or proceeding) is asserted by such
trustee, officer, or controlling person in connection with the
securities being registered, Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication
of such issue.
Item 28. Business and Other Connections of Investment Adviser
(a) National Bank of Commerce, Memphis, Tennessee ("NBC"), is the
investment adviser for Riverside Capital Money Market Fund, Riverside
Capital Value Equity Fund, Riverside Capital Fixed Income Fund,
Riverside Capital Tennessee Municipal Obligations Fund, Riverside
Capital Low Duration Government Securities Fund and Riverside Capital
Growth Fund. NBC is a wholly owned subsidiary of National Commerce
Bancorporation. In addition to serving as investment adviser of such
Funds, NBC and its affiliates hold and manage, on behalf of their
clients, assets which as of September 30, 1996, totalled $3.9 billion,
C-22
<PAGE> 267
and of which approximately $989 million are managed in a variety of
balanced, equity and fixed income portfolios.
To the knowledge of Registrant, none of the directors or officers of
NBC, except those set forth below, is or has been at any time during
the past two fiscal years engaged in any other business, profession,
vocation or employment of a substantial nature, except that certain
officers and directors of NBC also hold positions with NBC's parent,
National Commerce Bancorporation. Set forth below are the names and
principal businesses of the directors of NBC who are engaged in any
other business, profession, vocation, or employment of a substantial
nature.
Position
Name with NBC Principal Occupation
Frank G. Barton, Jr. Director Chairman of the Board
Barton Group, Inc.
2620 Thousand Oaks Blvd., Suite 1200
Memphis, Tennessee 38118
(Retail Equipment Sales)
Jack R. Blair Director Smith & Nephew North America
1450 East Brooks Road
Memphis, Tennessee 38116
(Medical Devices)
R. Grattan Brown, Jr. Director Partner, law firm of
Glankler, Brown, Gilliland, Chase,
Robinson & Raines
One Commerce Square
Memphis, Tennessee 38103
Bruce E. Campbell, Jr. Director Former Chairman
National Bank of Commerce
and National Commerce
Bancorporation
One Commerce Square
Memphis, Tennessee 38150
Christopher W. Canale Director President
D. Canale Beverages, Inc.
45 E.H. Crumps Blvd.
Memphis, Tennessee 38106
(Distribution)
John D. Canale III Director President
D. Canale Food Services, Inc.
7 West Georgia
Memphis, Tennessee 38103
(Distribution)
C-23
<PAGE> 268
Edmond D. Cicala Director President
Edmond Enterprises, Inc.
1213 Park Place Center
Suite 200
Memphis, Tennessee 38119
(Consulting)
John S. Evans Director Former President
National Bank of Commerce
One Commerce Square
Memphis, Tennessee 38150
Thomas C. Farnsworth, Jr.Director Farnsworth Investment Co.
2175 Business Center Drive
Suite 11
Memphis, Tennessee 38134-5621
(Real Estate)
Thomas M. Garrott Chairman Chairman of the Board and
Chief Executive Officer
National Commerce Bancorporation
One Commerce Square
Memphis, Tennessee 38150
Mackie H. Gober President/ President
Director National Bank of Commerce
One Commerce Square
Memphis, Tennessee 38150
Lewis E. Holland Director Executive Vice President and
Chief Financial Officer
National Commerce Bancorporation
One Commerce Square
Memphis, Tennessee 38150
prior thereto -
Partner
Ernst & Young
One Commerce Square
Memphis, Tennessee 38103
(Accounting)
R. Lee Jenkins Director Retired
6075 Poplar, Suite 721
Memphis, Tennessee 38119
James E. McGehee, Jr. Director President
McGehee Realty & Development Company
675 Oakleaf Office Lane, Suite 102
Memphis, Tennessee 38117
(Real Estate)
W. Neely Mallory, Jr. Director President
Memphis Compress & Storage Company
P.O. Box 9436
Memphis, Tennessee 38109
(Cotton Warehousing)
C-24
<PAGE> 269
Harry J. Phillips, Sr. Director Chairman of the Executive Committee
Browning-Ferris Industries
2750 One Commerce Square
Memphis, Tennessee 38103
(Waste Disposal Services)
William R. Reed, Jr. Director Executive Vice President
National Commerce Bancorporation
One Commerce Square
Memphis, Tennessee 38150
Rudi E. Scheidt Director Retired
54 South White Station
Memphis, Tennessee 38117
Lucy Y. Shaw Director President
Common Denominator, Inc.
2195 Poplar Avenue, Suite 505
East Memphis, Tennessee 38104
prior thereto -
Chief Executive Officer
Regional Medical Center at Memphis
877 Jefferson Avenue
Memphis, Tennessee 38103
(Hospital)
Robert M. Solmson Director President
RFS Hotel Investors, Inc.
1213 Park Place Center, Suite 200
Memphis, Tennessee 38119
(Real Estate)
Sidney A. Stewart, Jr. Director Retired
5350 Poplar Avenue
Memphis, Tennessee 38119
R. Lee Taylor Director Private Investor
1755-A Lynnfield Drive
Suite 232
Memphis, Tennessee 38119
Henry M. Turley, Jr. Director President
Henry Turley Company
65 Union Avenue, Suite 1200
Memphis, Tennessee 38103
(Real Estate Management and Investment)
(b) Martindale Andres & Company, Inc., West Conshohocken, Pennsylvania
("Martindale Andres"), is the investment adviser for KeyPremier Prime
Money Market Fund, KeyPremier Pennsylvania Municipal Bond Fund,
KeyPremier Established Growth Fund, KeyPremier Intermediate Term Income
Fund and KeyPremier Aggressive Growth Fund. Martindale Andres is a
wholly-owned subsidiary of Keystone Financial, Inc. In addition to
serving as investment adviser of such Funds, Martindale Andres has
managed since its founding the investment portfolios of high net worth
individuals, endowments and pension and common trust funds. Martindale
Andres currently has over
C-25
<PAGE> 270
$960 million under management, including over $400 million of municipal
securities.
To the knowledge of Registrant, none of the directors or officers of
Martindale Andres is or has been at any time during the past two fiscal
years engaged in any other business, profession, vocation or employment
of a substantial nature, except that certain officers and directors of
Martindale Andres also hold positions with Martindale Andres' parent,
Keystone Financial, Inc.
(c) 1st Source Bank, South Bend, Indiana ("FSB"), is the investment adviser
for 1st Source Monogram U.S. Treasury Obligations Money Market Fund,
1st Source Monogram Diversified Equity Fund, 1st Source Monogram Income
Equity Fund, 1st Source Monogram Special Equity Fund, 1st Source
Monogram Income Fund and 1st Source Monogram Intermediate Tax-Free Bond
Fund. FSB is a wholly-owned subsidiary of 1st Source Corporation. In
addition to serving as investment adviser of such Funds, FSB and its
affiliates administer and manage, on behalf of their clients, trust
assets which as of December 31, 1996, totalled approximately $1.25
billion. Of such amount, approximately $512 million are managed on
behalf of personal trust customers and approximately $739 million are
managed on behalf of employee benefit plans. The Adviser has over 60
years of banking experience and as of December 31, 1996, on a
consolidated basis with 1st Source Corporation, had over $2.07 billion
in assets.
To the knowledge of Registrant, none of the directors or officers of
FSB, except those set forth below, is or has been at any time during
the past two fiscal years engaged in any other business, profession,
vocation or employment of a substantial nature, except that certain
officers and directors of FSB also hold positions with FSB's parent,
First Source Corporation. Set forth below are the names and principal
businesses of the directors of FSB who are engaged in any other
business, profession, vocation, or employment of a substantial nature.
Position
Name with FSB Principal Occupation
- ---- -------- --------------------
Rev. E. William Beauchamp Director Executive Vice President
University of Notre Dame
South Bend, IN 46556
C-26
<PAGE> 271
Paul R. Bowles Director Former Senior Vice
President
Clark Equipment Company
1202 East Jefferson
South Bend, IN 46617
(off-highway components
and construction machinery
manufacturing)
Philip J. Faccenda Director President
Bear Financial, Inc.
1222 E. Erskine
Manor Hill
South Bend, IN 46617
(venture capital)
Vice President and
General Counsel Emeritus
University of Notre Dame
South Bend, IN 46556
Daniel B. Fitzpatrick Director Chairman, President,
Chief Executive
Officer and Director
Quality Dining, Inc.
P. O. Box 416
South Band, IN 46624
(quick service and
casual dining
restaurant operator)
Terry L. Gerber Director President and Chief
Executive Officer
Gerber Manufacturing
Company, Inc.
1417 Olivia Circle
South Bend, IN 46614
(manufacturer of police
and emergency outerwear)
Lawrence E. Hiler Director President
Hiler Industries
P.O. Box 639
La Porte, IN 46350
(metal casting)
Anne M. Hillman Director Civic Leader
3904 Nall Court
South Bend, IN 46614
C-27
<PAGE> 272
Hollis E. Hughes, Jr. Director Executive Director
United Way of
St. Joseph County
3517 E. Jefferson
P.O. Box 6396
South Bend, IN 46660
H. Thomas Jackson Director Chairman
Bornemann Coated Fabrics
Bornemann Products
P. O. Box 208
Bremen, IN 46506
(vinyl sales)
William P. Johnson Director Chairman & CEO
Goshen Rubber Co., Inc.
1525 S. 10th
Goshen, IN 46527
(manufacturer of
automotive rubber parts)
Craig A. Kapson Director President
Jordan Ford, Toyota, Volvo,
Lincoln Mercury
609 E. Jefferson
Mishawaka, IN 46545
(automobile sales)
David L. Lerman Director President
Steel Warehouse Company,
Inc.
2722 West Tucker Drive
South Bend, IN 46624
(warehouse storage)
Richard J. Pfeil Director Chairman and President
Koontz-Wagner Electric Co.
3801 Voorde Drive
South Bend, IN 46628
(electrical equipment
repair, construction and
installation)
John T. Phair Director Vice President
The Holladay Corporation
220 Colfax, Suite 200
South Bend, IN 46601
(property management)
C-28
<PAGE> 273
Mark D. Schwabero Director Executive Vice President
Bosch Braking Systems Corp.
401 N. Bendix Drive
South Bend, IN 46634
(manufacturers of
automotive brakes and
brake components)
Elmer H. Tepe Director President
E.H. Tepe Co.
c/o 1st Source Corporation
100 North Michigan Street
South Bend, IN 46634
(holding company)
(d) Miller Anderson and Sherrerd LLP, West Conshohocken, Pennsylvania
("Miller Anderson") is a sub-investment adviser for 1st Source Monogram
Diversified Equity Fund. Miller Anderson is wholly owned by Morgan
Stanley Group, Inc., 1585 Broadway, New York, New York 10036. In
addition to serving as sub-investment adviser of such Fund, Miller
Anderson provides advice primarily to institutions, including other
investment companies, and currently has approximately $35 billion in
assets under management, of which approximately $2.4 billion is managed
using Miller Anderson's value style.
To the knowledge of Registrant, none of the directors or officers of
Miller Anderson, except those set forth below, is or has been at any
time during the past two fiscal years engaged in any other business,
profession, vocation or employment of a substantial nature, except that
certain officers and directors of Miller Anderson also hold positions
with Miller Anderson's parent, Morgan Stanley Group, Inc. Set forth
below are the names and principal businesses of the directors of Miller
Anderson who are engaged in any other business, profession, vocation,
or employment of a substantial nature.
Partner Name and Address Nature of
of Miller Anderson of Business Connection
- ------------------ ----------- ----------
Dean Williams Shanghai Dazhong Taxi Director
Co., Ltd.
920 Nanjing Road
16th Floor
Shanghai, China 200041
Marna C. Whittington Rohm & Haas Company Director
Independence Mall West
Philadelphia, PA 19105
C-29
<PAGE> 274
Berwind Group Director
1500 Market Street
3000 Centre Square West
Philadelphia, PA 19102
Ellen D. Harvey, CFA Owosso Corporation Director
One Tower Bridge
14th Floor
W. Conshohocken, PA 19428
(e) Loomis Sayles & Company, L.P., Chicago, Illinois ("Loomis") is a
sub-investment adviser for 1st Source Monogram Diversified Equity Fund.
The sole general partner of Loomis is Loomis Sayles & Company,
Incorporated, One Financial Center, Boston, Massachusetts 02111. In
addition to serving as sub-investment adviser of such Fund, Loomis
provides investment advice to the nine series of the Loomis Sayles
Funds, nine series of Loomis Sayles Investment Trust, six series of New
England Funds Trust I, one series of New England Funds Trust III, and
three series of New England Zenith Funds, all of which are registered
investment companies, and to other organizations and individuals.
To the knowledge of Registrant, none of the directors or officers of
Loomis is or has been at any time during the past two fiscal years
engaged in any other business, profession, vocation or employment of a
substantial nature.
(f) Columbus Circle Investors ("CCI") is a general partnership formed on
September 9, 1994, which is registered as an investment adviser under
the Investment Advisers Act of 1940. PIMCO Advisors L.P. and Columbus
Circle Investors Management Inc. ("CCI, Inc."), a wholly-owned
subsidiary of PIMCO Advisors L.P., are the general partners of CCI. CCI
consists of the personnel of the former Columbus Circle Investors
Division of Thomson Advisory Group L.P. ("TAGLP") and the investment
personnel of the former Mutual Funds Division of TAGLP. CCI acts as
sub-adviser to other mutual funds and also advises and manages
individual accounts, profit sharing and pension funds and institutional
accounts.
To the knowledge of Registrant, set forth below are the substantial
business engagements during at least the two past fiscal years of each
director or senior executive officer of CCI:
C-30
<PAGE> 275
NAME AND POSITION BUSINESS AND
WITH CCI OTHER CONNECTIONS
- ----------------- -----------------
Irwin F. Smith Member of Equity and Operating Boards and
Chairman, Managing Operating Committee, PIMCO Advisors L.P.;
Director, Chief Director and Chairman, Columbus Circle
Executive Officer and Investors Management, Inc., Director,
Chief Investment Columbus Circle Trust Company
Officer
Donald A. Chiboucas Member of Operating Board, PIMCO Advisors
President and L.P.; Director and President, Columbus
Managing Director Circle Investors Management, Inc.
Louis P. Celentano Director and Vice President, Columbus
Managing Director Circle Investors Management, Inc.,
Director and Chairman, Columbus Circle
Trust Company
Daniel S. Pickett Member of Operating Board, PIMCO Advisors
Managing Director L.P. (1995); Director, Columbus Circle
Investors Management, Inc.
Amy M. Hogan Member of Operating Board, PIMCO Advisors
Managing Director L.P. (1996); Director, Columbus Circle
Investors Management, Inc.
Robert W. Fehrmann Director, Columbus Circle Investors
Managing Director Management Inc.
The address of CCI, Columbus Circle Trust Company and Columbus Circle
Investors management Inc. is One Station Place, Stamford, CT 06902.
PIMCO Advisors L.P. was organized as a limited partnership under
Delaware law in 1987 and is registered as an investment adviser under
the Investment Advisers Act of 1940. In November 1994, PIMCO Advisors
L.P. (then known as Thomson Advisory Group, L.P. ("TAGLP")) combined
its investment advisory business with the investment advisory business
of several subsidiaries of Pacific Mutual Life Insurance Company and
changed its name to PIMCO Advisors L.P. PIMCO Advisors L.P. manages
three mutual fund complexes. PIMCO Advisors L.P. also has various
subsidiary partnerships, including CCI, which advise and manage mutual
funds, individual accounts, profit-sharing and pension funds and
institutional accounts and act as sub-advisers to certain mutual funds.
PIMCO Partners, G.P. ("PIMCO GP"), PIMCO Advisors L.P.'s general
partner, is a general partnership with two partners: (i) an indirect
wholly-owned subsidiary of
C-31
<PAGE> 276
Pacific Mutual Life Insurance Company; and (ii) PIMCO Partners, L.L.C.
("LLC"), a limited liability company, all of the interests of which are
held directly by the Managing Directors of Pacific Investment
Management Company who are William H. Gross, Dean S. Meiling, James F.
Muzzy, William F. Podlich, III, Frank B. Rabinovitch, Brent R. Harris,
John L. Hague, William S. Thompson, Jr., William C. Powers, David H.
Edington and Benjamin L. Trosky (collectively, the "Managing
Directors"). PIMCO Partners, G.P. has substantially delegated its
management and control of PIMCO Advisors L.P. to an Equity Board and an
Operating board of PIMCO Advisors L.P. The activities of PIMCO Advisors
L.P. are controlled by its Operating Board except that certain
non-routine or extraordinary actions may not be effected by the
Operating Board without the approval of PIMCO Advisors L.P.'s Equity
Board. The Operating Board has in turn delegated the authority to
manage day-to-day operations and policies to an Operating Committee.
The Operating Board is composed of twelve members, of which seven
(including the chairman) are designated by Pacific Investment
Management Company, a subsidiary general partnership of PIMCO Advisors
L.P. and a sub-adviser to several mutual funds. The Equity Board is
composed of twelve members including the chief executive officer of
PIMCO Advisors L.P., three members designated by Pacific Financial
Asset Management Company, the chairman of the Operating Board, two
members designated by LLC, two members designated by holders of Series
B Preferred Stock of Thomson Advisory Group Inc., the former general
partner of PIMCO Advisors L.P., and three independent members. Because
of the ability to designate a majority of the Members of the Operating
Board, Pacific Investment Management Company and the Managing Directors
could be said to control PIMCO Advisors L.P., although the Managing
Directors disclaim such authority.
Item 29. Principal Underwriter
(a) BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services
("BISYS") acts as distributor and administrator for Registrant. BISYS
also distributes the securities of The Victory Portfolios, The HighMark
Group, The Parkstone Group of Funds, the AmSouth Mutual Funds, the
American Performance Funds, The Coventry Group, the BB&T Mutual Funds
Group, The ARCH Fund, Inc., The M.S.D.& T. Funds, Inc., the Pacific
Capital Funds, the MMA Praxis Mutual Funds, The Riverfront Funds, Inc.,
the Summit Investment Trust, the Qualivest Funds and the Marketwatch
Funds, each of which is a management investment company.
C-32
<PAGE> 277
(b) To the best of Registrant's knowledge, the partners of BISYS are as
follows:
Positions and Offices Positions and
Name and Principal with The Winsbury Offices with
Business Address Company Registrant
---------------- ------- ----------
BISYS Fund Services, Sole General Partner None
Inc.
3435 Stelzer Road
Columbus, Ohio 43219
WC Subsidiary Limited Partner None
Corporation
3435 Stelzer Rd.
Columbus, Ohio 43229
(c) None.
Item 30. Location of Accounts and Records
(1) National Bank of Commerce, One Commerce Square, Memphis, Tennessee
38150 (records relating to its functions as investment adviser for the
Riverside Capital Funds).
(2) Martindale Andres & Company, Inc., 200 Four Falls Corporate Center,
West Conshohocken, Pennsylvania 19428 (records relating to its
functions as investment adviser for the KeyPremier Funds).
(3) 1st Source Bank, 100 North Michigan Street, South Bend, Indiana 46634
(records relating to its functions as investment adviser for the 1st
Source Monogram Funds).
(4) Miller Anderson and Sherrerd LLP, One Tower Bridge, Suite 1100, West
Conshohocken, Pennsylvania 19428 (records relating to its functions as
sub-investment adviser for 1st Source Monogram Diversified Equity
Fund).
(5) Loomis Sayles & Company, L.P., 3 First National Plaza, Suite 5450,
Chicago, Illinois 60600 (records relating to its functions as
sub-investment adviser for 1st Source Monogram Diversified Equity
Fund).
(6) Columbus Circle Investors, #1 Metro Place, Stamford, Connecticut 06902
(records relating to its functions as sub-investment adviser for 1st
Source Monogram Diversified Equity Fund).
(7) BISYS Fund Services Limited Partnership, 3435 Stelzer Road, Columbus,
Ohio 43219 (records relating to its functions as manager, administrator
and distributor).
C-33
<PAGE> 278
(8) BISYS Fund Services Ohio, Inc. and BISYS Fund Services, Inc., 3435
Stelzer Road, Columbus, Ohio 43219 (records relating to its functions
as transfer agent and as fund accountant).
(9) Baker & Hostetler LLP, 65 East State Street, Columbus, Ohio 43215
(Declaration of Trust, By-Laws, and Minute Books).
(10) National City Bank, 1900 East 9th Street, Cleveland, Ohio 44114
(records relating to its function as custodian for the Riverside
Capital Funds).
(11) The Bank of New York, 48 Wall Street, New York, New York 10286 (records
relating to its function as custodian for the KeyPremier Funds).
(12) The Fifth Third Bank, 38 Fountain Square Plaza, Cincinnati, Ohio 45263
(records relating to its function as custodian for the 1st Source
Monogram Funds).
Item 31. Management Services
None
Item 32. Undertakings
None
C-34
<PAGE> 279
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Columbus, Ohio, on the 17th day of March, 1997.
Registrant hereby certifies that this Post-Effective Amendment to Registration
Statement meets all of the requirements for effectiveness pursuant to paragraph
(b) of Rule 485 under the Securities Act of 1933.
THE SESSIONS GROUP
Registrant
/s/ Walter B. Grimm
------------------------------
Walter B. Grimm, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
Signature Title Date
/s/ Walter B. Grimm President (Principal March 17, 1997
- -------------------------- Executive Officer)
Walter B. Grimm and Trustee
/s/*Stephen G. Mintos Treasurer March 17, 1997
- -------------------------- (Principal Financial
Stephen G. Mintos Officer and Principal
Accounting Officer)
/s/*Nancy E. Converse Trustee March 17, 1997
- --------------------------
Nancy E. Converse
/s/*Maurice G. Stark Trustee March 17, 1997
- --------------------------
Maurice G. Stark
/s/*James H. Woodward Trustee March 17, 1997
- --------------------------
James H. Woodward
/s/*Chalmers P. Wylie Trustee March 17, 1997
- --------------------------
Chalmers P. Wylie
*By/s/ Walter B. Grimm March 17, 1997
-----------------------
Walter B. Grimm
Attorney-In-Fact
C-35
<PAGE> 280
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
1(a) Declaration of Trust dated as of April 25,
1988, was filed as Exhibit (1)(a) to
Post-Effective Amendment No. 34 to Registrant's
Registration Statement (No. 33-21489) filed on
April 25, 1996.
(b) Amendment of Article IV, Section 4.2 of
Declaration of Trust adopted August 15, 1989,
was filed as Exhibit (1)(b) to Post-Effective
Amendment No. 34 to Registrant's Registration
Statement (No. 33-21489) filed on April 25,
1996.
(c) Amendment of Article V, Section 5.3 of
Declaration of Trust adopted October 23, 1989,
was filed as Exhibit (1)(c) to Post-Effective
Amendment No. 34 to Registrant's Registration
Statement (No. 33-21489) filed on April 25,
1996.
(d) Amendment of Article IV, Section 4.2 of
Declaration of Trust adopted July 23, 1991, was
filed as Exhibit (1)(d) to Post-Effective
Amendment No. 34 to Registrant's Registration
Statement (No. 33-21489) filed on April 25,
1996.
(e) Amendment of Article IV, Section 4.2 of
Declaration of Trust adopted August 13, 1992,
was filed as Exhibit (1)(e) to Post-Effective
Amendment No. 34 to Registrant's Registration
Statement (No. 33-21489) filed on April 25,
1996.
(f) Amendment of Article IV, Section 4.2 of
Declaration of Trust as adopted October 28,
1992, was filed as Exhibit (1)(f) to
Post-Effective Amendment No. 34 to Registrant's
Registration Statement (No. 33-21489) filed on
April 25, 1996.
C-36
<PAGE> 281
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
(g) Amendment of Article IV, Section 4.2 of
Declaration of Trust as adopted February 18,
1994, was filed as Exhibit (1)(g) to
Post-Effective Amendment No. 34 to Registrant's
Registration Statement (No. 33-21489) filed on
April 25, 1996.
(h) Amendment of Article IV, Section 4.2 of
Declaration of Trust as adopted May 16, 1994,
was filed as Exhibit (1)(h) to Post-Effective
Amendment No. 34 to Registrant's Registration
Statement (No. 33-21489) filed on April 25,
1996.
(i) Amendment to Article IV, Section 4.2 of
Declaration of Trust as adopted April 10, 1996,
was filed as Exhibit (1)(i) to Post-Effective
Amendment No. 34 to Registrant's Registration
Statement (No. 33-21489) filed on April 25,
1996.
(j) Amendment to Article IV, Section 4.2 of
Declaration of Trust as adopted May 16, 1996,
was filed as Exhibit (1)(j) to Post-Effective
Amendment No. 35 to Registrant's Registration
Statement (No. 33-21489) filed on June 6, 1996.
(k) Amendment to Article IV, Section 4.2 of
Declaration of Trust as adopted August 15,
1996, was filed as Exhibit (1)(k) to
Post-Effective Amendment No. 36 to Registrant's
Registration Statement (No. 33-21489) filed on
August 16, 1996.
(l) Amendment to Article IV, Section 4.2 of
Declaration of Trust as adopted September 27,
1996 was filed as Exhibit (1)(l) to
Post-Effective Amendment No. 38 to Registrant's
Registration Statement (No. 33-21489) filed on
November 15, 1996.
C-37
<PAGE> 282
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
(m) Amendment to Article IV, Section 4.2 of
Declaration of Trust as adopted as of January
14, 1997.
2 By-Laws were filed as Exhibit (2) to
Post-Effective Amendment No. 34 to Registrant's
Registration Statement (No. 33-21489) filed on
April 25, 1996.
5(a) Investment Advisory Agreement dated as of July
19, 1988, between Registrant and National Bank
of Commerce (with respect to Riverside Capital
Money Market Fund) was filed as Exhibit (5)(a)
to Post-Effective Amendment No. 34 to
Registrant's Registration Statement (No.
33-21489) filed on April 25, 1996.
(b) Investment Advisory Agreement dated as of
September 20, 1991, between Registrant and
National Bank of Commerce (with respect to
Riverside Capital Value Equity Fund and
Riverside Capital Fixed Income Fund) was filed
as Exhibit (5)(b) to Post-Effective Amendment
No. 34 to Registrant's Registration Statement
(No. 33-21489) filed on April 25, 1996.
(c) Investment Advisory Agreement dated as of
October 27, 1992, between Registrant and
National Bank of Commerce (with respect to
Riverside Capital Tennessee Municipal
Obligations Fund) was filed as Exhibit (5)(c)
to Post-Effective Amendment No. 34 to
Registrant's Registration Statement (No.
33-21489) filed on April 25, 1996.
(d) Investment Advisory Agreement dated April 5,
1994, as amended June 3, 1994, between
Registrant and National Bank of Commerce (with
respect to Riverside Capital Low Duration
Government Securities Fund and Riverside
Capital Growth Fund) was filed as Exhibit
(5)(d) to Post-Effective Amendment No. 34 to
Registrant's Registration Statement (No.
33-21489) filed on April 25, 1996.
C-38
<PAGE> 283
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
(e) Investment Advisory Agreement dated July 9,
1996, as amended as of January 29, 1997,
between Registrant and Martindale Andres &
Company, Inc. (with respect to the KeyPremier
Funds).
(f) Investment Advisory Agreement dated August 20,
1996, between Registrant and 1st Source Bank
(with respect to 1st Source Monogram Funds) was
filed as Exhibit (5)(f) to Post-Effective
Amendment No. 37 to Registrant's Registration
Statement (No. 33-21489) filed on October 21,
1996.
(g) Sub-Investment Advisory Agreement dated August
20, 1996, between 1st Source Bank and Miller
Anderson & Sherrerd LLP (with respect to 1st
Source Monogram Diversified Equity Fund) was
filed as Exhibit (5)(g) to Post-Effective
Amendment No. 37 to Registrant's Registration
Statement (No. 33-21489) filed on October 21,
1996.
(h) Sub-Investment Advisory Agreement dated August
20, 1996, between 1st Source Bank and Loomis
Sayles & Company, L.P. (with respect to 1st
Source Monogram Diversified Equity Fund) was
filed as Exhibit (5)(h) to Post-Effective
Amendment No. 37 to Registrant's Registration
Statement (No. 33-21489) filed on October 21,
1996.
(i) Sub-Investment Advisory Agreement dated August
20, 1996, between 1st Source Bank and Columbus
Circle Investors (with respect to 1st Source
Monogram Diversified Equity Fund) was filed as
Exhibit (5)(i) to Post-Effective Amendment No.
37 to Registrant's Registration Statement (No.
33-21489) filed on October 21, 1996.
C-39
<PAGE> 284
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
6(a) Distribution Agreement dated October 1, 1993,
as amended as of June 3, 1994, between
Registrant and The Winsbury Company Limited
Partnership was filed as Exhibit (6)(a) to
Post-Effective Amendment No. 30 to Registrant's
Registration Statement (No. 33-21489) filed on
August 24, 1994.
(b) Form of Selected Dealer Agreement was filed as
Exhibit (6)(b) to Post-Effective Amendment No.
34 to Registrant's Registration Statement (No.
33-21489) filed on April 25, 1996.
(c) Distribution Agreement dated as of July 9,
1996, as amended as of January 29, 1997,
between Registrant and BISYS Fund Services
Limited Partnership (relating to the KeyPremier
Funds).
(d) Form of Shareholder Services Agreement was
filed as Exhibit (6)(d) to Post-Effective
Amendment No. 34 to Registrant's Registration
Statement (No. 33-21489) filed on April 25,
1996.
(e) Distribution Agreement dated as of August 20,
1996, between Registrant and BISYS Fund
Services Limited Partnership (relating to the
1st Source Monogram Funds) was filed as Exhibit
(6)(e) to Post-Effective Amendment No. 37 to
Registrant's Registration Statement (No.
33-21489) filed on October 21, 1996.
8(a) Custodial Services Agreement dated as of March
1, 1995, between Registrant and National City
Bank (with respect to the Riverside Capital
Funds) was filed as Exhibit (8) of
Post-Effective Amendment No. 33 to Registrant's
Registration Statement (No. 33-21489) filed on
October 30, 1995.
C-40
<PAGE> 285
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
(b) Custody Agreement dated July 9, 1996, as
amended as of January 29, 1997, between
Registrant and The Bank of New York (with
respect to the KeyPremier Funds).
(c) Custody Agreement dated August 20, 1996,
between Registrant and The Fifth Third Bank
(with respect to the 1st Source Monogram Funds)
was filed as Exhibit (8)(c) to Post-Effective
Amendment No. 37 to Registrant's Registration
Statement (No. 33-21489) filed on October 21,
1996.
(d) Cash Management and Related Services Agreement
dated September 24, 1996, as amended as of
January 29, 1997, between Registrant and The
Bank of New York.
9(a) Management and Administration Agreement dated
August 23, 1990, as amended October 27, 1992,
between Registrant and The Winsbury Company
Limited Partnership (with respect to Riverside
Capital Money Market Fund, Riverside Capital
Equity Fund, Riverside Capital Fixed Income
Fund and Riverside Capital Tennessee Municipal
Obligations Fund) was filed as Exhibit (9)(a)
to Post-Effective Amendment No. 25 to
Registrant's Registration Statement (No.
33-21489) filed on April 27, 1993.
(g) Transfer Agency Agreement dated as of September
1, 1992, as amended as of May 1, 1994, between
Registrant and BISYS Fund Services Ohio, Inc.
(formerly The Winsbury Service Corporation)
(with respect to the Riverside Capital Funds)
was filed as Exhibit (9)(g) to Post-Effective
Amendment No. 30 to Registrant's Registration
Statement (No. 33-21489) filed on August 24,
1994.
C-41
<PAGE> 286
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
(h) Fund Accounting Agreement dated February 4,
1993, between Registrant and The Winsbury
Service Corporation (with respect to Riverside
Capital Money Market Fund, Riverside Capital
Equity Fund, Riverside Capital Fixed Income
Fund and Riverside Capital Municipal
Obligations Fund) was filed as Exhibit (9)(h)
to Post-Effective Amendment No. 25 to
Registrant's Registration Statement (No.
33-21489) filed on April 27, 1993.
(r) Administrative Services Plan of Registrant
effective October 19, 1993 was filed as Exhibit
(9)(r) to Post-Effective Amendment No. 28 to
Registrant's Registration Statement (No.
33-21489) filed on February 4, 1994.
(s) Servicing Agreement to Administrative Services
Plan dated as of October 19, 1993, between
Registrant and National Bank of Commerce (with
respect to Riverside Capital Money Market Fund,
Riverside Capital Equity Fund, Riverside
Capital Fixed Income Fund and Riverside Capital
Tennessee Municipal Obligations Fund) was filed
as Exhibit (9)(s) to Post-Effective Amendment
No. 29 to Registrant's Registration Statement
(No. 33-21489) filed on April 4, 1994.
(u) Management and Administration Agreement dated
April 5, 1994, as amended as of June 3, 1994,
between Registrant and The Winsbury Company
Limited Partnership (with respect to Riverside
Capital Low Duration Government Securities Fund
and Riverside Capital Growth Fund) was filed as
Exhibit (9)(u) to Post-Effective Amendment No.
30 to Registrant's Registration Statement (No.
33-21489) filed on August 24, 1994.
C-42
<PAGE> 287
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
(v) Fund Accounting Agreement dated April 5, 1994,
as amended June 3, 1994, between Registrant and
The Winsbury Service Corporation (with respect
to Riverside Capital Low Duration Government
Securities Fund and Riverside Capital Growth
Fund) was filed as Exhibit (9)(v) to
Post-Effective Amendment No. 30 to Registrant's
Registration Statement (No. 33-21489) filed on
August 24, 1994.
(w) Servicing Agreement to Administrative Services
Plan dated April 5, 1994, between Registrant
and National Bank of Commerce (with respect to
Riverside Capital Low Duration Government
Securities Fund and Riverside Capital Growth
Fund) was filed as Exhibit (9)(w) to
Post-Effective Amendment No. 30 to Registrant's
Registration Statement (No. 33-21489) filed on
August 24, 1994.
(x) Management and Administration Agreement dated
July 9, 1996, as amended as of January 29,
1997, between Registrant and BISYS Fund
Services Limited Partnership (with respect to
the KeyPremier Funds).
(y) Fund Accounting Agreement dated July 9, 1996,
as amended as of January 29, 1997, between
Registrant and BISYS Fund Services, Inc. (with
respect to the KeyPremier Funds).
(z) Transfer Agency Agreement dated July 9, 1996,
as amended as of January 29, 1997, between
Registrant and BISYS Fund Services, Inc. (with
respect to the KeyPremier Funds).
(aa) Management and Administration Agreement dated
August 20, 1996, between Registrant and BISYS
Fund Services Limited Partnership (with respect
to the 1st Source Funds) was filed as Exhibit
(9)(aa) to Post-Effective Amendment No. 37 to
Registrant's Registration Statement (No.
33-21489) filed on October 21, 1996.
C-43
<PAGE> 288
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
(ab) Fund Accounting Agreement dated August 20,
1996, between Registrant and BISYS Fund
Services, Inc. (with respect to the 1st Source
Monogram Funds) was filed as Exhibit (9)(ab) to
Post-Effective Amendment No. 37 to Registrant's
Registration Statement (No. 33-21489) filed on
October 21, 1996.
(ac) Transfer Agency Agreement dated August 20,
1996, between Registrant and BISYS Fund
Services, Inc. (with respect to the 1st Source
Monogram Funds) was filed as Exhibit (9)(ac) to
Post-Effective Amendment No. 37 to Registrant's
Registration Statement (No. 33-21489) filed on
October 21, 1996.
(ad) Form of Servicing Agreement to Administrative
Services Plan was filed as Exhibit (9)(ad) to
Post-Effective Amendment No. 35 to Registrant's
Registration Statement (No. 33-21489) filed on
June 6, 1996.
10(a) Opinion of Counsel with respect to Shares of
KeyPremier Aggressive Growth Fund was filed as
Exhibit (10)(a) to Post-Effective Amendment No.
38 to Registrant's Registration Statement (No.
33-21489) filed on November 15, 1996. Opinion
of Counsel with respect to Shares of KeyPremier
Established Growth Fund and KeyPremier
Intermediate Term Income Fund was filed as
Exhibit (10)(a) to Post-Effective Amendment No.
36 to Registrant's Registration Statement (No.
33-21489) filed on August 16, 1996. Opinion of
Counsel with respect to Shares of 1st Source
Monogram U.S. Treasury Obligations Money Market
Fund, 1st Source Monogram Diversified Equity
Fund, 1st Source Monogram Income Equity Fund,
1st Source Monogram Special Equity Fund, 1st
Source Monogram Income Fund and 1st Source
Monogram Intermediate Tax-Free Bond Fund was
filed as Exhibit (10)(a) to Post-Effective
Amendment No.
C-44
<PAGE> 289
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
35 to Registrant's Registration Statement (No.
33-21489) filed on June 6, 1996. Opinion of
Counsel with respect to Shares of the
KeyPremier Prime Money Market Fund and the
KeyPremier Pennsylvania Municipal Bond Fund was
filed as Exhibit (10)(a) to Post-Effective
Amendment No. 34 to Registrant's Registration
Statement (No. 33-21489) filed on April 25,
1996. An Opinion of Counsel was filed by Notice
on August 28, 1996, pursuant to Rule 24f-2
(with respect to Riverside Capital Money Market
Fund, Riverside Capital Value Equity Fund,
Riverside Capital Fixed Income Fund, Riverside
Capital Tennessee Municipal Obligations Fund,
Riverside Capital Low Duration Government
Securities Fund and Riverside Capital Growth
Fund).
(b) Opinion of Special Counsel with respect to
Riverside Capital Tennessee Municipal
Obligations Fund was filed as Exhibit (10)(b)
to Post-Effective Amendment No. 23 to
Registrant's Registration Statement (No.
33-21489) filed on October 30, 1992.
11(a) Consent of KPMG Peat Marwick LLP.
(b) Consent of Burch, Porter & Johnson was filed as
Exhibit (11)(b) to Post-Effective Amendment No.
23 to Registrant's Registration Statement (No.
33-21489) filed on October 30, 1992.
(c) Consent of Coopers & Lybrand L.L.P.
13 Purchase Agreement dated as of July 19, 1988,
between Registrant and Winsbury Associates was
filed as Exhibit (13) to Pre-Effective
Amendment No. 2 to Registrant's Registration
Statement (No. 33-21489) filed on July 21,
1988.
C-45
<PAGE> 290
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
15(a) Rule 12b-1 Plan (with respect to the Riverside
Capital Funds) was filed as Exhibit (15)(a) to
Pre-Effective Amendment No. 2 to Registrant's
Registration Statement (No. 33-21489) filed on
July 21, 1988.
(c) Rule 12b-1 Plan (with respect to the 1st Source
Monogram Funds) was filed as Exhibit (15)(c) to
Post-Effective Amendment No. 35 to Registrant's
Registration Statement (No. 33-21489) filed on
June 6, 1996.
(h) Rule 12b-1 Agreement dated October 1, 1993,
between The Winsbury Company Limited
Partnership and National Bank of Commerce (with
respect to Riverside Capital Money Market Fund,
Riverside Capital Equity Fund, Riverside
Capital Fixed Income Fund and Riverside Capital
Tennessee Municipal Obligations Fund) was filed
as Exhibit (15)(h) to Post-Effective Amendment
No. 27 to Registrant's Registration Statement
(No. 33-21489) filed on October 19, 1993.
(m) Rule 12b-1 Agreement dated October 1, 1993,
between The Winsbury Company Limited
Partnership and Commerce Investment Corporation
(with respect to Riverside Capital Money Market
Fund, Riverside Capital Value Equity Fund,
Riverside Capital Fixed Income Fund and
Riverside Capital Tennessee Municipal
Obligations Fund) was filed as Exhibit (15)(m)
to Post-Effective Amendment No. 27 to
Registrant's Registration Statement (No.
33-21489) filed on October 19, 1993.
(n) Rule 12b-1 Agreement dated October 19, 1993,
between Registrant and The Winsbury Company
Limited Partnership (with respect to Riverside
Capital Money Market Fund, Riverside Capital
Value Equity Fund, Riverside Capital Fixed
Income Fund and Riverside Capital
C-46
<PAGE> 291
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
Tennessee Municipal Obligations Fund) was filed
as Exhibit (15)(n) to Post-Effective Amendment
No. 28 to Registrant's Registration Statement
(No. 33-21489) filed on February 4, 1994.
(o) Rule 12b-1 Agreement dated as of April 5, 1994,
between The Winsbury Company Limited
Partnership and Commerce Investment Corporation
(with respect to Riverside Capital Low Duration
Government Securities Fund and Riverside
Capital Growth Fund) was filed as Exhibit
(15)(o) to Post-Effective Amendment No. 30 to
Registrant's Registration Statement (No.
33-21489) filed on August 24, 1994.
(p) Rule 12b-1 Agreement dated as of April 5, 1994,
between Registrant and The Winsbury Company
Limited Partnership (with respect to Riverside
Capital Low Duration Government Securities Fund
and Riverside Capital Growth Fund) was filed as
Exhibit (15)(p) to Post-Effective Amendment No.
30 to Registrant's Registration Statement (No.
33-21489) filed on August 24, 1994.
(s) Rule 12b-1 Agreement dated as of May 16, 1994,
between J.C. Bradford & Co. and The Winsbury
Company Limited Partnership (with respect to
The Riverside Capital Funds) was filed as
Exhibit (15)(s) to Post-Effective Amendment No.
30 to Registrant's Registration Statement (No.
33-21489) filed on August 24, 1994.
(t) Rule 12b-1 Agreement dated as of May 16, 1994,
between Morgan, Keegan & Co. and The Winsbury
Company Limited Partnership (with respect to
The Riverside Capital Funds) was filed as
Exhibit (15)(t) to Post-Effective Amendment No.
30 to Registrant's Registration Statement (No.
33-21489) filed on August 24, 1994.
C-47
<PAGE> 292
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
(u) Rule 12b-1 Agreement dated as of August 1,
1994, between J.J.B. Hilliard, W.L. Lyons, Inc.
and The Winsbury Company Limited Partnership
(with respect to the Riverside Capital Funds)
was filed as Exhibit (15)(u) to Post-Effective
Amendment No. 31 to Registrant's Registration
Statement (No. 33-21489) filed on October 14,
1994.
(v) Rule 12b-1 Agreement dated as of August 31,
1994, between TrustMark Investments, Inc. and
The Winsbury Company Limited Partnership
Agreement (with respect to the Riverside
Capital Funds) was filed as Exhibit (15)(v) to
Post-Effective Amendment No. 31 to Registrant's
Registration Statement (No. 33-21489) filed on
October 14, 1994.
16(a) Computation of Performance Quotations for
Riverside Capital Money Market Fund was filed
as Exhibit (16)(a) to Post-Effective Amendment
No. 27 to Registrant's Registration Statement
(No. 33-21489) filed on October 19, 1993.
(b) Computation of Performance Quotations for
Riverside Capital Value Equity Fund and
Riverside Capital Fixed Income Fund was filed
as Exhibit (16)(b) to Post-Effective Amendment
No. 27 to Registrant's Registration Statement
(No. 33-21489) filed on October 19, 1993.
(f) Computation of Performance Quotations for
Riverside Capital Tennessee Municipal
Obligations Fund was filed as Exhibit (16)(f)
to Post-Effective Amendment No. 27 to
Registrant's Registration Statement (No.
33-21489) filed on October 19, 1993.
(h) Computation of Performance Quotations for
Riverside Capital Low Duration Government
Securities Fund and Riverside Capital Growth
Fund was filed as Exhibit (16)(h) to
Post-Effective Amendment No. 33 to Registrant's
Registration Statement (No. 33-21489) filed on
October 30, 1995.
C-48
<PAGE> 293
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
(i) Computation of Performance Quotations for
KeyPremier Prime Money Market Fund and
KeyPremier Pennsylvania Municipal Bond Fund.
Computation of Performance Quotations for
KeyPremier Established Growth Fund and
KeyPremier Aggressive Growth Fund was filed as
Exhibit (16)(i) to Post-Effective Amendment No.
38 to Registrant's Registration Statement (No.
33-21489) filed on November 15, 1996.
Computation of Performance Quotations for
KeyPremier Intermediate Term Income Fund to be
filed by amendment.
(j) Computation of Performance Quotations for 1st
Source Monogram Diversified Equity Fund, 1st
Source Monogram Income Equity Fund, 1st Source
Monogram Special Equity Fund and 1st Source
Monogram Income Fund. Computation of
Performance Quotations for 1st Source Monogram
U.S. Treasury Obligations Money Market Fund and
1st Source Monogram Intermediate Tax-Free Bond
Fund to be filed by amendment.
17 Financial Data Schedules for KeyPremier Prime
Money Market Fund, KeyPremier Pennsylvania
Municipal Bond Fund, 1st Source Monogram
Diversified Equity Fund, 1st Source Monogram
Income Equity Fund, 1st Source Monogram Special
Equity Fund, and 1st Source Monogram Income
Fund. Financial Data Schedules for the
Riverside Capital Funds were filed as Exhibit
(17) to Post-Effective Amendment No. 37 to
Registrant's Registration Statement (No.
33-21489) filed on October 21, 1996. Financial
Data Schedules for the other KeyPremier Funds
and the other 1st Source Monogram Funds to be
filed by amendment.
18 None.
19(a) Powers of Attorney of Stephen G. Mintos,
Maurice G. Stark and Chalmers P. Wylie, Walter
B. Grimm were filed as Exhibit (17)(a) to
Post-Effective Amendment No. 30 to Registrant's
Registration
C-49
<PAGE> 294
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
Statement (No. 33-21489) filed on August 24,
1994.
(b) Consent of Baker & Hostetler LLP
(c) Power of Attorney of Nancy E. Converse was
filed as Exhibit (19)(c) to Post-Effective
Amendment No. 36 to Registrant's Registration
Statement (No. 33-21489) filed on August 16,
1996.
(d) Power of Attorney of James H. Woodward was
filed as Exhibit (19)(d) to Post-Effective
Amendment No. 37 to Registrant's Registration
Statement (No. 33-21489) filed on October 21,
1996.
C-50
<PAGE> 295
As filed with the Securities and Exchange Commission March 18, 1997
1933 Act Registration No. 33-21489
1940 Act File No. 811-5545
EXHIBITS TO
FORM N-1A
-----
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / x /
-----
-----
Post-Effective Amendment No. 39 / x /
-----
and
REGISTRATION STATEMENT UNDER THE INVESTMENT -----
COMPANY ACT OF 1940 / x /
-----
-----
Amendment No. 41 / x /
-----
The Sessions Group
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road
Columbus, Ohio 43219
(Address of Principal Executive Offices)
Registrant's Telephone Number:
(800) 752-1823
<PAGE> 1
EXHIBIT (1)(m)
<PAGE> 2
THE SESSIONS GROUP
AMENDMENT TO DECLARATION OF TRUST
Amended: January 14, 1997
The first paragraph of ARTICLE IV, Section 4.2 of the Group's
Declaration of Trust dated as of April 25, 1988, as amended to date, is amended
further amended by deleting such first paragraph of ARTICLE IV, Section 4.2 in
its entirety and by substituting in place thereof the following new first
paragraph of ARTICLE IV, Section 4.2:
"Section 4.2. Establishment and Designation of Series
Without limiting the authority of the Trustees set forth in Section 4.1
to establish and designate any further series, there is hereby established and
designated an initial series of shares designated Series A, which shall
represent interests in Riverside Capital Money Market Fund, and there is further
established and designated additional series of shares designated Series D,
which shall represent interests in Riverside Capital Value Equity Fund, Series
E, which shall represent interests in Riverside Capital Fixed Income Fund,
Series M, which shall represent interests in Riverside capital Tennessee
Municipal Obligations Fund, Series Q, which shall represent interests in
Riverside Capital Low Duration Government Securities Fund, Series S, which shall
represent interests in Riverside capital Growth Fund, Series U, which shall
represent interests in KeyPremier Prime Money Market Fund, Series V, which shall
represent interests in KeyPremier Pennsylvania Municipal Bond Fund, Series W,
which shall represent interests in 1st Source Monogram U.S. Treasury Obligations
Money Market Fund, Series X, which shall represent interests in 1st Source
Monogram Diversified Equity Fund, Series Y, which shall represent interests in
1st Source Monogram Income Equity Fund, Series Z, which shall represent
interests in 1st Source Monogram Special Equity Fund, Series AA, which shall
represent interests in 1st Source Monogram Income Fund, Series AB, which shall
represent interests in 1st Source Monogram Intermediate Tax-Free Bond Fund,
Series AC, which shall represent interests in KeyPremier Established Growth
Fund, Series AD, which shall represent interests in KeyPremier Intermediate Term
Income Fund, Series AE, which shall represent interests in KeyPremier Aggressive
Growth Fund, Series AF, which shall represent interests in KeyPremier U.S.
Treasury Obligations Money Market Fund and Series AG, which shall represent
interests in KeyPremier Limited Duration Government Securities Fund. Shares of
Series A, Series D, Series E, Series M, Series Q, Series S, Series U, Series V,
Series W, Series X, Series Y, Series Z, Series AA, Series AB, Series AC, Series
AD, Series AE, Series AF, Series AG and of any further series that may from time
to time be established and designated by the Trustees shall (unless the Trustees
otherwise determine with respect to some further series or subseries at the time
of establishing and designating the same) have the following relative rights and
preferences:"
<PAGE> 1
Exhibit (5)(e)
<PAGE> 2
INVESTMENT ADVISORY AGREEMENT
This Agreement is made as of July 9, 1996, between THE SESSIONS GROUP,
an Ohio business trust (the "Trust"), and Martindale Andres & Company, Inc., a
Pennsylvania corporation (the "Investment Adviser").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Trust desires to retain the Investment Adviser to provide,
or to arrange for the provision of, investment advisory services to two newly
created investment portfolios of the Trust and may retain the Investment Adviser
to serve in such capacity to certain additional investment portfolios of the
Trust, all as now or hereafter may be identified in Schedule A hereto (such new
investment portfolios and any such additional investment portfolios together
called the "Funds") and the Investment Adviser represents that it is willing and
possesses legal authority to so furnish such services without violation of
applicable laws (including the Glass-Steagall Act) and regulations;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
Section 1. Appointment. The Trust hereby appoints the Investment
Adviser to act as investment adviser to the Funds for the period and on the
terms set forth in this Agreement. The Investment Adviser accepts such
appointment and agrees to furnish the services herein set forth for the
compensation herein provided. Additional investment portfolios may from time to
time be added to those covered by this Agreement by the parties executing a new
Schedule A which shall become effective upon its execution and shall supersede
any Schedule A having an earlier date.
Section 2. Delivery of Documents. The Trust has furnished the
Investment Adviser with copies properly certified or authenticated of each of
the following:
(a) the Trust's Declaration of Trust, executed as of April 25,
1988, and as filed with the Secretary of State of Ohio on April 25,
1988, as amended or restated to the date hereof (such Declaration, as
presently in effect and as it shall from time to time be amended or
restated, is herein called the "Declaration of Trust");
(b) the Trust's By-Laws and any amendments thereto;
<PAGE> 3
(c) resolutions of the Trust's Board of Trustees authorizing
the appointment of the Investment Adviser and approving this Agreement;
(d) the Trust's Notification of Registration on Form N-8A
under the 1940 Act as filed with the Securities and Exchange Commission
on April 27, 1988 and all amendments thereto;
(e) all of the Trust's procedures and guidelines and all
resolutions of the Trust's Board relevant to the services to
be provided by the Investment Adviser hereunder;
(f) the Trust's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended ("1933 Act"), (File No. 33-21489),
and under the 1940 Act as filed with the Securities and Exchange
Commission and the most recent amendment thereto; and
(g) the most recent Prospectus and Statement of Additional
Information of each of the Funds (such Prospectus and Statement of
Additional Information, as presently in effect, and all amendments and
supplements thereto, are herein collectively called the "Prospectus").
The Trust will furnish the Investment Adviser from time to
time with copies of all amendments of or supplements to the foregoing.
Section 3. Management. Subject to the supervision of the Trust's Board
of Trustees, the Investment Adviser will provide a continuous investment program
for each of the Funds, including investment research and management with respect
to all securities and investments and cash equivalents in the Funds. The
Investment Adviser will determine from time to time what securities and other
investments will be purchased, retained or sold by the Trust with respect to the
Funds and will implement such determinations through the placement, in the name
of the Funds, of orders for the execution of portfolio transactions with or
through such brokers or dealers as it may select. The Investment Adviser will
provide the services under this Agreement in accordance with each of the Fund's
investment objectives, policies, and restrictions as stated in the Prospectus,
as the same may be amended, supplemented or restated from time to time, and
resolutions of the Trust's Board of Trustees.
In fulfilling its responsibilities hereunder, the Investment Adviser
further agrees that it will:
- 2 -
<PAGE> 4
(a) use the same skill and care in providing such ervices as
it uses in providing services to fiduciary accounts for which it has
investment responsibilities;
(b) conform with all applicable Rules and Regulations of the
Securities and Exchange Commission and in addition will conduct its
activities under this Agreement in accordance with any applicable
regulations of any governmental authority pertaining to the investment
advisory activities of the Investment Adviser;
(c) not make loans to any person to purchase or carry shares
of beneficial interest in the Trust or make loans to the Trust;
(d) place orders pursuant to its investment determinations for
the Funds either directly with the issuer or with any broker or dealer.
In placing orders with brokers and dealers, the Investment Adviser will
attempt to obtain prompt execution of orders in an effective manner at
the most favorable price. In assessing the best execution available for
any transaction, the Investment Adviser shall consider all factors it
deems relevant, including the breadth of the market in the security,
the price of the security, the financial condition and execution
capability of the broker-dealer and the reasonableness of the
commission, if any (for the specific transaction and on a continuing
basis). Consistent with this obligation, the Investment Adviser may, in
its discretion and to the extent permitted by law, purchase and sell
portfolio securities to and from brokers and dealers who provide
brokerage and research services (within the meaning of Section 28(e) of
the Securities Exchange Act of 1934) to or for the benefit of the Funds
and/or other accounts over which the Investment Adviser exercises
investment discretion. Subject to the review of the Trust's Board of
Trustees from time to time with respect to the extent and continuation
of the policy, the Investment Adviser is authorized to pay a broker or
dealer who provides such brokerage and research services a commission
for effecting a securities transaction for any of the Funds which is in
excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if, but only if, the Investment
Adviser determines in good faith that such commission was reasonable in
relation to the value of the brokerage and research services provided
by such broker or dealer, viewed in terms of either that particular
transaction or the overall responsibilities of the Investment Adviser
with respect to the accounts as to which it exercises investment
discretion. In placing orders with brokers and dealers, consistent with
applicable laws, rules and regulations, the Investment Adviser may
consider the sale
- 3 -
<PAGE> 5
of shares of the Trust. Except as otherwise permitted by applicable
laws, rules and regulations, in no instance will portfolio securities
be purchased from or sold to BISYS Fund Services Limited Partnership,
the Investment Adviser or any affiliated person of the Trust, BISYS
Fund Services Limited Partnership or the Investment Adviser;
(e) will maintain all books and records with respect to the
securities transactions of the Funds and will furnish the Trust's Board
of Trustees such periodic and special reports as the Board may request;
(f) will treat confidentially and as proprietary information
of the Trust all records and other information relative to the Trust
and the Funds and prior, present, or potential shareholders, and will
not use such records and information for any purpose other than
performance of its responsibilities and duties hereunder, except after
prior notification to and approval in writing by the Trust, which
approval shall not be unreasonably withheld and may not be withheld
where the Investment Adviser may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge
such information by duly constituted authorities, or when so requested
by the Trust; and
(g) will maintain its policy and practice of conducting its
fiduciary functions independently. In making investment recommendations
for the Funds, the Investment Adviser's personnel will not inquire or
take into consideration whether the issuers of securities proposed for
purchase or sale for the Trust's account are customers of the
Investment Adviser or of its parents, subsidiaries or affiliates. In
dealing with such customers, the Investment Adviser and its parents,
subsidiaries, and affiliates will not inquire or take into
consideration whether securities of those customers are held by the
Trust.
Section 4. Services Not Exclusive. The investment management services
furnished by the Investment Adviser hereunder are not to be deemed exclusive,
and the Investment Adviser shall be free to furnish similar services to others
so long as its services under this Agreement are not impaired thereby.
Section 5. Books and Records. In compliance with the requirements of
Rule 31a-3 under the 1940 Act, the Investment Adviser hereby agrees that all
records which it maintains for the Funds are the property of the Trust and
further agrees to surrender promptly to the Trust any of such records upon the
Trust's request. The Investment Adviser further agrees to preserve for the
periods
- 4 -
<PAGE> 6
prescribed by Rule 31a-2 under the 1940 Act, the records required to be
maintained by Rule 31a-1 under the 1940 Act.
Section 6. Expenses. During the term of this Agreement, the Investment
Adviser will pay all expenses incurred by it in connection with its activities
under this Agreement other than the cost of securities (including brokerage
commissions, if any) purchased for the Funds.
Section 7. Compensation. For the services provided and the expenses
assumed pursuant to this Agreement, each of the Funds will pay the Investment
Adviser and the Investment Adviser will accept as full compensation therefor a
fee as set forth on Schedule A hereto. The obligations of the Funds to pay the
above-described fee to the Investment Adviser will begin as of the respective
dates of the initial public sale of shares in the Funds; provided, however, that
the Investment Adviser shall waive all such fees until such time as it notifies
the Trust that it has terminated such waiver. Thereafter, the Investment Adviser
may from time to time waive some or all of such fees until such time as it
notifies the Trust that it has terminated such waiver. Upon any termination of
this Agreement before the end of any month, the fee for such part of a month
shall be prorated according to the proportion which such period bears to the
full monthly period and shall be payable upon the date of termination of this
Agreement.
For the purpose of determining fees payable to the Investment Adviser,
the value of the net assets of a particular Fund shall be computed in the manner
described in the Trust's Declaration of Trust or in the Prospectus or Statement
of Additional Information respecting that Fund as from time to time is in effect
for the computation of the value of such net assets in connection with the
determination of the liquidating value of the shares of such Fund.
If in any fiscal year the aggregate expenses of any of the Funds (as
defined under the securities regulations of any state having jurisdiction over
the Trust) exceed the expense limitations of any such state, the Investment
Adviser will reimburse the Fund for a portion of such excess expenses equal to
such excess times the ratio of the fees otherwise payable by the Fund to the
Investment Adviser hereunder to the aggregate fees otherwise payable by the Fund
to the Investment Adviser hereunder and to BISYS Fund Services Limited
Partnership under the Administration Agreement between BISYS Fund Services
Limited Partnership and the Trust and to BISYS Fund Services, Inc. under the
Fund Accounting Agreement between BISYS Fund Services, Inc. and the Trust. The
obligation of the Investment Adviser to reimburse the Funds hereunder is limited
in any fiscal year to the amount of its fee hereunder for such fiscal year,
provided, however, that notwithstanding the foregoing, the Investment Adviser
shall
- 5 -
<PAGE> 7
reimburse the Funds for such proportion of such excess expenses regardless of
the amount of fees paid to it during such fiscal year to the extent that the
securities regulations of any state having jurisdiction over the Trust so
require. Such expense reimbursement, if any, will be estimated daily and
reconciled and paid on a monthly basis.
Section 8. Limitation of Liability. Notwithstanding anything herein to
the contrary, the Investment Adviser shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Funds in connection
with the performance of this Agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of the Investment Adviser in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement.
Section 9. Duration and Termination. This Agreement will become
effective as of the date first written above (or, if a particular Fund is not in
existence on that date, on the date a registration statement relating to that
Fund becomes effective with the Securities and Exchange Commission and Schedule
A hereto is amended to add such Fund), provided that it shall have been approved
by vote of a majority of the outstanding voting securities of such Fund, in
accordance with the requirements under the 1940 Act, and, unless sooner
terminated as provided herein, shall continue in effect until July 9, 1998.
Thereafter, if not terminated, this Agreement shall continue
in effect as to a particular Fund for successive periods of twelve months each
ending on July 9 of each year, provided such continuance is specifically
approved at least annually (a) by the vote of a majority of those members of the
Trust's Board of Trustees who are not parties to this Agreement or interested
persons of any party to this Agreement, cast in person at a meeting called for
the purpose of voting on such approval, and (b) by the vote of a majority of the
Trust's Board of Trustees or by the vote of a majority of all votes attributable
to the outstanding Shares of such Fund. Notwithstanding the foregoing, this
Agreement may be terminated as to a particular Fund at any time on sixty days'
written notice, without the payment of any penalty, by the Trust (by vote of the
Trust's Board of Trustees or by vote of a majority of the outstanding voting
securities of such Fund) or by the Investment Adviser. This Agreement will
immediately terminate in the event of its assignment. (As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested persons" and "assignment" shall have the same meanings as ascribed
to such terms in the 1940 Act.)
- 6 -
<PAGE> 8
Section 10. Investment Adviser's Representations. The Investment
Adviser hereby represents that it is willing and possesses all requisite legal
authority to provide the services contemplated by this Agreement without
violation of applicable laws and regulations, including but not limited to the
Glass-Steagall Act and the regulations promulgated thereunder.
Section 11. Amendment of this Agreement. No provision of this Agreement
may be changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
Section 12. Name. The Trust hereby acknowledges that the name
"KeyPremier" is a property right of the Investment Adviser. The Investment
Adviser agrees that the Trust and the Funds may, so long as this Agreement
remains in effect, use "KeyPremier" as part of its name. The Investment Adviser
may permit other persons, firms or corporations, including other investment
companies, to use such name and may, upon termination of this Agreement, require
the Trust and the Funds to refrain from using the name "KeyPremier" in any form
or combination in its name or in its business or in the name of any of its
Funds, and the Trust shall, as soon as practicable following its receipt of any
such request from the Investment Adviser, so refrain from using such name.
Section 13. Miscellaneous. The captions in this Agreement are included
for convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by the law of the State of Ohio.
The Sessions Group is a business trust organized under Chapter
1746, Ohio Revised Code and under a Declaration of Trust, to which reference is
hereby made and a copy of which is on file at the office of the Secretary of
State of Ohio as required by law, and to any and all amendments thereto so filed
or hereafter filed. The obligations of "The Sessions Group" entered into in the
name or on behalf thereof by any of the Trustees, officers, employees or agents
are made not individually, but in such capacities, and are not binding upon any
of the Trustees, officers, employees, agents or shareholders of the Trust
personally, but bind only the assets of the Trust, as set forth in Section
1746.13(A), Ohio Revised Code, and all persons dealing with any of the Funds of
the Trust must look solely to the assets of the Trust belonging to such Fund for
the enforcement of any claims against the Trust.
- 7 -
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
THE SESSIONS GROUP
By /s/ Walter B. Grimm
----------------------------------
Name Walter B. Grimm
--------------------------------
Title President
-------------------------------
MARTINDALE ANDRES & COMPANY,
INC.
By /s/ Robert P. Andres
----------------------------------
Name Robert P. Andres
--------------------------------
Title Chief Operating Officer
-------------------------------
- 8 -
<PAGE> 10
Dated: January 29, 1997
Schedule A
to the
Investment Advisory Agreement
between The Sessions Group and
Martindale Andres & Company, Inc.
dated as of July 9, 1996
<TABLE>
<CAPTION>
Name of Fund Compensation* Date
- ------------ ------------- ----
<S> <C> <C>
The KeyPremier Prime Annual Rate of forty July 9, 1996
Money Market Fund one-hundredths of
one percent (0.40%)
of such Fund's
average net assets
The KeyPremier Annual rate of sixty July 9, 1996
Pennsylvania one-hundredths of
Municipal Bond Fund one percent (.60%)
of such Fund's
average daily net
assets
The KeyPremier Annual rate of October 30, 1996
Established Growth seventy-five one-
Fund hundredths of one
percent (.75%) of
such Fund's average
daily net assets
The KeyPremier Annual rate of sixty October 30, 1996
Intermediate Term one-hundredths of
Income Fund one percent (.60%)
of such Fund's
average daily net
assets
The KeyPremier Annual rate of one January 29, 1997
Aggressive Growth percent (1.00%) of
Fund such Fund's average
daily net assets
</TABLE>
MARTINDALE ANDRES & COMPANY, INC. THE SESSIONS GROUP
By /s/ Robert P. Andres By /s/ Walter B. Grimm
------------------------------- --------------------------------
Name Robert P. Andres Name Walter B. Grimm
----------------------------- ------------------------------
Title Chief Operating Officer Title President
---------------------------- -----------------------------
- --------
* *All Fees are computed daily and paid monthly.
A-1
<PAGE> 1
EXHIBIT (6)(c)
<PAGE> 2
DISTRIBUTION AGREEMENT
This Agreement is made this 9th day of July, 1996, between The Sessions
Group, an Ohio business trust (the "Trust"), 3435 Stelzer Road, Columbus, Ohio
43219, and BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services, an
Ohio limited partnership ("Distributor"), 3435 Stelzer Road, Columbus, Ohio
43219.
WHEREAS, the Trust is an open-end management investment company,
organized as an Ohio business trust and registered with the Securities and
Exchange Commission (the "Commission") under the Investment Company Act of 1940,
as amended (the "1940 Act"); and
WHEREAS, it is intended that Distributor act as the distributor of the
units of beneficial interest ("Shares") of each of the investment portfolios of
the Trust identified on Schedule A hereto as such Schedule may be amended from
time to time (such portfolios being referred to individually as a "Fund" and
collectively as the "Funds").
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. Services as Distributor.
1.1 Distributor will act as agent for the distribution of the Shares
covered by the registration statement and prospectus of the Trust then in effect
under the Securities Act of 1933, as amended ("1933 Act"). As used in this
Agreement, the term "registration statement" shall mean Parts A (the
prospectus), B (the Statement of Additional Information) and C of each
registration statement that is filed on Form N-1A, or any successor thereto,
with the Commission, together with any amendments thereto. The term "prospectus"
shall mean each form of prospectus and Statement of Additional Information used
by the Funds for delivery to shareholders and prospective shareholders after the
effective dates of the above referenced registration statements, together with
any amendments and supplements thereto.
1.2 Distributor agrees to use appropriate efforts to solicit orders for
the sale of the Shares and will undertake such advertising and promotion as it
believes reasonable in connection with such solicitation. The Trust understands
that Distributor is now and, in the future, may be the distributor of the shares
of several investment companies or series (together, "Companies") including
Companies having investment objectives similar to those of the Trust. The Trust
further understands that investors and potential investors in the Trust may
invest in shares of such other Companies. The Trust agrees that Distributor's
duties to such Companies shall not be deemed in conflict with its duties to the
Trust under this paragraph 1.2.
<PAGE> 3
Distributor shall, at its own expense, finance appropriate activities
which it deems reasonable which are primarily intended to result in the sale of
the Shares, including, but not limited to, advertising, compensation of
underwriters, dealers and sales personnel, the printing and mailing of
prospectuses to other than current Shareholders, and the printing and mailing of
sales literature.
1.3 In its capacity as distributor of the Shares, all activities of
Distributor and its partners, agents, and employees shall comply with all
applicable laws, rules and regulations, including, without limitation, the 1940
Act, all rules and regulations promulgated by the Commission thereunder and all
rules and regulations adopted by any securities association registered under the
Securities Exchange Act of 1934.
1.4 Distributor will provide one or more persons, during normal
business hours, to respond to telephone questions with respect to the Trust.
1.5 Distributor will transmit any orders received by it for
purchase or redemption of the Shares to the transfer agent and
custodian for the Funds.
1.6 Whenever in their judgment such action is warranted by unusual
market, economic or political conditions, or by abnormal circumstances of any
kind, the Trust's officers may decline to accept any orders for, or make any
sales of, the Shares until such time as those officers deem it advisable to
accept such orders and to make such sales.
1.7 Distributor will act only on its own behalf as principal if it
chooses to enter into selling agreements with selected dealers or others.
1.8 The Trust agrees at its own expense to execute any and all
documents and to furnish any and all information and otherwise to take all
actions that may be reasonably necessary in connection with the qualification of
the Shares for sale in such states as Distributor may designate.
1.9 The Trust shall furnish from time to time, for use in connection
with the sale of the Shares, such information with respect to the Funds and the
Shares as Distributor may reasonably request; and the Trust warrants that the
statements contained in any such information shall fairly show or represent what
they purport to show or represent. The Trust shall also furnish Distributor upon
request with: (a) unaudited semi-annual statements of the Funds' books and
accounts prepared by the Trust, (b) a monthly itemized list of the securities in
the Funds, (c) monthly
- 2 -
<PAGE> 4
balance sheets as soon as practicable after the end of each month, and (d) from
time to time such additional information regarding the financial condition of
the Funds as Distributor may reasonably request.
1.10 The Trust represents to Distributor that, with respect to the
Shares, all registration statements and prospectuses filed by the Trust with the
Commission under the 1933 Act have been carefully prepared in conformity with
the requirements of said Act and rules and regulations of the Commission
thereunder and all statements of fact contained in any such registration
statement and prospectus will be true and correct when such registration
statement becomes effective. Furthermore, neither any registration statement nor
any prospectus when such registration statement becomes effective includes an
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
to a purchaser of the Shares. The Trust may, but shall not be obligated to,
propose from time to time such amendment or amendments to any registration
statement and such supplement or supplements to any prospectus as, in the light
of future developments, may, in the opinion of the Trust's counsel, be necessary
or advisable. If the Trust shall not propose such amendment or amendments and/or
supplement or supplements within fifteen days after receipt by the Trust of a
written request from Distributor to do so, Distributor may, at its option,
terminate this Agreement. The Trust shall not file any amendment to any
registration statement or supplement to any prospectus without giving
Distributor reasonable notice thereof in advance; provided, however, that
nothing contained in this Agreement shall in any way limit the Trust's right to
file at any time such amendments to any registration statement and/or
supplements to any prospectus, of whatever character, as the Trust may deem
advisable, such right being in all respects absolute and unconditional.
1.11 The Trust authorizes Distributor and dealers to use any prospectus
in the form furnished from time to time in connection with the sale of the
Shares. The Trust agrees to indemnify, defend and hold Distributor, its several
partners and employees, and any person who controls Distributor within the
meaning of Section 15 of the 1933 Act free and harmless from and against any and
all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which Distributor, its partners and
employees, or any such controlling person, may incur under the 1933 Act or under
common law or otherwise, arising out of or based upon any untrue statement, or
alleged untrue statement, of a material fact contained in any registration
statement or any prospectus or arising out of or based upon any omission, or
alleged omission, to state a material fact
- 3 -
<PAGE> 5
required to be stated in either any registration statement or any prospectus or
necessary to make the statements in either thereof not misleading; provided,
however, that the Trust's agreement to indemnify Distributor, its partners or
employees, and any such controlling person shall not be deemed to cover any
claims, demands, liabilities or expenses arising out of any statements or
representations as are contained in any prospectus and in such financial and
other statements as are furnished in writing to the Trust by Distributor and
used in the answers to the registration statement or in the corresponding
statements made in the prospectus, or arising out of or based upon any omission
or alleged omission to state a material fact in connection with the giving of
such information required to be stated in such answers or necessary to make the
answers not misleading; and further provided that the Trust's agreement to
indemnify Distributor and the Trust's representations and warranties
hereinbefore set forth in paragraph 1.10 shall not be deemed to cover any
liability to the Trust or its Shareholders to which Distributor would otherwise
be subject by reason of willful misfeasance, bad faith or negligence in the
performance of its duties, or by reason of Distributor's reckless disregard of
its obligations and duties under this Agreement. The Trust's agreement to
indemnify Distributor, its partners and employees, and any such controlling
person, as aforesaid, is expressly conditioned upon the Trust's being notified
of any action brought against Distributor, its partners or employees, or any
such controlling person, such notification to be given by letter or by telegram
addressed to the Trust at its principal office in Columbus, Ohio and sent to the
Trust by the person against whom such action is brought, within 10 days after
the summons or other first legal process shall have been served. The failure to
so notify the Trust of any such action shall not relieve the Trust from any
liability which the Trust may have to the person against whom such action is
brought by reason of any such untrue, or allegedly untrue, statement or
omission, or alleged omission, otherwise than on account of the Trust's
indemnity agreement contained in this paragraph 1.11. The Trust will be entitled
to assume the defense of any suit brought to enforce any such claim, demand or
liability, but, in such case, such defense shall be conducted by counsel of good
standing chosen by the Trust and approved by Distributor, which approval shall
not be unreasonably withheld. In the event the Trust elects to assume the
defense of any such suit and retain counsel of good standing approved by
Distributor, the defendant or defendants in such suit shall bear the fees and
expenses of any additional counsel retained by any of them; but in case the
Trust does not elect to assume the defense of any such suit, or in case
Distributor reasonably does not approve of counsel chosen by the Trust, the
Trust will reimburse Distributor, its partners and employees, or the controlling
person or persons named as defendant or defendants in such suit, for the fees
and expenses of any counsel retained by Distributor or them.
- 4 -
<PAGE> 6
The Trust's indemnification agreement contained in this paragraph 1.11 and the
Trust's representations and warranties in this Agreement shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of Distributor, its partners and employees, or any controlling person,
and shall survive the delivery of any Shares.
This agreement of indemnity will inure exclusively to Distributor's
benefit, to the benefit of its several partners and employees, and their
respective estates, and to the benefit of the controlling persons and their
successors. The Trust agrees promptly to notify Distributor of the commencement
of any litigation or proceedings against the Trust or any of its officers or
Trustees in connection with the issue and sale of any Shares.
1.12 Distributor agrees to indemnify, defend and hold the Trust, its
several officers and Trustees and any person who controls the Trust within the
meaning of Section 15 of the 1933 Act free and harmless from and against any and
all claims, demands, liabilities and expenses (including the costs of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which the Trust, its officers or Trustees
or any such controlling person, may incur under the 1933 Act or under common law
or otherwise, but only to the extent that such liability or expense incurred by
the Trust, its officers or Trustees or such controlling person resulting from
such claims or demands, shall arise out of or be based upon any untrue, or
alleged untrue, statement of a material fact contained in information furnished
in writing by Distributor to the Trust and used in the answers to any of the
items of the registration statement or in the corresponding statements made in
the prospectus, or shall arise out of or be based upon any omission, or alleged
omission, to state a material fact in connection with such information furnished
in writing by Distributor to the Trust required to be stated in such answers or
necessary to make such information not misleading. Distributor's agreement to
indemnify the Trust, its officers and Trustees, and any such controlling person,
as aforesaid, is expressly conditioned upon Distributor's being notified of any
action brought against the Trust, its officers or Trustees, or any such
controlling person, such notification to be given by letter or telegram
addressed to Distributor at its principal office in Columbus, Ohio, and sent to
Distributor by the person against whom such action is brought, within 10 days
after the summons or other first legal process shall have been served.
Distributor shall have the right of first control of the defense of such action,
with counsel of its own choosing, satisfactory to the Trust, if such action is
based solely upon such alleged misstatement or omission on Distributor's part,
and in any other event the Trust, its officers or Trustees or such controlling
person shall each have the right to participate in the defense or preparation of
the defense
- 5 -
<PAGE> 7
of any such action. The failure to so notify Distributor of any such action
shall not relieve Distributor from any liability which Distributor may have to
the Trust, its officers or Trustees, or to such controlling person by reason of
any such untrue or alleged untrue statement, or omission or alleged omission,
otherwise than on account of Distributor's indemnity agreement contained in this
paragraph 1.12.
1.13 No Shares shall be offered by either Distributor or the Trust
under any of the provisions of this Agreement and no orders for the purchase or
sale of Shares hereunder shall be accepted by the Trust if and so long as the
effectiveness of the registration statement then in effect or any necessary
amendments thereto shall be suspended under any of the provisions of the 1933
Act or if and so long as a current prospectus as required by Section 10(a) of
said Act is not on file with the Commission; provided, however, that nothing
contained in this paragraph 1.13 shall in any way restrict or have an
application to or bearing upon the Trust's obligation to repurchase Shares from
any Shareholder in accordance with the provisions of the Trust's prospectus,
Declaration of Trust, or By-Laws.
1.14 The Trust agrees to advise Distributor as soon as reasonably
practical by a notice in writing delivered to Distributor or its counsel:
(a) of any request by the Commission for amendments to the
registration statement or prospectus then in effect or for additional
information;
(b) in the event of the issuance by the Commission of any stop
order suspending the effectiveness of the registration statement or
prospectus then in effect or the initiation by service of process on
the Trust of any proceeding for that purpose;
(c) of the happening of any event that makes untrue any
statement of a material fact made in the registration statement or
prospectus then in effect or which requires the making of a change in
such registration statement or prospectus in order to make the
statements therein not misleading; and
(d) of all action of the Commission with respect to any
amendment to any registration statement or prospectus which may from
time to time be filed with the Commission.
- 6 -
<PAGE> 8
For purposes of this section, informal requests by or acts of the Staff
of the Commission shall not be deemed actions of or requests by the Commission.
1.15 Distributor agrees on behalf of itself and its partners and
employees to treat confidentially and as proprietary information of the Trust
all records and other information relative to the Trust and its prior, present
or potential Shareholders, and not to use such records and information for any
purpose other than performance of its responsibilities and duties hereunder,
except after prior notification to and approval in writing by the Trust, which
approval shall not be unreasonably withheld and may not be withheld where
Distributor may be exposed to civil or criminal contempt proceedings for failure
to comply, when requested to divulge such information by duly constituted
authorities, or when so requested by the Trust.
1.16 This Agreement shall be governed by the laws of the State of Ohio.
2. Sale and Payment.
Under this Agreement, the following provisions shall apply with respect
to the sale of and payment of Shares of a Fund sold at an offering price which
includes a sales load (collectively, the "Load Shares;" individually, a "Load
Share") as described in the prospectuses of any Funds identified on Schedule B
hereto (collectively, the "Load Funds"; individually, a "Load Fund"):
(a) Distributor shall have the right, as principal, to
purchase Load Shares at their net asset value and to sell such Load
Shares to the public against orders therefor at the applicable public
offering price, as defined in Section 4 hereof. Distributor shall also
have the right, as principal, to sell Load Shares to dealers against
orders therefor at the public offering price less a concession
determined by Distributor, which concession shall not exceed the amount
of the sales charge or underwriting discount, if any, referred to in
Section 3 below.
(b) Prior to the time of delivery of any Load Shares by a Load
Fund to, or on the order of, Distributor, Distributor shall pay or
cause to be paid to the Load Fund or to its order an amount in Boston
or New York clearing house funds equal to the applicable net asset
value of such Shares. Distributor may retain so much of any sales
charge or underwriting discount as is not allowed by Distributor as a
concession to dealers.
- 7 -
<PAGE> 9
3. Public Offering Price.
The public offering price of a Load Share shall be the net asset value
of such Load Shares, plus any applicable sales charge, all as set forth in the
current prospectus of the Load Fund. The net asset value of Shares shall be
determined in accordance with the provisions of the Declaration of Trust and
By-Laws of the Trust and the then current prospectus of the Load Fund.
4. Issuance of Shares.
The Trust reserves the right to issue, transfer or sell Load Shares at
net asset value (a) in connection with the merger or consolidation of the Trust
or the Load Fund(s) with any other investment company or the acquisition by the
Trust or the Load Fund(s) of all or substantially all of the assets or of the
outstanding Shares of any other investment company; (b) in connection with a pro
rata distribution directly to the holders of Shares in the nature of a stock
dividend or split; (c) upon the exercise of subscription rights granted to the
holders of Shares on a pro rata basis; (d) in connection with the issuance of
Load Shares pursuant to any exchange and reinvestment privileges described in
any then current prospectus of the Load Fund; and (e) otherwise in accordance
with any then current prospectus of the Load Fund.
5. Term, Duration and Matters Relating to the Trust as an
Ohio Business Trust.
This Agreement shall become effective with respect to each Fund listed
on Schedule A hereof as of the date first set forth above (or, if a particular
Fund is not in existence on such date, on the date an amendment to Schedule A to
this Agreement relating to that Fund is executed), and, unless sooner terminated
as provided herein, shall continue in effect until July 9, 1998. Thereafter, if
not terminated as provided herein, this Agreement shall continue with respect to
a particular Fund in effect automatically for successive one-year periods ending
on July 9 of each year with respect to each of the Funds, provided such
continuance is specifically approved at least annually by (a) the Trust's Board
of Trustees or (b) by "vote of a majority of the outstanding voting securities"
(as defined below) of the Trust, provided, however, that in either event the
continuance is also approved by a majority of the Trust's Trustees who are not
parties to the Agreement or interested persons (as defined in the 1940 Act) of
any such party, by vote cast in person at a meeting called for the purpose of
voting on such approval. This Agreement is terminable without penalty, on not
less than sixty days' prior written notice, by the Trust's Board of Trustees, by
vote of a majority of the outstanding voting securities (as defined in the
- 8 -
<PAGE> 10
1940 Act) of the Trust or by Distributor. This Agreement will also terminate
automatically in the event of its assignment (as defined in the 1940 Act).
The Sessions Group is a business trust organized under Chapter 1746,
Ohio Revised Code and under a Declaration of Trust, to which reference is hereby
made and a copy of which is on file at the office of the Secretary of State of
Ohio as required by law, and to any and all amendments thereto so filed or
hereafter filed. The obligations of "The Sessions Group" entered into in the
name or on behalf thereof by any of the Trustees, officers, employees or agents
are made not individually, but in such capacities, and are not binding upon any
of the Trustees, officers, employees, agents or shareholders of the Trust
personally, but bind only the assets of the Trust, as set forth in Section
1746.13(A), Ohio Revised Code, and all persons dealing with any of the Funds of
the Trust must look solely to the assets of the Trust belonging to such Fund for
the enforcement of any claims against the Trust.
BISYS FUND SERVICES THE SESSIONS GROUP
LIMITED PARTNERSHIP
By BISYS Fund Services, Inc., By /s/ Walter B. Grimm
General Partner -------------------------
Name Walter B. Grimm
-----------------------
By /s/ J. David Huber Title President
--------------------------- ----------------------
Name J. David Huber
-------------------------
Title President
------------------------
- 9 -
<PAGE> 11
Dated: January 29, 1997
Schedule A
to the
Distribution Agreement
between The Sessions Group and
BISYS Fund Services Limited Partnership
July 9, 1996
<TABLE>
<CAPTION>
Name of Fund Date
- ------------ ----
<S> <C>
The KeyPremier Prime Money July 9, 1996
Market Fund
The KeyPremier Pennsylvania
Municipal Bond Fund July 9, 1996
The KeyPremier Established
Growth Fund October 30, 1996
The KeyPremier Intermediate
Term Income Fund October 30, 1996
The KeyPremier Aggressive
Growth Fund January 29, 1997
</TABLE>
BISYS FUND SERVICES LIMITED THE SESSIONS GROUP
PARTNERSHIP
By BISYS Fund Services, Inc.,
General Partner
By /s/ J. David Huber By /s/ Walter B. Grimm
------------------------------ --------------------------
Name J. David Huber Name Walter B. Grimm
----------------------------- ------------------------
Title President Title President
---------------------------- -----------------------
A-1
<PAGE> 12
Dated: January 29, 1997
Schedule B
to the
Distribution Agreement
between The Sessions Group and
BISYS Fund Services Limited Partnership
July 9, 1996
<TABLE>
<CAPTION>
Name of Load Fund Date
- ----------------- ----
<S> <C>
The KeyPremier Pennsylvania
Municipal Bond Fund July 9, 1996
The KeyPremier Established
Growth Fund October 30, 1996
The KeyPremier Intermediate
Term Income Fund October 30, 1996
The KeyPremier Aggressive
Growth Fund January 29, 1997
</TABLE>
BISYS FUND SERVICES LIMITED THE SESSIONS GROUP
PARTNERSHIP
By BISYS Fund Services, Inc.,
General Partner
By /s/ J. David Huber By /s/ Walter B. Grimm
------------------------------ --------------------------
Name J. David Huber Name Walter B. Grimm
----------------------------- ------------------------
Title President Title President
---------------------------- -----------------------
B-1
<PAGE> 1
EXHIBIT (8)(b)
<PAGE> 2
CUSTODY AGREEMENT
Agreement made as of this 9th day of July, 1996, between The Sessions
Group, an Ohio business trust organized and existing under the laws of the State
of Ohio, having its principal office and place of business at 3435 Stelzer Road,
Columbus, Ohio 43219 (hereinafter called the "Fund"), and THE BANK OF NEW YORK,
a New York corporation authorized to do a banking business, having its principal
office and place of business at 48 Wall Street, New York, New York 10286
(hereinafter called the "Custodian").
W I T N E S S E T H :
that for and in consideration of the mutual promises hereinafter set forth, the
Fund and the Custodian agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
1. "Book-Entry System" shall mean the Federal Reserve/Treasury
book-entry system for United States and federal agency securities, its successor
or successors and its nominee or nominees.
2. "Call Option" shall mean an exchange traded option with respect to
Securities other than Stock Index Options, Futures Contracts, and Futures
Contract Options entitling the holder, upon timely exercise and payment of the
exercise price, as specified therein, to purchase from the writer thereof the
specified underlying Securities.
3. "Certificate" shall mean any notice, instruction, or other
instrument in writing, authorized or required by this Agreement to be given to
the Custodian which is actually received by the Custodian and signed on behalf
of the Fund by any two Officers, and the term Certificate shall also include
instructions by the Fund to the Custodian communicated by a Terminal Link.
4. "Clearing Member" shall mean a registered broker-dealer which is a
clearing member under the rules of O.C.C. and a member of a national securities
exchange qualified to act as a custodian for an investment company, or any
broker-dealer reasonably believed by the Custodian to be such a clearing member.
<PAGE> 3
5. "Collateral Account" shall mean a segregated account so denominated
which is specifically allocated to a Series and pledged to the Custodian as
security for, and in consideration of, the Custodian's issuance of (a) any Put
Option guarantee letter or similar document described in paragraph 8 of Article
V herein, or (b) any receipt described in Article V or VIII herein.
6. "Covered Call Option" shall mean an exchange traded option entitling
the holder, upon timely exercise and payment of the exercise price, as specified
therein, to purchase from the writer thereof the specified underlying Securities
(excluding Futures Contracts) which are owned by the writer thereof and subject
to appropriate restrictions.
7. "Depository" shall mean The Depository Trust Company ("DTC"), a
clearing agency registered with the Securities and Exchange Commission, its
successor or successors and its nominee or nominees. The term "Depository" shall
further mean and include any other person authorized to act as a depository
under the Investment Company Act of 1940, its successor or successors and its
nominee or nominees, specifically identified in a certified copy of a resolution
of the Fund's Board of Trustees specifically approving deposits therein by the
Custodian.
8. "Financial Futures Contract" shall mean the firm commitment to buy
or sell fixed income securities including, without limitation, U.S. Treasury
Bills, U.S. Treasury Notes, U.S. Treasury Bonds, domestic bank certificates of
deposit, and Eurodollar certificates of deposit, during a specified month at an
agreed upon price.
9. "Futures Contract" shall mean a Financial Futures Contract and/or
Stock Index Futures Contracts.
10. "Futures Contract Option" shall mean an option with respect to a
Futures Contract.
11. "Margin Account" shall mean a segregated account in the name of a
broker, dealer, futures commission merchant, or a Clearing Member, or in the
name of the Fund for the benefit of a broker, dealer, futures commission
merchant, or Clearing Member, or otherwise, in accordance with an agreement
between the Fund, the Custodian and a broker, dealer, futures commission
merchant or a Clearing Member (a "Margin Account Agreement"), separate and
distinct from the custody account, in which certain Securities and/or money of
the Fund shall be deposited and withdrawn from time to time in connection with
such transactions as the Fund may from time to time determine. Securities held
in the Book-Entry System or the Depository shall be deemed to have been
deposited in, or withdrawn from, a Margin Account upon the Custodian's effecting
an appropriate entry in its books and records.
-2-
<PAGE> 4
12. "Money Market Security" shall be deemed to include, without
limitation, certain Reverse Repurchase Agreements, debt obligations issued or
guaranteed as to interest and principal by the government of the United States
or agencies or instrumentalities thereof, any tax, bond or revenue anticipation
note issued by any state or municipal government or public authority, commercial
paper, certificates of deposit and bankers' acceptances, repurchase agreements
with respect to the same and bank time deposits, where the purchase and sale of
such securities normally requires settlement in federal funds on the same day as
such purchase or sale.
13. "O.C.C." shall mean the Options Clearing Corporation, a clearing
agency registered under Section 17A of the Securities Exchange Act of 1934, its
successor or successors, and its nominee or nominees.
14. "Officers" shall be deemed to include the President, any Vice
President, the Secretary, the Treasurer, any Assistant Secretary, any Assistant
Treasurer, and any other person or persons, whether or not any such other person
is an officer of the Fund, duly authorized by the Board of Trustees of the Fund
to execute any Certificate, instruction, notice or other instrument on behalf of
the Fund and listed in the Certificate annexed hereto as Appendix A or such
other Certificate as may be received by the Custodian from time to time.
15. "Option" shall mean a Call Option, Covered Call Option, Stock Index
Option and/or a Put Option.
16. "Oral Instructions" shall mean verbal instructions actually
received by the Custodian from an Officer or from a person reasonably believed
by the Custodian to be an Officer.
17. "Put Option" shall mean an exchange traded option with respect to
Securities other than Stock Index Options, Futures Contracts, and Futures
Contract Options entitling the holder, upon timely exercise and tender of the
specified underlying Securities, to sell such Securities to the writer thereof
for the exercise price.
18. "Reverse Repurchase Agreement" shall mean an agreement pursuant to
which the Fund sells Securities and agrees to repurchase such Securities at a
described or specified date and price.
19. "Security" shall be deemed to include, without limitation, Money
Market Securities, Call Options, Put Options, Stock Index Options, Stock Index
Futures Contracts, Stock Index Futures Contract Options, Financial Futures
Contracts, Financial Futures Contract Options, Reverse Repurchase Agreements,
common stocks and other securities having characteristics similar to common
stocks,
-3-
<PAGE> 5
preferred stocks, debt obligations issued by state or municipal governments and
by public authorities, (including, without limitation, general obligation bonds,
revenue bonds, industrial bonds and industrial development bonds), bonds,
debentures, notes, mortgages or other obligations, and any certificates,
receipts, warrants or other instruments representing rights to receive,
purchase, sell or subscribe for the same, or evidencing or representing any
other rights or interest therein, or any property or assets.
20. "Senior Security Account" shall mean an account maintained and
specifically allocated to a Series under the terms of this Agreement as a
segregated account, by recordation or otherwise, within the custody account in
which certain Securities and/or other assets of the Fund specifically allocated
to such Series shall be deposited and withdrawn from time to time in accordance
with Certificates received by the Custodian in connection with such transactions
as the Fund may from time to time determine.
21. "Series" shall mean the various portfolios, if any, of the Fund as
described from time to time in the current and effective prospectus for the Fund
and listed on Appendix B hereto as amended from time to time.
22. "Shares" shall mean the shares of beneficial interest of the Fund,
each of which is, in the case of a Fund having Series, allocated to a particular
Series.
23. "Stock Index Futures Contract" shall mean a bilateral agreement
pursuant to which the parties agree to take or make delivery of an amount of
cash equal to a specified dollar amount times the difference between the value
of a particular stock index at the close of the last business day of the
contract and the price at which the futures contract is originally struck.
24. "Stock Index Option" shall mean an exchange traded option entitling
the holder, upon timely exercise, to receive an amount of cash determined by
reference to the difference between the exercise price and the value of the
index on the date of exercise.
25. "Terminal Link" shall mean an electronic data transmission link
between the Fund, an Intermediary (as hereinafter defined), and the Custodian
requiring in connection with each use of the Terminal Link by or on behalf of
the Fund use of an authorization code provided by the Custodian and at least two
access codes established by the Fund. As used herein the term "Intermediary"
shall mean a third party that maintains a transmission line to the Custodian and
has been selected by the Fund to receive electronic data transmissions from the
Custodian or the Fund and forward the same to the Fund or the Custodian,
respectively.
-4-
<PAGE> 6
ARTICLE II
APPOINTMENT OF CUSTODIAN
1. The Fund hereby constitutes and appoints the Custodian as custodian
of the Securities and moneys at any time owned by a Series during the period of
this Agreement.
2. The Custodian hereby accepts appointment as such custodian and
agrees to perform the duties thereof as hereinafter set forth.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
1. Except as otherwise provided in paragraph 7 of this Article and in
Article VIII, the Fund will deliver or cause to be delivered to the Custodian
all Securities and all moneys owned by a Series, at any time during the period
of this Agreement, and shall specify with respect to such Securities and money
the Series to which the same are specifically allocated. The Custodian shall
segregate, keep and maintain the assets of the Series separate and apart. The
Custodian will not be responsible for any Securities and moneys not actually
received by it. The Custodian will be entitled to reverse any credits made on
the Fund's behalf where such credits have been previously made and moneys are
not finally collected. The Fund shall deliver to the Custodian a certified
resolution of the Board of Trustees of the Fund, substantially in the form of
Exhibit A hereto, approving, authorizing and instructing the Custodian on a
continuous and ongoing basis to deposit in the Book-Entry System all Securities
eligible for deposit therein, regardless of the Series to which the same are
specifically allocated and to utilize the Book-Entry System to the extent
possible in connection with its performance hereunder, including, without
limitation, in connection with settlements of purchases and sales of Securities,
loans of Securities and deliveries and returns of Securities collateral. Prior
to a deposit of Securities specifically allocated to a Series in the Depository,
the Fund shall deliver to the Custodian a certified resolution of the Board of
Trustees of the Fund, substantially in the form of Exhibit B hereto, approving,
authorizing and instructing the Custodian on a continuous and ongoing basis
until instructed to the contrary by a Certificate actually received by the
Custodian to deposit in the Depository all Securities specifically allocated to
such Series eligible for deposit therein, and to utilize the Depository to the
extent possible with respect to such Securities in connection with its
performance hereunder, including, without limitation, in connection with
settlements of purchases and sales of Securities, loans of Securities, and
deliveries and returns of Securities collateral. Securities and moneys deposited
in either the Book-Entry System or the Depository
-5-
<PAGE> 7
will be represented in accounts which include only assets held by the Custodian
for customers, including, but not limited to, accounts in which the Custodian
acts in a fiduciary or representative capacity and will be specifically
allocated on the Custodian's books to the separate account for the applicable
Series. Prior to the Custodian's accepting, utilizing and acting with respect to
Clearing Member confirmations for Options and transactions in Options for a
Series as provided in this Agreement, the Custodian shall have received a
certified resolution of the Fund's Board of Trustees, substantially in the form
of Exhibit C hereto, approving, authorizing and instructing the Custodian on a
continuous and ongoing basis, until instructed to the contrary by a Certificate
actually received by the Custodian, to accept, utilize and act in accordance
with such confirmations as provided in this Agreement with respect to such
Series.
2. The Custodian shall establish and maintain separate accounts, in the
name of each Series, and shall credit to the separate account for each Series
all moneys received by it for the account of the Fund with respect to such
Series. Money credited to a separate account for a Series shall be disbursed by
the Custodian only:
(a) As hereinafter provided;
(b) Pursuant to Certificates setting forth the name and
address of the person to whom the payment is to be made, the Series account from
which payment is to be made and the purpose for which payment is to be made; or
(c) In payment of the fees and in reimbursement of the
expenses and liabilities of the Custodian attributable to such Series.
3. Promptly after the close of business on each day, the Custodian
shall furnish the Fund with confirmations and a summary, on a per Series basis,
of all transfers to or from the account of the Fund for a Series, either
hereunder or with any co-custodian or sub-custodian appointed in accordance with
this Agreement during said day. Where Securities are transferred to the account
of the Fund for a Series, the Custodian shall also by book-entry or otherwise
identify as belonging to such Series a quantity of Securities in a fungible bulk
of Securities registered in the name of the Custodian (or its nominee) or shown
on the Custodian's account on the books of the Book-Entry System or the
Depository. At least monthly and from time to time, the Custodian shall furnish
the Fund with a detailed statement, on a per Series basis, of the Securities and
moneys held by the Custodian for the Fund.
4. Except as otherwise provided in paragraph 7 of this Article and in
Article VIII, all Securities held by the Custodian hereunder, which are issued
or issuable only in bearer form, except
-6-
<PAGE> 8
such Securities as are held in the Book-Entry System, shall be held by the
Custodian in that form; all other Securities held hereunder may be registered in
the name of the Fund, in the name of any duly appointed registered nominee of
the Custodian as the Custodian may from time to time determine, or in the name
of the Book-Entry System or the Depository or their successor or successors, or
their nominee or nominees. The Fund agrees to furnish to the Custodian
appropriate instruments to enable the Custodian to hold or deliver in proper
form for transfer, or to register in the name of its registered nominee or in
the name of the Book-Entry System or the Depository any Securities which it may
hold hereunder and which may from time to time be registered in the name of the
Fund. The Custodian shall hold all such Securities specifically allocated to a
Series which are not held in the Book-Entry System or in the Depository in a
separate account in the name of such Series physically segregated at all times
from those of any other person or persons.
5. Except as otherwise provided in this Agreement and unless otherwise
instructed to the contrary by a Certificate, the Custodian by itself, or through
the use of the Book-Entry System or the Depository with respect to Securities
held hereunder and therein deposited, shall promptly and diligently with respect
to all Securities held for the Fund hereunder in accordance with preceding
paragraph 4:
(a) Collect all income due or payable;
(b) Present for payment and collect the amount payable upon
such Securities which are called, but only if either (i) the Custodian receives
a written notice of such call, or (ii) notice of such call appears in one or
more of the publications listed in Appendix C annexed hereto, which may be
amended at any time by the Custodian without the prior notification or consent
of the Fund;
(c) Present for payment and collect the amount payable
upon all Securities which mature;
(d) Surrender Securities in temporary form for defini-
tive Securities;
(e) Execute, as custodian, any necessary declarations or
certificates of ownership under the Federal Income Tax Laws or the laws or
regulations of any other taxing authority now or hereafter in effect; and
(f) Hold directly, or through the Book-Entry System or the
Depository with respect to Securities therein deposited, for the account of a
Series, all rights and similar securities issued with respect to any Securities
held by the Custodian for such Series hereunder.
-7-
<PAGE> 9
6. Upon receipt of a Certificate and not otherwise, the Custodian,
directly or through the use of the Book-Entry System or the Depository, shall:
(a) Execute and deliver to such persons as may be designated
in such Certificate proxies, consents, authorizations, and any other instruments
whereby the authority of the Fund as owner of any Securities held by the
Custodian hereunder for the Series specified in such Certificate may be
exercised;
(b) Deliver any Securities held by the Custodian hereunder for
the Series specified in such Certificate in exchange for other Securities or
cash issued or paid in connection with the liquidation, reorganization,
refinancing, merger, consolidation or recapitalization of any corporation, or
the exercise of any conversion privilege and receive and hold hereunder
specifically allocated to such Series any cash or other Securities received in
exchange;
(c) Deliver any Securities held by the Custodian hereunder for
the Series specified in such Certificate to any protective committee,
reorganization committee or other person in connection with the reorganization,
refinancing, merger, consolidation, recapitalization or sale of assets of any
corporation, and receive and hold hereunder specifically allocated to such
Series such certificates of deposit, interim receipts or other instruments or
documents as may be issued to it to evidence such delivery;
(d) Make such transfers or exchanges of the assets of the
Series specified in such Certificate, and take such other steps as shall be
stated in such Certificate to be for the purpose of effectuating any duly
authorized plan of liquidation, reorganization, merger, consolidation or
recapitalization of the Fund; and
(e) Present for payment and collect the amount payable upon
Securities not described in preceding paragraph 5(b) of this Article which may
be called as specified in the Certificate.
7. Notwithstanding any provision elsewhere contained herein, the
Custodian shall not be required to obtain possession of any instrument or
certificate representing any Futures Contract, any Option, or any Futures
Contract Option until after it shall have determined, or shall have received a
Certificate from the Fund stating, that any such instruments or certificates are
available. The Fund shall deliver to the Custodian such a Certificate no later
than the business day preceding the availability of any such instrument or
certificate. Prior to such availability, the Custodian shall comply with Section
17(f) of the Investment Company Act of 1940, as amended, in connection with the
purchase, sale, settlement, closing out or writing of Futures Contracts,
Options,
-8-
<PAGE> 10
or Futures Contract Options by making payments or deliveries specified in
Certificates received by the Custodian in connection with any such purchase,
sale, writing, settlement or closing out upon its receipt from a broker, dealer,
or futures commission merchant of a statement or confirmation reasonably
believed by the Custodian to be in the form customarily used by brokers,
dealers, or future commission merchants with respect to such Futures Contracts,
Options, or Futures Contract Options, as the case may be, confirming that such
Security is held by such broker, dealer or futures commission merchant, in
book-entry form or otherwise, in the name of the Custodian (or any nominee of
the Custodian) as custodian for the Fund, provided, however, that
notwithstanding the foregoing, payments to or deliveries from the Margin Account
and payments with respect to Securities to which a Margin Account relates, shall
be made in accordance with the terms and conditions of the Margin Account
Agreement. Whenever any such instruments or certificates are available, the
Custodian shall, notwithstanding any provision in this Agreement to the
contrary, make payment for any Futures Contract, Option, or Futures Contract
Option for which such instruments or such certificates are available only
against the delivery to the Custodian of such instrument or such certificate,
and deliver any Futures Contract, Option or Futures Contract Option for which
such instruments or such certificates are available only against receipt by the
Custodian of payment therefor. Any such instrument or certificate delivered to
the Custodian shall be held by the Custodian hereunder in accordance with, and
subject to, the provisions of this Agreement.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
OTHER THAN OPTIONS, FUTURES CONTRACTS AND
FUTURES CONTRACT OPTIONS
1. Promptly after each purchase of Securities by the Fund, other than a
purchase of an Option, a Futures Contract, or a Futures Contract Option, the
Fund shall deliver to the Custodian (i) with respect to each purchase of
Securities which are not Money Market Securities, a Certificate, and (ii) with
respect to each purchase of Money Market Securities, a Certificate or Oral
Instructions, specifying with respect to each such purchase: (a) the Series to
which such Securities are to be specifically allocated; (b) the name of the
issuer and the title of the Securities; (c) the number of shares or the
principal amount purchased and accrued interest, if any; (d) the date of
purchase and settlement; (e) the purchase price per unit; (f) the total amount
payable upon such purchase; (g) the name of the person from whom or the broker
through whom the purchase was made, and the name of the clearing broker, if any;
and (h) the name of the broker to whom payment is to be made. The Custodian
shall, upon receipt of Securities purchased by or for the Fund, pay to the
broker
-9-
<PAGE> 11
specified in the Certificate out of the moneys held for the account of such
Series the total amount payable upon such purchase, provided that the same
conforms to the total amount payable as set forth in such Certificate or Oral
Instructions.
2. Promptly after each sale of Securities by the Fund, other than a
sale of any Option, Futures Contract, Futures Contract Option, or any Reverse
Repurchase Agreement, the Fund shall deliver to the Custodian (i) with respect
to each sale of Securities which are not Money Market Securities, a Certificate,
and (ii) with respect to each sale of Money Market Securities, a Certificate or
Oral Instructions, specifying with respect to each such sale: (a) the Series to
which such Securities were specifically allocated; (b) the name of the issuer
and the title of the Security; (c) the number of shares or principal amount
sold, and accrued interest, if any; (d) the date of sale; (e) the sale price per
unit; (f) the total amount payable to the Fund upon such sale; (g) the name of
the broker through whom or the person to whom the sale was made, and the name of
the clearing broker, if any; and (h) the name of the broker to whom the
Securities are to be delivered. The Custodian shall deliver the Securities
specifically allocated to such Series to the broker specified in the Certificate
against payment upon receipt of the total amount payable to the Fund upon such
sale, provided that the same conforms to the total amount payable as set forth
in such Certificate or Oral Instructions.
ARTICLE V
OPTIONS
1. Promptly after the purchase of any Option by the Fund, the Fund
shall deliver to the Custodian a Certificate specifying with respect to each
Option purchased: (a) the Series to which such Option is specifically allocated;
(b) the type of Option (put or call); (c) the name of the issuer and the title
and number of shares subject to such Option or, in the case of a Stock Index
Option, the stock index to which such Option relates and the number of Stock
Index Options purchased; (d) the expiration date; (e) the exercise price; (f)
the dates of purchase and settlement; (g) the total amount payable by the Fund
in connection with such purchase; (h) the name of the Clearing Member through
whom such Option was purchased; and (i) the name of the broker to whom payment
is to be made. The Custodian shall pay, upon receipt of a Clearing Member's
statement confirming the purchase of such Option held by such Clearing Member
for the account of the Custodian (or any duly appointed and registered nominee
of the Custodian) as custodian for the Fund, out of moneys held for the account
of the Series to which such Option is to be specifically allocated, the total
amount payable upon such purchase to the Clearing Member through whom the
purchase was made, provided that the same conforms to the total amount payable
as set forth in such Certificate.
-10-
<PAGE> 12
2. Promptly after the sale of any Option purchased by the Fund pursuant
to paragraph 1 hereof, the Fund shall deliver to the Custodian a Certificate
specifying with respect to each such sale: (a) the Series to which such Option
was specifically allocated; (b) the type of Option (put or call); (c) the name
of the issuer and the title and number of shares subject to such Option or, in
the case of a Stock Index Option, the stock index to which such Option relates
and the number of Stock Index Options sold; (d) the date of sale; (e) the sale
price; (f) the date of settlement; (g) the total amount payable to the Fund upon
such sale; and (h) the name of the Clearing Member through whom the sale was
made. The Custodian shall consent to the delivery of the Option sold by the
Clearing Member which previously supplied the confirmation described in
preceding paragraph 1 of this Article with respect to such Option against
payment to the Custodian of the total amount payable to the Fund, provided that
the same conforms to the total amount payable as set forth in such Certificate.
3. Promptly after the exercise by the Fund of any Call Option purchased
by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the
Custodian a Certificate specifying with respect to such Call Option: (a) the
Series to which such Call Option was specifically allocated; (b) the name of the
issuer and the title and number of shares subject to the Call Option; (c) the
expiration date; (d) the date of exercise and settlement; (e) the exercise price
per share; (f) the total amount to be paid by the Fund upon such exercise; and
(g) the name of the Clearing Member through whom such Call Option was exercised.
The Custodian shall, upon receipt of the Securities underlying the Call Option
which was exercised, pay out of the moneys held for the account of the Series to
which such Call Option was specifically allocated the total amount payable to
the Clearing Member through whom the Call Option was exercised, provided that
the same conforms to the total amount payable as set forth in such Certificate.
4. Promptly after the exercise by the Fund of any Put Option purchased
by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the
Custodian a Certificate specifying with respect to such Put Option: (a) the
Series to which such Put Option was specifically allocated; (b) the name of the
issuer and the title and number of shares subject to the Put Option; (c) the
expiration date; (d) the date of exercise and settlement; (e) the exercise price
per share; (f) the total amount to be paid to the Fund upon such exercise; and
(g) the name of the Clearing Member through whom such Put Option was exercised.
The Custodian shall, upon receipt of the amount payable upon the exercise of the
Put Option, deliver or direct the Depository to deliver the Securities
specifically allocated to such Series, provided the same conforms to the amount
payable to the Fund as set forth in such Certificate.
5. Promptly after the exercise by the Fund of any Stock Index Option
purchased by the Fund pursuant to paragraph 1 hereof, the
-11-
<PAGE> 13
Fund shall deliver to the Custodian a Certificate specifying with respect to
such Stock Index Option: (a) the Series to which such Stock Index Option was
specifically allocated; (b) the type of Stock Index Option (put or call); (c)
the number of Options being exercised; (d) the stock index to which such Option
relates; (e) the expiration date; (f) the exercise price; (g) the total amount
to be received by the Fund in connection with such exercise; and (h) the
Clearing Member from whom such payment is to be received.
6. Whenever the Fund writes a Covered Call Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Covered Call Option: (a) the Series for which such Covered Call Option was
written; (b) the name of the issuer and the title and number of shares for which
the Covered Call Option was written and which underlie the same; (c) the
expiration date; (d) the exercise price; (e) the premium to be received by the
Fund; (f) the date such Covered Call Option was written; and (g) the name of the
Clearing Member through whom the premium is to be received. The Custodian shall
deliver or cause to be delivered, in exchange for receipt of the premium
specified in the Certificate with respect to such Covered Call Option, such
receipts as are required in accordance with the customs prevailing among
Clearing Members dealing in Covered Call Options and shall impose, or direct the
Depository to impose, upon the underlying Securities specified in the
Certificate specifically allocated to such Series such restrictions as may be
required by such receipts. Notwithstanding the foregoing, the Custodian has the
right, upon prior written notification to the Fund, at any time to refuse to
issue any receipts for Securities in the possession of the Custodian and not
deposited with the Depository underlying a Covered Call Option.
7. Whenever a Covered Call Option written by the Fund and described in
the preceding paragraph of this Article is exercised, the Fund shall promptly
deliver to the Custodian a Certificate instructing the Custodian to deliver, or
to direct the Depository to deliver, the Securities subject to such Covered Call
Option and specifying: (a) the Series for which such Covered Call Option was
written; (b) the name of the issuer and the title and number of shares subject
to the Covered Call Option; (c) the Clearing Member to whom the underlying
Securities are to be delivered; and (d) the total amount payable to the Fund
upon such delivery. Upon the return and/or cancellation of any receipts
delivered pursuant to paragraph 6 of this Article, the Custodian shall deliver,
or direct the Depository to deliver, the underlying Securities as specified in
the Certificate against payment of the amount to be received as set forth in
such Certificate.
8. Whenever the Fund writes a Put Option, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Put
Option: (a) the Series for which such Put Option was written; (b) the name of
the issuer and the title and number of shares for which the Put Option is
written and which
-12-
<PAGE> 14
underlie the same; (c) the expiration date; (d) the exercise price; (e) the
premium to be received by the Fund; (f) the date such Put Option is written; (g)
the name of the Clearing Member through whom the premium is to be received and
to whom a Put Option guarantee letter is to be delivered; (h) the amount of
cash, and/or the amount and kind of Securities, if any, specifically allocated
to such Series to be deposited in the Senior Security Account for such Series;
and (i) the amount of cash and/or the amount and kind of Securities specifically
allocated to such Series to be deposited into the Collateral Account for such
Series. The Custodian shall, after making the deposits into the Collateral
Account specified in the Certificate, issue a Put Option guarantee letter
substantially in the form utilized by the Custodian on the date hereof, and
deliver the same to the Clearing Member specified in the Certificate against
receipt of the premium specified in said Certificate. Notwithstanding the
foregoing, the Custodian shall be under no obligation to issue any Put Option
guarantee letter or similar document if it is unable to make any of the
representations contained therein.
9. Whenever a Put Option written by the Fund and described in the
preceding paragraph is exercised, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Put Option was
written; (b) the name of the issuer and title and number of shares subject to
the Put Option; (c) the Clearing Member from whom the underlying Securities are
to be received; (d) the total amount payable by the Fund upon such delivery; (e)
the amount of cash and/or the amount and kind of Securities specifically
allocated to such Series to be withdrawn from the Collateral Account for such
Series and (f) the amount of cash and/or the amount and kind of Securities,
specifically allocated to such Series, if any, to be withdrawn from the Senior
Security Account. Upon the return and/or cancellation of any Put Option
guarantee letter or similar document issued by the Custodian in connection with
such Put Option, the Custodian shall pay out of the moneys held for the account
of the Series to which such Put Option was specifically allocated the total
amount payable to the Clearing Member specified in the Certificate as set forth
in such Certificate against delivery of such Securities, and shall make the
withdrawals specified in such Certificate.
10. Whenever the Fund writes a Stock Index Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Stock Index Option: (a) the Series for which such Stock Index Option was
written; (b) whether such Stock Index Option is a put or a call; (c) the number
of options written; (d) the stock index to which such Option relates; (e) the
expiration date; (f) the exercise price; (g) the Clearing Member through whom
such Option was written; (h) the premium to be received by the Fund; (i) the
amount of cash and/or the amount and kind of Securities, if any, specifically
allocated to such Series to be deposited in the Senior Security Account for such
Series; (j) the
-13-
<PAGE> 15
amount of cash and/or the amount and kind of Securities, if any, specifically
allocated to such Series to be deposited in the Collateral Account for such
Series; and (k) the amount of cash and/or the amount and kind of Securities, if
any, specifically allocated to such Series to be deposited in a Margin Account,
and the name in which such account is to be or has been established. The
Custodian shall, upon receipt of the premium specified in the Certificate, make
the deposits, if any, into the Senior Security Account specified in the
Certificate, and either (1) deliver such receipts, if any, which the Custodian
has specifically agreed to issue, which are in accordance with the customs
prevailing among Clearing Members in Stock Index Options and make the deposits
into the Collateral Account specified in the Certificate, or (2) make the
deposits into the Margin Account specified in the Certificate.
11. Whenever a Stock Index Option written by the Fund and described in
the preceding paragraph of this Article is exercised, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Stock
Index Option: (a) the Series for which such Stock Index Option was written; (b)
such information as may be necessary to identify the Stock Index Option being
exercised; (c) the Clearing Member through whom such Stock Index Option is being
exercised; (d) the total amount payable upon such exercise, and whether such
amount is to be paid by or to the Fund; (e) the amount of cash and/or amount and
kind of Securities, if any, to be withdrawn from the Margin Account; and (f) the
amount of cash and/or amount and kind of Securities, if any, to be withdrawn
from the Senior Security Account for such Series; and the amount of cash and/or
the amount and kind of Securities, if any, to be withdrawn from the Collateral
Account for such Series. Upon the return and/or cancellation of the receipt, if
any, delivered pursuant to the preceding paragraph of this Article, the
Custodian shall pay out of the moneys held for the account of the Series to
which such Stock Index Option was specifically allocated to the Clearing Member
specified in the Certificate the total amount payable, if any, as specified
therein.
12. Whenever the Fund purchases any Option identical to a previously
written Option described in paragraphs 6, 8 or 10 of this Article in a
transaction expressly designated as a "Closing Purchase Transaction" in order to
liquidate its position as a writer of an Option, the Fund shall promptly deliver
to the Custodian a Certificate specifying with respect to the Option being
purchased: (a) that the transaction is a Closing Purchase Transaction; (b) the
Series for which the Option was written; (c) the name of the issuer and the
title and number of shares subject to the Option, or, in the case of a Stock
Index Option, the stock index to which such Option relates and the number of
Options held; (d) the exercise price; (e) the premium to be paid by the Fund;
(f) the expiration date; (g) the type of Option (put or call); (h) the date of
such purchase; (i) the name of the Clearing Member to whom the premium is to be
paid; and (j) the amount of cash and/or the
-14-
<PAGE> 16
amount and kind of Securities, if any, to be withdrawn from the Collateral
Account, a specified Margin Account, or the Senior Security Account for such
Series. Upon the Custodian's payment of the premium and the return and/or
cancellation of any receipt issued pursuant to paragraphs 6, 8 or 10 of this
Article with respect to the Option being liquidated through the Closing Purchase
Transaction, the Custodian shall remove, or direct the Depository to remove, the
previously imposed restrictions on the Securities underlying the Call Option.
13. Upon the expiration, exercise or consummation of a Closing Purchase
Transaction with respect to any Option purchased or written by the Fund and
described in this Article, the Custodian shall delete such Option from the
statements delivered to the Fund pursuant to paragraph 3 of Article III herein,
and upon the return and/or cancellation of any receipts issued by the Custodian,
shall make such withdrawals from the Collateral Account, and the Margin Account
and/or the Senior Security Account as may be specified in a Certificate received
in connection with such expiration, exercise, or consummation.
ARTICLE VI
FUTURES CONTRACTS
1. Whenever the Fund shall enter into a Futures Contract, the Fund
shall deliver to the Custodian a Certificate specifying with respect to such
Futures Contract, (or with respect to any number of identical Futures
Contract(s)): (a) the Series for which the Futures Contract is being entered;
(b) the category of Futures Contract (the name of the underlying stock index or
financial instrument); (c) the number of identical Futures Contracts entered
into; (d) the delivery or settlement date of the Futures Contract(s); (e) the
date the Futures Contract(s) was (were) entered into and the maturity date; (f)
whether the Fund is buying (going long) or selling (going short) on such Futures
Contract(s); (g) the amount of cash and/or the amount and kind of Securities, if
any, to be deposited in the Senior Security Account for such Series; (h) the
name of the broker, dealer, or futures commission merchant through whom the
Futures Contract was entered into; and (i) the amount of fee or commission, if
any, to be paid and the name of the broker, dealer, or futures commission
merchant to whom such amount is to be paid. The Custodian shall make the
deposits, if any, to the Margin Account in accordance with the terms and
conditions of the Margin Account Agreement. The Custodian shall make payment out
of the moneys specifically allocated to such Series of the fee or commission, if
any, specified in the Certificate and deposit in the Senior Security Account for
such Series the amount of cash and/or the amount and kind of Securities
specified in said Certificate.
-15-
<PAGE> 17
2. (a) Any variation margin payment or similar payment required to be
made by the Fund to a broker, dealer, or futures commission merchant with
respect to an outstanding Futures Contract, shall be made by the Custodian in
accordance with the terms and conditions of the Margin Account Agreement.
(b) Any variation margin payment or similar payment from a
broker, dealer, or futures commission merchant to the Fund with respect to an
outstanding Futures Contract, shall be received and dealt with by the Custodian
in accordance with the terms and conditions of the Margin Account Agreement.
3. Whenever a Futures Contract held by the Custodian hereunder is
retained by the Fund until delivery or settlement is made on such Futures
Contract, the Fund shall deliver to the Custodian a Certificate specifying: (a)
the Futures Contract and the Series to which the same relates; (b) with respect
to a Stock Index Futures Contract, the total cash settlement amount to be paid
or received, and with respect to a Financial Futures Contract, the Securities
and/or amount of cash to be delivered or received; (c) the broker, dealer, or
futures commission merchant to or from whom payment or delivery is to be made or
received; and (d) the amount of cash and/or Securities to be withdrawn from the
Senior Security Account for such Series. The custodian shall make the payment or
delivery specified in the Certificate, and delete such Futures Contract from the
statements delivered to the Fund pursuant to paragraph 3 of Article III herein.
4. Whenever the Fund shall enter into a Futures Contract to offset a
Futures Contract held by the Custodian hereunder, the Fund shall deliver to the
Custodian a Certificate specifying: (a) the items of information required in a
Certificate described in paragraph 1 of this Article, and (b) the Futures
Contract being offset. The Custodian shall make payment out of the money
specifically allocated to such Series of the fee or commission, if any,
specified in the Certificate and delete the Futures Contract being offset from
the statements delivered to the Fund pursuant to paragraph 3 of Article III
herein, and make such withdrawals from the Senior Security Account for such
Series as may be specified in such Certificate. The withdrawals, if any, to be
made from the Margin Account shall be made by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
ARTICLE VII
FUTURES CONTRACT OPTIONS
1. Promptly after the purchase of any Futures Contract Option by the
Fund, the Fund shall promptly deliver to the Custodian a Certificate specifying
with respect to such Futures Contract Option: (a) the Series to which such
Option is specifically
-16-
<PAGE> 18
allocated; (b) the type of Futures Contract Option (put or call); (c) the type
of Futures Contract and such other information as may be necessary to identify
the Futures Contract underlying the Futures Contract Option purchased; (d) the
expiration date; (e) the exercise price; (f) the dates of purchase and
settlement; (g) the amount of premium to be paid by the Fund upon such purchase;
(h) the name of the broker or futures commission merchant through whom such
option was purchased; and (i) the name of the broker, or futures commission
merchant, to whom payment is to be made. The Custodian shall pay out of the
moneys specifically allocated to such Series, the total amount to be paid upon
such purchase to the broker or futures commissions merchant through whom the
purchase was made, provided that the same conforms to the amount set forth in
such Certificate.
2. Promptly after the sale of any Futures Contract Option purchased by
the Fund pursuant to paragraph 1 hereof, the Fund shall promptly deliver to the
Custodian a Certificate specifying with respect to each such sale: (a) Series to
which such Futures Contract Option was specifically allocated; (b) the type of
Futures Contract Option (put or call); (c) the type of Futures Contract and such
other information as may be necessary to identify the Futures Contract
underlying the Futures Contract Option; (d) the date of sale; (e) the sale
price; (f) the date of settlement; (g) the total amount payable to the Fund upon
such sale; and (h) the name of the broker or futures commission merchant through
whom the sale was made. The Custodian shall consent to the cancellation of the
Futures Contract Option being closed against payment to the Custodian of the
total amount payable to the Fund, provided the same conforms to the total amount
payable as set forth in such Certificate.
3. Whenever a Futures Contract Option purchased by the Fund pursuant to
paragraph 1 is exercised by the Fund, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Futures
Contract Option was specifically allocated; (b) the particular Futures Contract
Option (put or call) being exercised; (c) the type of Futures Contract
underlying the Futures Contract Option; (d) the date of exercise; (e) the name
of the broker or futures commission merchant through whom the Futures Contract
Option is exercised; (f) the net total amount, if any, payable by the Fund; (g)
the amount, if any, to be received by the Fund; and (h) the amount of cash
and/or the amount and kind of Securities to be deposited in the Senior Security
Account for such Series. The Custodian shall make, out of the moneys and
Securities specifically allocated to such Series, the payments, if any, and the
deposits, if any, into the Senior Security Account as specified in the
Certificate. The deposits, if any, to be made to the Margin Account shall be
made by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
-17-
<PAGE> 19
4. Whenever the Fund writes a Futures Contract Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Futures Contract Option: (a) the Series for which such Futures Contract Option
was written; (b) the type of Futures Contract Option (put or call); (c) the type
of Futures Contract and such other information as may be necessary to identify
the Futures Contract underlying the Futures Contract Option; (d) the expiration
date; (e) the exercise price; (f) the premium to be received by the Fund; (g)
the name of the broker or futures commission merchant through whom the premium
is to be received; and (h) the amount of cash and/or the amount and kind of
Securities, if any, to be deposited in the Senior Security Account for such
Series. The Custodian shall, upon receipt of the premium specified in the
Certificate, make out of the moneys and Securities specifically allocated to
such Series the deposits into the Senior Security Account, if any, as specified
in the Certificate. The deposits, if any, to be made to the Margin Account shall
be made by the Custodian in accordance with the terms and conditions of the
Margin Account Agreement.
5. Whenever a Futures Contract Option written by the Fund which is a
call is exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series to which such Futures Contract Option was
specifically allocated; (b) the particular Futures Contract Option exercised;
(c) the type of Futures Contract underlying the Futures Contract Option; (d) the
name of the broker or futures commission merchant through whom such Futures
Contract Option was exercised; (e) the net total amount, if any, payable to the
Fund upon such exercise; (f) the net total amount, if any, payable by the Fund
upon such exercise; and (g) the amount of cash and/or the amount and kind of
Securities to be deposited in the Senior Security Account for such Series. The
Custodian shall, upon its receipt of the net total amount payable to the Fund,
if any, specified in such Certificate make the payments, if any, and the
deposits, if any, into the Senior Security Account as specified in the
Certificate. The deposits, if any, to be made to the Margin Account shall be
made by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
6. Whenever a Futures Contract Option which is written by the Fund and
which is a put is exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series to which such Option was specifically
allocated; (b) the particular Futures Contract Option exercised; (c) the type of
Futures Contract underlying such Futures Contract Option; (d) the name of the
broker or futures commission merchant through whom such Futures Contract Option
is exercised; (e) the net total amount, if any, payable to the Fund upon such
exercise; (f) the net total amount, if any, payable by the Fund upon such
exercise; and (g) the amount and kind of Securities and/or cash to be withdrawn
from or deposited in, the Senior Security Account for such Series, if any. The
Custodian
-18-
<PAGE> 20
shall, upon its receipt of the net total amount payable to the Fund, if any,
specified in the Certificate, make out of the moneys and Securities specifically
allocated to such Series, the payments, if any, and the deposits, if any, into
the Senior Security Account as specified in the Certificate. The deposits to
and/or withdrawals from the Margin Account, if any, shall be made by the
Custodian in accordance with the terms and conditions of the Margin Account
Agreement.
7. Whenever the Fund purchases any Futures Contract Option identical to
a previously written Futures Contract Option described in this Article in order
to liquidate its position as a writer of such Futures Contract Option, the Fund
shall promptly deliver to the Custodian a Certificate specifying with respect to
the Futures Contract Option being purchased: (a) the Series to which such Option
is specifically allocated; (b) that the transaction is a closing transaction;
(c) the type of Futures Contract and such other information as may be necessary
to identify the Futures Contract underlying the Futures Option Contract; (d) the
exercise price; (e) the premium to be paid by the Fund; (f) the expiration date;
(g) the name of the broker or futures commission merchant to whom the premium is
to be paid; and (h) the amount of cash and/or the amount and kind of Securities,
if any, to be withdrawn from the Senior Security Account for such Series. The
Custodian shall effect the withdrawals from the Senior Security Account
specified in the Certificate. The withdrawals, if any, to be made from the
Margin Account shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
8. Upon the expiration, exercise, or consummation of a closing
transaction with respect to, any Futures Contract Option written or purchased by
the Fund and described in this Article, the Custodian shall (a) delete such
Futures Contract Option from the statements delivered to the Fund pursuant to
paragraph 3 of Article III herein and, (b) make such withdrawals from and/or in
the case of an exercise such deposits into the Senior Security Account as may be
specified in a Certificate. The deposits to and/or withdrawals from the Margin
Account, if any, shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
9. Futures Contracts acquired by the Fund through the exercise of a
Futures Contract Option described in this Article shall be subject to Article VI
hereof.
ARTICLE VIII
SHORT SALES
1. Promptly after any short sales by any Series of the Fund,
the Fund shall promptly deliver to the Custodian a Certificate
specifying: (a) the Series for which such short sale was made; (b)
-19-
<PAGE> 21
the name of the issuer and the title of the Security; (c) the number of shares
or principal amount sold, and accrued interest or dividends, if any; (d) the
dates of the sale and settlement; (e) the sale price per unit; (f) the total
amount credited to the Fund upon such sale, if any, (g) the amount of cash
and/or the amount and kind of Securities, if any, which are to be deposited in a
Margin Account and the name in which such Margin Account has been or is to be
established; (h) the amount of cash and/or the amount and kind of Securities, if
any, to be deposited in a Senior Security Account, and (i) the name of the
broker through whom such short sale was made. The Custodian shall upon its
receipt of a statement from such broker confirming such sale and that the total
amount credited to the Fund upon such sale, if any, as specified in the
Certificate is held by such broker for the account of the Custodian (or any
nominee of the Custodian) as custodian of the Fund, issue a receipt or make the
deposits into the Margin Account and the Senior Security Account specified in
the Certificate.
2. In connection with the closing-out of any short sale, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to each
such closing out: (a) the Series for which such transaction is being made; (b)
the name of the issuer and the title of the Security; (c) the number of shares
or the principal amount, and accrued interest or dividends, if any, required to
effect such closing-out to be delivered to the broker; (d) the dates of
closing-out and settlement; (e) the purchase price per unit; (f) the net total
amount payable to the Fund upon such closing-out; (g) the net total amount
payable to the broker upon such closing-out; (h) the amount of cash and the
amount and kind of Securities to be withdrawn, if any, from the Margin Account;
(i) the amount of cash and/or the amount and kind of Securities, if any, to be
withdrawn from the Senior Security Account; and (j) the name of the broker
through whom the Fund is effecting such closing-out. The Custodian shall, upon
receipt of the net total amount payable to the Fund upon such closing-out, and
the return and/or cancellation of the receipts, if any, issued by the Custodian
with respect to the short sale being closed-out, pay out of the moneys held for
the account of the Fund to the broker the net total amount payable to the
broker, and make the withdrawals from the Margin Account and the Senior Security
Account, as the same are specified in the Certificate.
ARTICLE IX
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters a Reverse Repurchase Agreement with
respect to Securities and money held by the Custodian hereunder, the Fund shall
deliver to the Custodian a Certificate, or in the event such Reverse Repurchase
Agreement is a Money Market Security, a Certificate or Oral Instructions
specifying: (a) the Series for which the Reverse Repurchase
-20-
<PAGE> 22
Agreement is entered; (b) the total amount payable to the Fund in connection
with such Reverse Repurchase Agreement and specifically allocated to such
Series; (c) the broker or dealer through or with whom the Reverse Repurchase
Agreement is entered; (d) the amount and kind of Securities to be delivered by
the Fund to such broker or dealer; (e) the date of such Reverse Repurchase
Agreement; and (f) the amount of cash and/or the amount and kind of Securities,
if any, specifically allocated to such Series to be deposited in a Senior
Security Account for such Series in connection with such Reverse Repurchase
Agreement. The Custodian shall, upon receipt of the total amount payable to the
Fund specified in the Certificate or Oral Instructions make the delivery to the
broker or dealer, and the deposits, if any, to the Senior Security Account,
specified in such Certificate or Oral Instructions.
2. Upon the termination of a Reverse Repurchase Agreement described in
preceding paragraph 1 of this Article, the Fund shall promptly deliver a
Certificate or, in the event such Reverse Repurchase Agreement is a Money Market
Security, a Certificate or Oral Instructions to the Custodian specifying: (a)
the Reverse Repurchase Agreement being terminated and the Series for which same
was entered; (b) the total amount payable by the Fund in connection with such
termination; (c) the amount and kind of Securities to be received by the Fund
and specifically allocated to such Series in connection with such termination;
(d) the date of termination; (e) the name of the broker or dealer with or
through whom the Reverse Repurchase Agreement is to be terminated; and (f) the
amount of cash and/or the amount and kind of Securities to be withdrawn from the
Senior Securities Account for such Series. The Custodian shall, upon receipt of
the amount and kind of Securities to be received by the Fund specified in the
Certificate or Oral Instructions, make the payment to the broker or dealer, and
the withdrawals, if any, from the Senior Security Account, specified in such
Certificate or Oral Instructions.
ARTICLE X
LOAN OF PORTFOLIO SECURITIES OF THE FUND
1. Promptly after each loan of portfolio Securities specifically
allocated to a Series held by the Custodian hereunder, the Fund shall deliver or
cause to be delivered to the Custodian a Certificate specifying with respect to
each such loan: (a) the Series to which the loaned Securities are specifically
allocated; (b) the name of the issuer and the title of the Securities, (c) the
number of shares or the principal amount loaned, (d) the date of loan and
delivery, (e) the total amount to be delivered to the Custodian against the loan
of the Securities, including the amount of cash collateral and the premium, if
any, separately identified, and (f) the name of the broker, dealer, or financial
institution to which the loan was made. The Custodian shall deliver the
-21-
<PAGE> 23
Securities thus designated to the broker, dealer or financial institution to
which the loan was made upon receipt of the total amount designated as to be
delivered against the loan of Securities. The Custodian may accept payment in
connection with a delivery otherwise than through the Book-Entry System or
Depository only in the form of a certified or bank cashier's check payable to
the order of the Fund or the Custodian drawn on New York Clearing House funds
and may deliver Securities in accordance with the customs prevailing among
dealers in securities.
2. Promptly after each termination of the loan of Securities by the
Fund, the Fund shall deliver or cause to be delivered to the Custodian a
Certificate specifying with respect to each such loan termination and return of
Securities: (a) the Series to which the loaned Securities are specifically
allocated; (b) the name of the issuer and the title of the Securities to be
returned, (c) the number of shares or the principal amount to be returned, (d)
the date of termination, (e) the total amount to be delivered by the Custodian
(including the cash collateral for such Securities minus any offsetting credits
as described in said Certificate), and (f) the name of the broker, dealer, or
financial institution from which the Securities will be returned. The Custodian
shall receive all Securities returned from the broker, dealer, or financial
institution to which such Securities were loaned and upon receipt thereof shall
pay, out of the moneys held for the account of the Fund, the total amount
payable upon such return of Securities as set forth in the Certificate.
ARTICLE XI
CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY
ACCOUNTS, AND COLLATERAL ACCOUNTS
1. The Custodian shall, from time to time, make such deposits to, or
withdrawals from, a Senior Security Account as specified in a Certificate
received by the Custodian. Such Certificate shall specify the Series for which
such deposit or withdrawal is to be made and the amount of cash and/or the
amount and kind of Securities specifically allocated to such Series to be
deposited in, or withdrawn from, such Senior Security Account for such Series.
In the event that the Fund fails to specify in a Certificate the Series, the
name of the issuer, the title and the number of shares or the principal amount
of any particular Securities to be deposited by the Custodian into, or withdrawn
from, a Senior Securities Account, the Custodian shall be under no obligation to
make any such deposit or withdrawal and shall so notify the Fund.
2. The Custodian shall make deliveries or payments from a Margin
Account to the broker, dealer, futures commission merchant or Clearing Member in
whose name, or for whose benefit, the account was established as specified in
the Margin Account Agreement.
-22-
<PAGE> 24
3. Amounts received by the Custodian as payments or distributions with
respect to Securities deposited in any Margin Account shall be dealt with in
accordance with the terms and conditions of the Margin Account Agreement.
4. The Custodian shall have a continuing lien and security interest in
and to any property at any time held by the Custodian in any Collateral Account
described herein. In accordance with applicable law the Custodian may enforce
its lien and realize on any such property whenever the Custodian has made
payment or delivery pursuant to any Put Option guarantee letter or similar
document or any receipt issued hereunder by the Custodian. In the event the
Custodian should realize on any such property net proceeds which are less than
the Custodian's obligations under any Put Option guarantee letter or similar
document or any receipt, such deficiency shall be a debt owed the Custodian by
the Fund within the scope of Article XIV herein.
5. On each business day the Custodian shall furnish the Fund with a
statement with respect to each Margin Account in which money or Securities are
held specifying as of the close of business on the previous business day: (a)
the name of the Margin Account; (b) the amount and kind of Securities held
therein; and (c) the amount of money held therein. The Custodian shall make
available upon request to any broker, dealer, or futures commission merchant
specified in the name of a Margin Account a copy of the statement furnished the
Fund with respect to such Margin Account.
6. Promptly after the close of business on each business day in which
cash and/or Securities are maintained in a Collateral Account for any Series,
the Custodian shall furnish the Fund with a statement with respect to such
Collateral Account specifying the amount of cash and/or the amount and kind of
Securities held therein. No later than the close of business next succeeding the
delivery to the Fund of such statement, the Fund shall furnish to the Custodian
a Certificate specifying the then market value of the Securities described in
such statement. In the event such then market value is indicated to be less than
the Custodian's obligation with respect to any outstanding Put Option guarantee
letter or similar document, the Fund shall promptly specify in a Certificate the
additional cash and/or Securities to be deposited in such Collateral Account to
eliminate such deficiency.
ARTICLE XII
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Fund shall furnish to the Custodian a copy of the resolution of
the Board of Trustees of the Fund, certified by the Secretary, the Clerk, any
Assistant Secretary or any Assistant Clerk, either (i) setting forth with
respect to the Series specified therein the date of the declaration of a
dividend or
-23-
<PAGE> 25
distribution, the date of payment thereof, the record date as of which
shareholders entitled to payment shall be determined, the amount payable per
Share of such Series to the shareholders of record as of that date and the total
amount payable to the Dividend Agent and any sub-dividend agent or co-dividend
agent of the Fund on the payment date, or (ii) authorizing with respect to the
Series specified therein the declaration of dividends and distributions on a
daily basis and authorizing the Custodian to rely on Oral Instructions or a
Certificate setting forth the date of the declaration of such dividend or
distribution, the date of payment thereof, the record date as of which
shareholders entitled to payment shall be determined, the amount payable per
Share of such Series to the shareholders of record as of that date and the total
amount payable to the Dividend Agent on the payment date.
2. Upon the payment date specified in such resolution, Oral
Instructions or Certificate, as the case may be, the Custodian shall pay out-of
the moneys held for the account of each Series the total amount payable to the
Dividend Agent and any sub-dividend agent or co-dividend agent of the Fund with
respect to such Series.
ARTICLE XIII
SALE AND REDEMPTION OF SHARES
1. Whenever the Fund shall sell any Shares, it shall deliver to the
Custodian a Certificate duly specifying:
(a) The Series, the number of Shares sold, trade date, and
price; and
(b) The amount of money to be received by the Custodian for
the sale of such Shares and specifically allocated to the separate account in
the name of such Series.
2. Upon receipt of such money from the Transfer Agent, the Custodian
shall credit such money to the separate account in the name of the Series for
which such money was received.
3. Upon issuance of any Shares of any Series described in the foregoing
provisions of this Article, the Custodian shall pay, out of the money held for
the account of such Series, all original issue or other taxes required to be
paid by the Fund in connection with such issuance upon the receipt of a
Certificate specifying the amount to be paid.
4. Except as provided hereinafter, whenever the Fund desires the
Custodian to make payment out of the money held by the Custodian hereunder in
connection with a redemption of any Shares, it shall furnish to the Custodian a
Certificate specifying:
-24-
<PAGE> 26
(a) The number and Series of Shares redeemed; and
(b) The amount to be paid for such Shares.
5. Upon receipt from the Transfer Agent of an advice setting forth the
Series and number of Shares received by the Transfer Agent for redemption and
that such Shares are in good form for redemption, the Custodian shall make
payment to the Transfer Agent out of the moneys held in the separate account in
the name of the Series the total amount specified in the Certificate issued
pursuant to the foregoing paragraph 4 of this Article.
6. Notwithstanding the above provisions regarding the redemption of any
Shares, whenever any Shares are redeemed pursuant to any check redemption
privilege which may from time to time be offered by the Fund, the Custodian,
unless otherwise instructed by a Certificate, shall, upon receipt of an advice
from the Fund or its agent setting forth that the redemption is in good form for
redemption in accordance with the check redemption procedure, honor the check
presented as part of such check redemption privilege out of the moneys held in
the separate account of the Series of the Shares being redeemed.
ARTICLE XIV
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian, should in its sole discretion advance funds on
behalf of any Series which results in an overdraft because the moneys held by
the Custodian in the separate account for such Series shall be insufficient to
pay the total amount payable upon a purchase of Securities specifically
allocated to such Series, as set forth in a Certificate or Oral Instructions, or
which results in an overdraft in the separate account of such Series for some
other reason, or if the Fund is indebted to The Bank of New York under the
Fund's Cash Management and Related Services Agreement (except a borrowing for
investment or for temporary or emergency purposes using Securities as collateral
pursuant to a separate agreement and subject to the provisions of paragraph 2 of
this Article), such overdraft or indebtedness shall be deemed to be a loan made
by the Custodian to the Fund for such Series payable on demand and shall bear
interest from the date incurred at a rate per annum (based on a 360-day year for
the actual number of days involved) equal to 1/2% over Custodian's prime
commercial lending rate in effect from time to time, such rate to be adjusted on
the effective date of any change in such prime commercial lending rate but in no
event to be less than 6% per annum. In addition, the Fund hereby agrees that the
Custodian shall have a continuing and enforceable lien and security interest in
and to any property specifically allocated to such Series at any time held by it
for the benefit of such Series or in which the Series may have an interest which
is then in the Custodian's possession or control or
-25-
<PAGE> 27
in possession or control of any third party acting in the Custodian's behalf,
having at the time such overdraft or indebtedness is incurred a fair market
value equal to 150% of such overdraft or indebtedness. The Fund authorizes the
Custodian, in its sole discretion, at any time to charge any such overdraft or
indebtedness together with interest due thereon against any balance of account
standing to such Series' credit on the Custodian's books. In addition, the Fund
hereby covenants that on each Business Day on which either it intends to enter a
Reverse Repurchase Agreement and/or otherwise borrow from a third party, or
which next succeeds a Business Day on which at the close of business the Fund
had outstanding a Reverse Repurchase Agreement or such a borrowing, it shall
prior to 9 a.m., New York City time, advise the Custodian, in writing, of each
such borrowing, shall specify the Series to which the same relates, and shall
not incur any indebtedness not so specified other than from the Custodian.
2. The Fund will cause to be delivered to the Custodian by any bank
(including, if the borrowing is pursuant to a separate agreement, the Custodian)
from which it borrows money for investment or for temporary or emergency
purposes using Securities held by the Custodian hereunder as collateral for such
borrowings, a notice or undertaking in the form currently employed by any such
bank setting forth the amount which such bank will loan to the Fund against
delivery of a stated amount of collateral. The Fund shall promptly deliver to
the Custodian a Certificate specifying with respect to each such borrowing: (a)
the Series to which such borrowing relates; (b) the name of the bank, (c) the
amount and terms of the borrowing, which may be set forth by incorporating by
reference an attached promissory note, duly endorsed by the Fund, or other loan
agreement, (d) the time and date, if known, on which the loan is to be entered
into, (e) the date on which the loan becomes due and payable, (f) the total
amount payable to the Fund on the borrowing date, (g) the market value of
Securities to be delivered as collateral for such loan, including the name of
the issuer, the title and the number of shares or the principal amount of any
particular Securities, and (h) a statement specifying whether such loan is for
investment purposes or for temporary or emergency purposes and that such loan is
in conformance with the Investment Company Act of 1940 and the Fund's
prospectus. The Custodian shall deliver on the borrowing date specified in a
Certificate the specified collateral and the executed promissory note, if any,
against delivery by the lending bank of the total amount of the loan payable,
provided that the same conforms to the total amount payable as set forth in the
Certificate. The Custodian may, at the option of the lending bank, keep such
collateral in its possession, but such collateral shall be subject to all rights
therein given the lending bank by virtue of any promissory note or loan
agreement. The Custodian shall deliver such Securities as additional collateral
as may be specified in a Certificate to collateralize further any transaction
described in this paragraph. The Fund shall cause all Securities released from
-26-
<PAGE> 28
collateral status to be returned directly to the Custodian, and the Custodian
shall receive from time to time such return of collateral as may be tendered to
it. In the event that the Fund fails to specify in a Certificate the Series, the
name of the issuer, the title and number of shares or the principal amount of
any particular Securities to be delivered as collateral by the Custodian, the
Custodian shall not be under any obligation to deliver any Securities.
ARTICLE XV
TERMINAL LINK
1. At no time and under no circumstances shall the Fund be obligated to
have or utilize the Terminal Link, and the provisions of this Article shall
apply if, but only if, the Fund in its sole and absolute discretion elects to
utilize the Terminal Link to transmit Certificates to the Custodian.
2. The Terminal Link shall be utilized by the Fund only for the purpose
of the Fund providing Certificates to the Custodian with respect to transactions
involving Securities or for the transfer of money to be applied to the payment
of dividends, distributions or redemptions of Fund Shares, and shall be utilized
by the Custodian only for the purpose of providing notices to the Fund. Such use
shall commence only after the Fund shall have delivered to the Custodian a
Certificate substantially in the form of Exhibit D and shall have established
access codes and safekeeping procedures to safeguard and protect the
confidentiality and availability of such access codes and shall have reviewed
the safekeeping procedures established by the Intermediary to assure that
transmissions inputted by the Fund, and only such transmissions, are forwarded
by the Intermediary to the Custodian without any alteration or omission. Each
use of the Terminal Link by the Fund shall constitute a representation and
warranty that the Terminal Link is being used only for the purposes permitted
hereby, that at least two Officers have each utilized an access code, that such
safekeeping procedures have been established by the Fund, that the Intermediary
has safekeeping procedures reviewed by the Fund to assure that all transmissions
inputted by the Fund, and only such transmissions, are forwarded by the
Intermediary to the Custodian without any alteration or omission by the
Intermediary, and that such use does not contravene the Investment Company Act
of 1940, as amended, or the rules or regulations thereunder.
3. The Fund shall obtain and maintain at its own cost and expense all
equipment and services, including, but not limited to communications services,
necessary for it to utilize the Terminal Link, and the Custodian shall not be
responsible for the reliability or availability of any such equipment or
services.
-27-
<PAGE> 29
4. The Fund acknowledges that any data bases made available as part of,
or through the Terminal Link and any proprietary data, software, processes,
information and documentation (other than any such which are or become part of
the public domain or are legally required to be made available to the public)
(collectively, the "Information"), are the exclusive and confidential property
of the Custodian. The Fund shall, and shall cause others to which it discloses
the Information, including, without limitation the Intermediary, to keep the
Information confidential by using the same care and discretion it uses with
respect to its own confidential property and trade secrets, and shall neither
make nor permit any disclosure without the express prior written consent of the
Custodian.
5. Upon termination of this Agreement for any reason, the Fund shall
return to the Custodian any and all copies of the Information which are in the
Fund's possession or under its control, or which the Fund distributed to third
parties, including, without limitation, the Intermediary. The provisions of this
Article shall not affect the copyright status of any of the Information which
may be copyrighted and shall apply to all Information whether or not
copyrighted.
6. The Custodian reserves the right to modify the Terminal Link from
time to time without notice to the Fund or the Intermediary except that the
Custodian shall give the Fund notice not less than 75 days in advance of any
modification which would materially adversely affect the Fund's operation, and
the Fund agrees that neither the Fund nor the Intermediary shall modify or
attempt to modify the Terminal Link without the Custodian's prior written
consent. The Fund acknowledges that any software or procedures provided the Fund
or the Intermediary as part of the Terminal Link are the property of the
Custodian and, accordingly, the Fund agrees that any modifications to the
Terminal Link, whether by the Fund, the Intermediary or by the Custodian and
whether with or without the Custodian's consent, shall become the property of
the Custodian.
7. Neither the Custodian nor any manufacturers and suppliers it
utilizes or the Fund or the Intermediary utilizes in connection with the
Terminal Link makes any warranties or representations, express or implied, in
fact or in law, including but not limited to warranties of merchantability and
fitness for a particular purpose.
8. The Fund will cause its Officers and employees to treat the
authorization codes and the access codes applicable to Terminal Link with
extreme care, and irrevocably authorizes the Custodian to act in accordance with
and rely on Certificates received by it through the Terminal Link. The Fund
acknowledges that it is its responsibility to assure that only its Officers and
authorized persons of the Intermediary use the Terminal Link on its behalf, and
that a Custodian shall not be responsible nor liable for use of the Terminal
Link on the Fund's behalf by persons other than such
-28-
<PAGE> 30
persons or Officers, or by only a single Officer, nor for any alteration,
omission, or failure to promptly forward by the Intermediary.
9. The Custodian shall have no liability for any losses, damages,
injuries, claims, costs or expenses arising out of or in connection with any
hardware or software failure or malfunction of the Terminal Link, unless first,
such failure or malfunction is the direct result of the negligence of the
Custodian, and, second the Fund has both (a) complied with the provisions of
Section 11 of this Article, and (b) mitigated its damages by using either
Certificates delivered otherwise than through the Terminal Link or, where
appropriate, Oral Instructions. If the Custodian is liable for any such failure
or malfunction incident, its liability shall be limited to direct money damages
not exceeding $25,000.
10. Without limiting the generality of the foregoing, in no event shall
the Custodian or any manufacturer or supplier of its computer equipment,
software or services relating to the Terminal Link be responsible for any
special, indirect, incidental or consequential damages which the Fund or the
Intermediary may incur or experience by reason of its use of the Terminal Link
even if the Custodian or any manufacturer or supplier has been advised of the
possibility of such damages, nor with respect to the use of the Terminal Link
shall the Custodian or any such manufacturer or supplier be liable for acts of
God, or with respect to the following to the extent beyond such person's
reasonable control: machine or computer breakdown or malfunction, interruption
or malfunction of communication facilities, labor difficulties or any other
similar or dissimilar cause.
11. The Fund shall notify the Custodian of any errors, omissions or
interruptions in, or delay or unavailability of, the Terminal Link as promptly
as practicable, and in any event within 24 hours after the earliest of (i)
discovery thereof, (ii) the Business Day on which discovery should have occurred
through the exercise of reasonable care and (iii) in the case of any error, the
date of actual receipt of the earliest notice which reflects such error, it
being agreed that discovery and receipt of notice may only occur on a business
day. The Custodian shall promptly advise the Fund or the Intermediary whenever
the Custodian learns of any errors, omissions or interruption in, or delay or
unavailability of, the Terminal Link.
12. The Custodian shall acknowledge to the Fund or to the Intermediary,
by use of the Terminal Link, receipt of each Certificate the Custodian receives
through the Terminal Link, and in the absence of such acknowledgment, the
Custodian shall not be liable for any failure to act in accordance with such
Certificate and the Fund may not claim that such Certificate was received by the
Custodian. Such verification, which may occur after the Custodian has acted upon
such Certificate, shall be accomplished on the same day on which such
Certificate is received.
-29-
<PAGE> 31
ARTICLE XVI
DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY
OF ANY SERIES HELD OUTSIDE OF THE UNITED STATES
1. The Custodian is authorized and instructed to employ, as
sub-custodian for each Series' Foreign Securities (as such term is defined in
paragraph (c)(1) of Rule 17f-5 under the Investment Company Act of 1940, as
amended) and other assets, the foreign banking institutions and foreign
securities depositories and clearing agencies designated on Schedule I hereto
("Foreign Sub-Custodians") to carry out their respective responsibilities in
accordance with the terms of the sub-custodian agreement between each such
Foreign Sub-Custodian and the Custodian, copies of which have been previously
delivered to the Fund and receipt of which is hereby acknowledged (each such
agreement, a "Foreign Sub-Custodian Agreement"). Upon receipt of a Certificate,
together with a certified resolution substantially in the form attached as
Exhibit E of the Fund's Board of Trustees, the Fund may designate any additional
foreign sub-custodian with which the Custodian has an agreement for such entity
to act as the Custodian's agent, as its sub-custodian and any such additional
foreign sub-custodian shall be deemed added to Schedule I. Upon receipt of a
Certificate from the Fund, the Custodian shall cease the employment of any one
or more Foreign Sub-Custodians for maintaining custody of the Fund's assets and
such Foreign Sub-Custodian shall be deemed deleted from Schedule I.
2. Each Foreign Sub-Custodian Agreement shall be substantially in the
form previously delivered to the Fund and will not be amended in a way that
materially adversely affects the Fund without the Fund's prior written consent.
3. The Custodian shall identify on its books as belonging to each
Series of the Fund the Foreign Securities of such Series held by each Foreign
Sub-Custodian. At the election of the Fund, it shall be entitled to be
subrogated to the rights of the Custodian with respect to any claims by the Fund
or any Series against a Foreign Sub-Custodian as a consequence of any loss,
damage, cost, expense, liability or claim sustained or incurred by the Fund or
any Series if and to the extent that the Fund or such Series has not been made
whole for any such loss, damage, cost, expense, liability or claim.
4. Upon request of the Fund, the Custodian will, consistent with the
terms of the applicable Foreign Sub-Custodian Agreement, use reasonable efforts
to arrange for the independent accountants of the Fund to be afforded access to
the books and records of any Foreign Sub-Custodian insofar as such books and
records relate to the performance of such Foreign Sub-Custodian under its
agreement with the Custodian on behalf of the Fund.
-30-
<PAGE> 32
5. The Custodian will supply to the Fund from time to time, as mutually
agreed upon, statements in respect of the securities and other assets of each
Series held by Foreign Sub-Custodians, including but not limited to, an
identification of entities having possession of each Series' Foreign Securities
and other assets, and advices or notifications of any transfers of Foreign
Securities to or from each custodial account maintained by a Foreign
Sub-Custodian for the Custodian on behalf of the Series.
6. The Custodian shall furnish annually to the Fund, as mutually agreed
upon, information concerning the Foreign Sub-Custodians employed by the
Custodian. Such information shall be similar in kind and scope to that furnished
to the Fund in connection with the Fund's initial approval of such Foreign
Sub-Custodians and, in any event, shall include information pertaining to (i)
the Foreign Custodians' financial strength, general reputation and standing in
the countries in which they are located and their ability to provide the
custodial services required, and (ii) whether the Foreign Sub-Custodians would
provide a level of safeguards for safekeeping and custody of securities not
materially different from those prevailing in the United States. The Custodian
shall monitor the general operating performance of each Foreign Sub-Custodian.
The Custodian agrees that it will use reasonable care in monitoring compliance
by each Foreign Sub-Custodian with the terms of the relevant Foreign
Sub-Custodian Agreement and that if it learns of any breach of such Foreign
Sub-Custodian Agreement believed by the Custodian to have a material adverse
effect on the Fund or any Series it will promptly notify the Fund of such
breach. The Custodian also agrees to use reasonable and diligent efforts to
enforce its rights under the relevant Foreign Sub-Custodian Agreement.
7. The Custodian shall transmit promptly to the Fund all notices,
reports or other written information received pertaining to the Fund's Foreign
Securities, including without limitation, notices of corporate action, proxies
and proxy solicitation materials.
8. Notwithstanding any provision of this Agreement to the contrary,
settlement and payment for securities received for the account of any Series and
delivery of securities maintained for the account of such Series may be effected
in accordance with the customary or established securities trading or securities
processing practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivery of securities to the
purchaser thereof or to a dealer therefor (or an agent for such purchaser or
dealer) against a receipt with the expectation of receiving later payment for
such securities from such purchaser or dealer.
9. Notwithstanding any other provision in this Agreement to the
contrary, with respect to any losses or damages arising out of or relating to
any actions or omissions of any Foreign
-31-
<PAGE> 33
Sub-Custodian the sole responsibility and liability of the Custodian shall be to
take appropriate action at the Fund's expense to recover such loss or damage
from the Foreign Sub-Custodian. It is expressly understood and agreed that the
Custodian's sole responsibility and liability shall be limited to amounts so
recovered from the Foreign Sub-Custodian.
ARTICLE XVII
CONCERNING THE CUSTODIAN
1. Except as hereinafter provided, or as provided in Article XVI
neither the Custodian nor its nominee shall be liable for any loss or damage,
including counsel fees, resulting from its action or omission to act or
otherwise, either hereunder or under any Margin Account Agreement, except for
any such loss or damage arising out of its own negligence or willful misconduct.
In no event shall the Custodian be liable to the Fund or any third party for
special, indirect or consequential damages or lost profits or loss of business,
arising under or in connection with this Agreement, even if previously informed
of the possibility of such damages and regardless of the form of action. The
Custodian may, with respect to questions of law arising hereunder or under any
Margin Account Agreement, apply for and obtain the advice and opinion of counsel
to the Fund or of its own counsel, at the expense of the Fund, and shall be
fully protected with respect to anything done or omitted by it in good faith in
conformity with such advice or opinion. The Custodian shall be liable to the
Fund for any loss or damage resulting from the use of the Book-Entry System or
any Depository arising by reason of any negligence or willful misconduct on the
part of the Custodian or any of its employees or agents.
2. Without limiting the generality of the foregoing, the Custodian
shall be under no obligation to inquire into, and shall not be liable for:
(a) The validity of the issue of any Securities purchased,
sold, or written by or for the Fund, the legality of the purchase, sale or
writing thereof, or the propriety of the amount paid or received therefor;
(b) The legality of the sale or redemption of any Shares, or
the propriety of the amount to be received or paid therefor;
(c) The legality of the declaration or payment of any
dividend by the Fund;
(d) The legality of any borrowing by the Fund using
Securities as collateral;
-32-
<PAGE> 34
(e) The legality of any loan of portfolio Securities, nor
shall the Custodian be under any duty or obligation to see to it that any cash
collateral delivered to it by a broker, dealer, or financial institution or held
by it at any time as a result of such loan of portfolio Securities of the Fund
is adequate collateral for the Fund against any loss it might sustain as a
result of such loan. The Custodian specifically, but not by way of limitation,
shall not be under any duty or obligation periodically to check or notify the
Fund that the amount of such cash collateral held by it for the Fund is
sufficient collateral for the Fund, but such duty or obligation shall be the
sole responsibility of the Fund. In addition, the Custodian shall be under no
duty or obligation to see that any broker, dealer or financial institution to
which portfolio Securities of the Fund are lent pursuant to Article XIV of this
Agreement makes payment to it of any dividends or interest which are payable to
or for the account of the Fund during the period of such loan or at the
termination of such loan, provided, however, that the Custodian shall promptly
notify the Fund in the event that such dividends or interest are not paid and
received when due; or
(f) The sufficiency or value of any amounts of money and/or
Securities held in any Margin Account, Senior Security Account or Collateral
Account in connection with transactions by the Fund. In addition, the Custodian
shall be under no duty or obligation to see that any broker, dealer, futures
commission merchant or Clearing Member makes payment to the Fund of any
variation margin payment or similar payment which the Fund may be entitled to
receive from such broker, dealer, futures commission merchant or Clearing
Member, to see that any payment received by the Custodian from any broker,
dealer, futures commission merchant or Clearing Member is the amount the Fund is
entitled to receive, or to notify the Fund of the Custodian's receipt or
non-receipt of any such payment.
3. The Custodian shall not be liable for, or considered to be the
Custodian of, any money, whether or not represented by any check, draft, or
other instrument for the payment of money, received by it on behalf of the Fund
until the Custodian actually receives and collects such money directly or by the
final crediting of the account representing the Fund's interest at the
Book-Entry System or the Depository.
4. The Custodian shall have no responsibility and shall not be liable
for ascertaining or acting upon any calls, conversions, exchange offers,
tenders, interest rate changes or similar matters relating to Securities held in
the Depository, unless the Custodian shall have actually received timely notice
from the Depository. In no event shall the Custodian have any responsibility or
liability for the failure of the Depository to collect, or for the late
collection or late crediting by the Depository of any amount payable upon
Securities deposited in the Depository which may mature or be redeemed, retired,
called or otherwise become payable. However, upon receipt of a Certificate from
the Fund of an overdue
-33-
<PAGE> 35
amount on Securities held in the Depository the Custodian shall make a claim
against the Depository on behalf of the Fund, except that the Custodian shall
not be under any obligation to appear in, prosecute or defend any action, suit
or proceeding in respect to any Securities held by the Depository which in its
opinion may involve it in expense or liability, unless indemnity satisfactory to
it against all expense and liability be furnished as often as may be required.
5. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount due to the Fund from the Transfer
Agent of the Fund nor to take any action to effect payment or distribution by
the Transfer Agent of the Fund of any amount paid by the Custodian to the
Transfer Agent of the Fund in accordance with this Agreement.
6. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount if the Securities upon which such
amount is payable are in default, or if payment is refused after due demand or
presentation, unless and until (i) it shall be directed to take such action by a
Certificate and (ii) it shall be assured to its satisfaction of reimbursement of
its costs and expenses in connection with any such action.
7. The Custodian may in addition to the employment of Foreign
Sub-Custodians pursuant to Article XVI appoint one or more banking institutions
as Depository or Depositories, as Sub-Custodian or Sub-Custodians, or as
Co-Custodian or Co-Custodians including, but not limited to, banking
institutions located in foreign countries, of Securities and moneys at any time
owned by a Series, upon such terms and conditions as may be approved in a
Certificate or contained in an agreement executed by the Custodian, the Fund and
the appointed institution.
8. The Custodian shall not be under any duty or obligation (a) to
ascertain whether any Securities at any time delivered to, or held by it or by
any Foreign Sub-Custodian, for the account of the Fund and specifically
allocated to a Series are such as properly may be held by the Fund or such
Series under the provisions of its then current prospectus, or (b) to ascertain
whether any transactions by the Fund, whether or not involving the Custodian,
are such transactions as may properly be engaged in by the Fund.
9. The Custodian shall be entitled to receive and the Fund agrees to
pay to the Custodian all out-of-pocket expenses and such compensation as may be
agreed upon from time to time between the Custodian and the Fund. The Custodian
may charge such compensation and any expenses with respect to a Series incurred
by the Custodian in the performance of its duties pursuant to such agreement
against any money specifically allocated to such Series. Unless and until the
Fund instructs the Custodian by a Certificate to apportion any loss, damage,
liability or expense among the Series in a specified
-34-
<PAGE> 36
manner, the Custodian shall also be entitled to charge against any money held by
it for the account of a Series such Series' pro rata share (based on such Series
net asset value at the time of the charge to the aggregate net asset value of
all Series at that time) of the amount of any loss, damage, liability or
expense, including counsel fees, for which it shall be entitled to reimbursement
under the provisions of this Agreement. The expenses for which the Custodian
shall be entitled to reimbursement hereunder shall include, but are not limited
to, the expenses of sub-custodians and foreign branches of the Custodian
incurred in settling outside of New York City transactions involving the
purchase and sale of Securities of the Fund.
10. The Custodian shall be entitled to rely upon any Certificate,
notice or other instrument in writing received by the Custodian and reasonably
believed by the Custodian to be a Certificate. The Custodian shall be entitled
to rely upon any Oral Instructions actually received by the Custodian
hereinabove provided for. The Fund agrees to forward to the Custodian a
Certificate or facsimile thereof confirming such Oral Instructions in such
manner so that such Certificate or facsimile thereof is received by the
Custodian, whether by hand delivery, telecopier or other similar device, or
otherwise, by the close of business of the same day that such Oral Instructions
are given to the Custodian. The Fund agrees that the fact that such confirming
instructions are not received, or that contrary instructions are received, by
the Custodian shall in no way affect the validity of the transactions or
enforceability of the transactions hereby authorized by the Fund. The Fund
agrees that the Custodian shall incur no liability to the Fund in acting upon
Oral Instructions given to the Custodian hereunder concerning such transactions
provided such instructions reasonably appear to have been received from an
Officer.
11. The Custodian shall be entitled to rely upon any instrument,
instruction or notice received by the Custodian and reasonably believed by the
Custodian to be given in accordance with the terms and conditions of any Margin
Account Agreement. Without limiting the generality of the foregoing, the
Custodian shall be under no duty to inquire into, and shall not be liable for,
the accuracy of any statements or representations contained in any such
instrument or other notice including, without limitation, any specification of
any amount to be paid to a broker, dealer, futures commission merchant or
Clearing Member.
12. The books and records pertaining to the Fund which are in the
possession of the Custodian shall be the property of the Fund. Such books and
records shall be prepared and maintained as required by the Investment Company
Act of 1940, as amended, and other applicable securities laws and rules and
regulations. The Fund, or the Fund's authorized representatives, shall have
access to such books and records during the Custodian's normal business hours.
Upon the reasonable request of the Fund, copies of any such books and records
shall be provided by the Custodian to the Fund or the
-35-
<PAGE> 37
Fund's authorized representative, and the Fund shall reimburse the Custodian its
expenses of providing such copies. Upon reasonable request of the Fund, the
Custodian shall provide in hard copy or on micro-film, whichever the Custodian
elects, any records included in any such delivery which are maintained by the
Custodian on a computer disc, or are similarly maintained, and the Fund shall
reimburse the Custodian for its expenses of providing such hard copy or
micro-film.
13. The Custodian shall provide the Fund with any report obtained by
the Custodian on the system of internal accounting control of the Book-Entry
System, the Depository or O.C.C., and with such reports on its own systems of
internal accounting control as the Fund may reasonably request from time to
time.
14. The Fund agrees to indemnify the Custodian against and save the
Custodian harmless from all liability, claims, losses and demands whatsoever,
including attorney's fees, howsoever arising or incurred because of or in
connection with this Agreement, including the Custodian's payment or non-payment
of checks pursuant to paragraph 6 of Article XIII as part of any check
redemption privilege program of the Fund, except for any such liability, claim,
loss and demand arising out of the Custodian's own negligence or willful
misconduct.
15. Subject to the foregoing provisions of this Agreement, including,
without limitation, those contained in Article XVI the Custodian may deliver and
receive Securities, and receipts with respect to such Securities, and arrange
for payments to be made and received by the Custodian in accordance with the
customs prevailing from time to time among brokers or dealers in such
Securities. When the Custodian is instructed to deliver Securities against
payment, delivery of such Securities and receipt of payment therefor may not be
completed simultaneously. The Fund assumes all responsibility and liability for
all credit risks involved in connection with the Custodian's delivery of
Securities pursuant to instructions of the Fund, which responsibility and
liability shall continue until final payment in full has been received by the
Custodian.
16. The Custodian shall have no duties or responsibilities whatsoever
except such duties and responsibilities as are specifically set forth in this
Agreement, and no covenant or obligation shall be implied in this Agreement
against the Custodian.
ARTICLE XVIII
TERMINATION
1. Either of the parties hereto may terminate this Agreement by giving
to the other party a notice in writing specifying the date of such termination,
which shall be not less than ninety (90)
-36-
<PAGE> 38
days after the date of giving of such notice. In the event such notice is given
by the Fund, it shall be accompanied by a copy of a resolution of the Board of
Trustees of the Fund, certified by the Secretary, the Clerk, any Assistant
Secretary or any Assistant Clerk, electing to terminate this Agreement and
designating a successor custodian or custodians, each of which shall be a bank
or trust company having not less than $2,000,000 aggregate capital, surplus and
undivided profits. In the event such notice is given by the Custodian, the Fund
shall, on or before the termination date, deliver to the Custodian a copy of a
resolution of the Board of Trustees of the Fund, certified by the Secretary, the
Clerk, any Assistant Secretary or any Assistant Clerk, designating a successor
custodian or custodians. In the absence of such designation by the Fund, the
Custodian may designate a successor custodian which shall be a bank or trust
company having not less than $2,000,000 aggregate capital, surplus and undivided
profits. Upon the date set forth in such notice this Agreement shall terminate,
and the Custodian shall upon receipt of a notice of acceptance by the successor
custodian on that date deliver directly to the successor custodian all
Securities and moneys then owned by the Series and held by it as Custodian,
after deducting all fees, expenses and other amounts for the payment or
reimbursement of which it shall then be entitled.
2. If a successor custodian is not designated by the Fund or the
Custodian in accordance with the preceding paragraph, the Fund shall upon the
date specified in the notice of termination of this Agreement and upon the
delivery by the Custodian of all Securities (other than Securities held in the
Book-Entry System which cannot be delivered to the Fund) and moneys then owned
by the Series be deemed to be its own custodian and the Custodian shall thereby
be relieved of all duties and responsibilities pursuant to this Agreement, other
than the duty with respect to Securities held in the Book Entry System which
cannot be delivered to the Fund to hold such Securities hereunder in accordance
with this Agreement.
ARTICLE XIX
MISCELLANEOUS
1. Annexed hereto as Appendix A is a Certificate signed by two of the
present Officers of the Fund under its corporate seal, setting forth the names
and the signatures of the present Officers of the Fund. The Fund agrees to
furnish to the Custodian a new Certificate in similar form in the event that any
such present Officer ceases to be an Officer of the Fund, or in the event that
other or additional Officers are elected or appointed. Until such new
Certificate shall be received, the Custodian shall be fully protected in acting
under the provisions of this Agreement upon Oral Instructions or signatures of
the present Officers as set forth in the last delivered Certificate.
-37-
<PAGE> 39
2. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Custodian, shall be sufficiently given if
addressed to the Custodian and mailed or delivered to it at its offices at 90
Washington Street, New York, New York 10286, or at such other place as the
Custodian may from time to time designate in writing.
3. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Fund shall be sufficiently given if addressed
to the Fund and mailed or delivered to it at its office at the address for the
Fund first above written, or at such other place as the Fund may from time to
time designate in writing.
4. This Agreement may not be amended or modified in any manner except
by a written agreement executed by both parties with the same formality as this
Agreement and approved by a resolution of the Board of Trustees of the Fund.
5. This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns; provided, however, that
this Agreement shall not be assignable by the Fund without the written consent
of the Custodian, or by the Custodian without the written consent of the Fund,
authorized or approved by a resolution of the Fund's Board of Trustees.
6. This Agreement shall be construed in accordance with the laws of the
State of New York without giving effect to conflict of laws principles thereof.
Each party hereby consents to the jurisdiction of a state or federal court
situated in New York City, New York in connection with any dispute arising
hereunder and hereby waives its right to trial by jury.
7. This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
The Sessions Group is a business trust organized under Chapter 1746,
Ohio Revised Code and under a Declaration of Trust, to which reference is hereby
made and a copy of which is on file at the office of the Secretary of State of
Ohio as required by law, and to any and all amendments thereto so filed or
hereafter filed. The obligations of "The Sessions Group" entered into in the
name or on behalf thereof by any of the Trustees, officers, employees or agents
are made not individually, but in such capacities, and are not binding upon any
of the Trustees, officers, employees, agents or shareholders of the Fund
personally, but bind only the assets of the Fund, as set forth in Section
1746.13(A), Ohio Revised Code, and all persons dealing with any of the Series of
the Fund must look solely to the assets of the Fund belonging to such Series for
the enforcement of any claims against the Fund.
-38-
<PAGE> 40
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective Officers, thereunto duly authorized and their
respective seals to be hereunto affixed, as of the day and year first above
written.
THE SESSIONS GROUP
By: /s/ Walter B. Grimm
-----------------------------
[SEAL]
Attest:
/s/ Nancy E. Converse
- ----------------------------
THE BANK OF NEW YORK
By: /s/ Stephen E. Grunston
----------------------------
Name: Stephen E. Grunston
Title: Vice President
[SEAL]
Attest:
/s/ Ira Rosner
- ----------------------------
-39-
<PAGE> 41
APPENDIX A
I, Walter B. Grimm, President and I, Nancy E. Converse, Secretary,of
The Sessions Group, an Ohio business trust (the "Fund"), do hereby certify that:
The following individuals serve in the following positions with the
Fund and each has been duly elected or appointed by the Board of Trustees of the
Fund to each such position and qualified therefor in conformity with the Fund's
Declaration of Trust and By-Laws, and the signatures set forth opposite their
respective names are their true and correct signatures:
<TABLE>
<CAPTION>
Name Position Signature
---- -------- ---------
<S> <C> <C>
Walter B. Grimm President /s/ Walter B. Grimm
Nancy E. Converse Secretary /s/ Nancy E. Converse
</TABLE>
-40-
<PAGE> 42
January 29, 1997
APPENDIX B
To Custody Agreement dated October 9, 1996
Between The Sessions Group and
The Bank of New York
SERIES
<TABLE>
<CAPTION>
Name of Fund Date
------------ ----
<S> <C>
KeyPremier Prime Money Market Fund July 9, 1996
and The KeyPremier Pennsylvania Municipal
Bond Fund
The KeyPremier Established Growth Fund October 30, 1996
and The KeyPremier Intermediate Term
Income Fund
The KeyPremier Aggressive Growth Fund January 29, 1997
</TABLE>
THE SESSIONS GROUP
By /s/ Walter B. Grimm
---------------------------------
Walter B. Grimm, President
THE BANK OF NEW YORK
By /s/ Stephen E. Grunston, V.P.
---------------------------------
(name) (title)
-41-
<PAGE> 43
APPENDIX C
I, Ira Rosner, a Vice President with THE BANK OF NEW YORK do
hereby designate the following publications:
The Bond Buyer
Depository Trust Company Notices
Financial Daily Card Service
JJ Kenney Municipal Bond Service
London Financial Times
New York Times
Standard & Poor's Called Bond Record
Wall Street Journal
-42-
<PAGE> 44
EXHIBIT A
CERTIFICATION
The undersigned, Walter B. Grimm, hereby certifies that he or she is
the duly elected and acting President of The Session Group, an Ohio business
trust (the "Fund"), and further certifies that the following resolution was
adopted by the Board of Trustees of the Fund at a meeting duly held on May 16,
1996, at which a quorum was at all times present and that such resolution has
not been modified or rescinded and is in full force and effect as of the date
hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to
a Custody Agreement between The Bank of New York and the Fund dated as
of July 9, 1996, (the "Custody Agreement") is authorized and instructed
on a continuous and ongoing basis to deposit in the Book-Entry System,
as defined in the Custody Agreement, all securities eligible for
deposit therein, regardless of the Series to which the same are
specifically allocated, and to utilize the Book-Entry System to the
extent possible in connection with its performance thereunder,
including, without limitation, in connection with settlements of
purchases and sales of securities, loans of securities, and deliveries
and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of The
Sessions Group, as of the 9th day of July, 1996.
/s/ Walter B. Grimm
--------------------
[SEAL]
-43-
<PAGE> 45
EXHIBIT B
CERTIFICATION
The undersigned, Walter B. Grimm, hereby certifies that he or she is
the duly elected and acting President of The Sessions Group, an Ohio business
trust (the "Fund"), and further certifies that the following resolution was
adopted by the Board of Trustees of the Fund at a meeting duly held on May 16,
1996, at which a quorum was at all times present and that such resolution has
not been modified or rescinded and is in full force and effect as of the date
hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to
a Custody Agreement between The Bank of New York and the Fund dated as
of July 9, 1996 (the "Custody Agreement") is authorized and instructed
on a continuous and ongoing basis until such time as it receives a
Certificate, as defined in the Custody Agreement, to the contrary to
deposit in the Depository, as defined in the Custody Agreement, all
securities eligible for deposit therein, regardless of the Series to
which the same are specifically allocated, and to utilize the
Depository to the extent possible in connection with its performance
thereunder, including, without limitation, in connection with
settlements of purchases and sales of securities, loans of securities,
and deliveries and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of The
Sessions Group, as of the 9th day of July, 1996.
/s/ Walter B. Grimm
-----------------------
[SEAL]
-44-
<PAGE> 46
EXHIBIT B-1
CERTIFICATION
The undersigned, Walter B. Grimm, hereby certifies that he or she is
the duly elected and acting President of The Sessions Group, an Ohio business
trust (the "Fund"), and further certifies that the following resolution was
adopted by the Board of Trustees of the Fund at a meeting duly held on May 16,
1996, at which a quorum was at all times present and that such resolution has
not been modified or rescinded and is in full force and effect as of the date
hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to
a Custody Agreement between The Bank of New York and the Fund dated as
of July 9, 1996 (the "Custody Agreement") is authorized and instructed
on a continuous and ongoing basis until such time as it receives a
Certificate, as defined in the Custody Agreement, to the contrary to
deposit in the Participants Trust Company as Depository, as defined in
the Custody Agreement, all securities eligible for deposit therein,
regardless of the Series to which the same are specifically allocated,
and to utilize the Participants Trust Company to the extent possible in
connection with its performance thereunder, including, without
limitation, in connection with settlements of purchases and sales of
securities, loans of securities, and deliveries and returns of
securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of The
Sessions Group, as of the 9th day of July, 1996.
/s/ Walter B. Grimm
-------------------
[SEAL]
-45-
<PAGE> 47
EXHIBIT C
CERTIFICATION
The undersigned, Walter B. Grimm, hereby certifies that he or she is
the duly elected and acting of The Sessions Group, an Ohio business trust (the
"Fund"), and further certifies that the following resolution was adopted by the
Board of Trustees of the Fund at a meeting duly held on May 16, 1996, at which a
quorum was at all times present and that such resolution has not been modified
or rescinded and is in full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to
a Custody Agreement between The Bank of New York and the Fund dated as
of July 9, 1996, (the "Custody Agreement") is authorized and instructed
on a continuous and ongoing basis until such time as it receives a
Certificate, as defined in the Custody Agreement, to the contrary, to
accept, utilize and act with respect to Clearing Member confirmations
for Options and transaction in options, regardless of the Series to
which the same are specifically allocated, as such terms are defined in
the Custody Agreement, as provided in the Custody Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of The
Sessions Group, as of the 9th day of July, 1996.
/s/ Walter B. Grimm
-------------------------
[SEAL]
-46-
<PAGE> 48
EXHIBIT D
The undersigned, Walter B. Grimm, hereby certifies that he or she is
the duly elected and acting President of The Sessions Group, an Ohio business
trust (the "Fund"), further certifies that the following resolutions were
adopted by the Board of Trustees of the Fund at a meeting duly held on May 16,
1996, at which a quorum was at all times present and that such resolutions have
not been modified or rescinded and are in full force and effect as of the date
hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to
the Custody Agreement between The Bank of New York and the Fund dated
as of July 9, 1996 (the "Custody Agreement") is authorized and
instructed on a continuous and ongoing basis to act in accordance with,
and to rely on Certificates (as defined in the Custody Agreement) given
by the Fund to the Custodian by a Terminal Link (as defined in the
Custody Agreement).
RESOLVED, that the Fund shall establish access codes and grant
use of such access codes only to Officers of the Fund as defined in the
Custody Agreement, shall establish internal safekeeping procedures to
safeguard and protect the confidentiality and availability of such
access codes, shall limit its use of the Terminal Link to those
purposes permitted by the Custody Agreement, shall require at least two
such officers to utilize their respective access codes in connection
with each such Certificate, shall review the safekeeping procedures of
the Intermediary to assure that all transmissions inputted by the Fund,
and only such transmissions, are forwarded by the omission by the
Intermediary, and shall use the Terminal Link only in a manner that
does not contravene the Investment Company Act of 1940, as amended, or
the rules and regulations thereunder.
RESOLVED, that Officers of the Fund shall, following the
establishment of such access codes and such internal safekeeping
procedures, advise the Custodian that the same have been established by
delivering a Certificate, as defined in the Custody Agreement, and the
Custodian shall be entitled to rely upon such advice.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of The
Sessions Group, as of the 9th day of July, 1996.
/s/ Walter B. Grimm
----------------------
[SEAL]
-47-
<PAGE> 49
EXHIBIT E
The undersigned, Walter B. Grimm, hereby certifies that he or she is
the duly elected and acting President of The Sessions Group, an Ohio business
trust (the "Fund"), further certifies that the following resolutions were
adopted by the Board of Trustees of the Fund at a meeting duly held on May 16,
1996, at which a quorum was at all times present and that such resolutions have
not been modified or rescinded and are in full force and effect as of the date
hereof.
RESOLVED, that the maintenance of the Fund's assets in each
country listed in Schedule I hereto be, and hereby is, approved by the
Board of Trustees as consistent with the best interests of the Fund and
its shareholders; and further
RESOLVED, that the maintenance of the Fund's assets with the
foreign branches of The Bank of New York (the "Bank") listed in
Schedule I located in the countries specified therein, and with the
foreign sub-custodians and depositories listed in Schedule I located in
the countries specified therein be, and hereby is, approved by the
Board of Trustees as consistent with the best interest of the Fund and
its shareholders; and further
RESOLVED, that the Sub-Custodian Agreements presented to this
meeting between the Bank and each of the foreign sub-custodians and
depositories listed in Schedule I providing for the maintenance of the
Fund's assets with the applicable entity, be and hereby are, approved
by the Board of Trustees as consistent with the best interests of the
Fund and its shareholders; and further
RESOLVED, that the appropriate officers of the Fund are hereby
authorized to place assets of the Fund with the aforementioned foreign
branches and foreign sub-custodians and depositories as hereinabove
provided; and further
RESOLVED, that the appropriate officers of the Fund, or any of
them, are authorized to do any and all other acts, in the name of the
Fund and on its behalf, as they, or any of them, may determine to be
necessary or desirable and proper in connection with or in furtherance
of the foregoing resolutions.
IN WITNESS WHEREOF, I hereunto set my hand and the seal of The Sessions
Group, as of the 9th day of July, 1996.
/s/ Walter B. Grimm
--------------------
[SEAL]
-48-
<PAGE> 50
Dated: July 9, 1996
EXHIBIT F
TO THE CUSTODY AGREEMENT BETWEEN
THE SESSIONS GROUP AND THE BANK OF NEW YORK
JULY 9, 1996
AUTHORIZED PERSONS for the
following portfolios:
The KeyPremier Prime Money Market Fund
The KeyPremier Pennsylvania Municipal Bond Fund
Cash Movement of Shareholder Activity
(excluding Fund shareholder checks)
Officers of the Group
Walter B. Grimm President
J. David Huber Vice President
William J. Tomko Vice President
Nancy E. Converse Secretary
Alaina V. Metz Assistant Secretary
R. Jeffrey Young Assistant Secretary
-49-
<PAGE> 1
EXHIBIT (8)(d)
<PAGE> 2
CASH MANAGEMENT AND RELATED SERVICES AGREEMENT, dated as September 24,
1996 between The Sessions Group, an Ohio business trust (the "Group"), on behalf
of each portfolio series of the Group listed on Schedule A hereto (each a
"Fund", collectively the "Funds"), and The Bank of New York (the "Bank").
WITNESSETH:
That in consideration of the mutual agreements and covenants herein
contained, the Bank and each Fund hereby agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, unless the context otherwise requires,
the following words shall have the meanings set forth below:
1. "ACCOUNT" shall mean an account registered in the name of a
Fund or such Fund's transfer agent for receiving and disbursing money as
provided in this Agreement.
2. "ACCOUNT AVAILABLE BALANCE" shall mean with respect to an
Account for any given day during a calendar month a positive or negative dollar
amount equal to (A) if such day is a Business Day, the Account Available Balance
as of the close of the last preceding Business Day plus a positive or negative
dollar amount equal to the difference, if any, between the Chargeable Credits
with respect to such day and such Account and the Chargeable Debits with respect
to such day and such Account, and (B) if such day is not a Business Day, the
Account Available Balance as of close of the last preceding Business Day, except
that both (A) and (B) shall be reduced by the United States Federal Reserve
reserve requirements then applicable to the Bank with respect to such Account.
The Account Available Balance of an Account shall be zero on the date
immediately preceding the first date on which an entry, consisting of either a
Chargeable Credit or Chargeable Debit, is first made to such Account hereunder.
3. "ACCESS" shall mean any on-line communication system provided
by the Bank hereunder whereby either the receiver of such communication is able
to verify by codes or otherwise with a reasonable degree of certainty the
identity of the sender of such communication, or the sender is required to
provide a password or other identification code.
4. "AUTHORIZED PERSON" shall mean either (A) any person duly
authorized by corporate resolutions of the board of directors or board of
trustees of the Group (the "Board") to give Oral and/or Written Instructions on
behalf of the Funds, such persons to be designated in a certificate,
substantially in the form of Exhibit A, which contains a specimen signature of
such person, or (B) any person sending or transmitting any instruction or
direction through ACCESS.
<PAGE> 3
5. "BUSINESS DAY" shall mean any day on which the Federal Reserve
Bank of New York is open for business, except for any such day on which the Bank
is required by law or regulation to be closed, or elects to be closed.
6. "CALENDAR MONTH EARNINGS CREDIT" shall mean with respect to an
Account for any calendar month the dollar amount, whether positive or negative,
equal to the sum of the Gross Calendar Month Earnings Credit with respect to
such Account for such calendar month and the Monthly Overdraft Charges with
respect to such Account for such calendar month.
7. "CHARGEABLE CREDITS" shall mean with respect to an Account for
any given day during a calendar month a positive amount of dollars equal to the
sum, if any, of (A) the aggregate dollar amount of Federal Funds credited to
such Account by the Bank in accordance with the then applicable availability
schedule of the Federal Reserve Bank of New York, and (B) the aggregate dollar
amount of Bank internal transfers of Federal Funds to such Account.
8. "CHARGEABLE DEBITS" shall mean with respect to an Account for
any given day during a calendar month a negative dollar amount equal to the sum,
if any, of (A) the aggregate dollar amount of Federal Funds relating to such
Account charged against the Bank by the Federal Reserve Bank of New York on or
as of such day, and (B) the aggregate dollar amount of drafts drawn on such
Account which are deposited in the Bank by customers of the Bank on such day, or
Bank internal transfers from, or charges to, such Account.
9. "DAILY EARNINGS" shall mean with respect to an Account for any
day during a calendar month a positive dollar amount equal to the product of (A)
the positive Account Available Balance, if any, of such Account for such day,
multiplied by (B) the Daily Earnings Rate for such day. The Daily Earnings with
respect to an Account for any day during a calendar month on which the Account
Available Balance of such Account is negative shall be zero.
10. "DAILY EARNINGS RATE" shall mean for any day during a calendar
month one three hundred and sixty-fifth of the 91 day U.S. Treasury Bill
discount rate of the Monday auction first preceding such day (whether or not
such day is a Monday, and whether or not such Monday auction was in the
immediately prior month), as such Monday auction 91 day U.S. Treasury Bill
discount rate is reported in The Wall Street Journal.
11. "DAILY OVERDRAFT CHARGES" shall mean with respect to an
Account for any day during any calendar month a negative dollar amount equal to
the product, if any, of (A) the negative Account Available Balances, if any,
with respect to such Account for such day during such calendar month, multiplied
by (B) the Overdraft Rate.
12. "FEDERAL FUNDS" shall mean immediately available same day
funds.
13. "GROSS CALENDAR MONTH EARNINGS CREDIT" shall mean with respect
to an Account for any calendar month a positive dollar amount equal to the
aggregate sum of the Daily Earnings of such Account for such calendar month.
2
<PAGE> 4
14. "MONTHLY OVERDRAFT CHARGES" shall mean with respect to an
Account for any calendar month a negative dollar amount equal to the aggregate
sum of the Daily Overdraft Charges with respect to such Account for such
calendar month which have not been previously paid to the Bank by the Fund to
which such Account relates.
15. "OMNIBUS ACCOUNT" shall mean an account at the Bank for the
benefit of the Funds into which money (A) to be deposited into an Account is
initially credited pending its transfer to such Account, or (B) transferred from
an Account is deposited pending its disbursement.
16. "ORAL INSTRUCTIONS" shall mean verbal instructions actually
received by the Bank from an Authorized Person or from a person reasonably
believed by the Bank to be an Authorized Person.
17. "OVERDRAFT RATE" shall mean with respect to an Account for any
calendar day during any calendar month a rate equal to one three hundred and
sixtieth of the sum of (A) one-half percent, and (B) the greater of (i) the
prime commercial lending rate of The Bank of New York, as publicly announced to
be in effect from time to time, in effect on such calendar day, and (ii) 6 %.
18. "SHAREHOLDER" shall mean any record holder of any Shares, as
identified to the Bank from time to time pursuant to this Agreement.
19. "SHARES" shall mean all or any part of each class of the
shares of capital stock, beneficial interest, or limited partnership interest of
a Fund, as the case may be, which are authorized and/or issued from time to
time.
20. "WRITTEN INSTRUCTIONS" shall mean written instructions
actually received by the Bank from an Authorized Person or from a person
reasonably believed by the Bank to be an Authorized Person by letter,
memorandum, telegram, cable, telex, telecopy facsimile or through ACCESS.
ARTICLE II
APPOINTMENT OF BANK: REPRESENTATIONS AND WARRANTIES
1. Appointment; Establishment of Accounts. The Group hereby
appoints the Bank as its agent for the term of this Agreement to perform on
behalf of each Fund the cash management services set forth herein and in
Schedules I and II attached hereto and made a part hereof (as such Schedules may
be amended or supplemented from time to time by mutual agreement) which are
selected by the Group from time to time. The Bank hereby accepts appointment as
such agent and agrees to establish and maintain one or more Accounts and/or
3
<PAGE> 5
Omnibus Accounts as the parties shall determine are necessary to receive and
disburse money as provided in this Agreement.
2. Representations and Warranties. The Group, for itself and each
Fund, hereby represents and warrants to the Bank, which representations and
warranties shall be deemed to be continuing and to be reaffirmed upon delivery
to the Bank of any Oral or Written Instructions, that:
(a) It is duly organized and existing under the laws of the
jurisdiction of its organization, with full power to carry on its business as
now conducted, to enter into this Agreement and to perform its obligations
hereunder;
(b) This Agreement has been duly authorized, executed and
delivered by the Group in accordance with all requisite corporate action and
constitutes a valid and legally binding obligation of the Group and each Fund
enforceable in accordance with its terms, except to the extent such enforcement
may be limited by general equity principles or bankruptcy principles; and
(c) It is conducting its business in compliance with all
applicable laws and regulations, both state and federal, and has obtained all
regulatory licenses, approvals and consents necessary to carry on its business
as now conducted; there is no statute, regulation, rule, order or judgment
binding on it and no provision of its charter or by-laws, nor of any mortgage,
indenture, credit agreement or other contract binding on it or affecting its
property which would prohibit its execution or performance of this Agreement.
3. Board Resolutions. The Group shall provide the Bank with a
certified copy of a resolution of its Board appointing the Bank as its agent to
act hereunder and providing for the creation of each Fund's Account(s), the
utilization by the Funds of one or more Omnibus Accounts and the execution by
the Group of this Agreement, it being understood that receipt of the same by the
Bank shall be a condition precedent to the Bank's establishing an Account for
each Fund and such Fund's utilization of an Omnibus Account.
ARTICLE III
CASH MANAGEMENT SERVICES
1. Receipt of Money. The Bank shall receive money for credit to
an Account only:
(i) by personal presentment of drafts by a Fund, but not by a Shareholder
of such Fund, at the branch or branches in Manhattan identified from
time to time by the Bank to such Fund, provided such presentment is in
accordance with the time frames specified by the Bank to such Fund;
4
<PAGE> 6
(ii) by mailing of drafts to a post office box designated by the
Bank for such purpose, provided such drafts are accompanied by
a properly completed investment stub;
(iii) by wire transfer to an account maintained at the Federal
Reserve Bank of New York as identified in writing by the Bank
to a Fund;
(iv) by transfer to an account identified in writing by the Bank to
a Fund through the New York Automated Clearing House;
(v) by transfer from another Account maintained by such Fund with
the Bank under this Agreement;
(vi) by transfer from another account maintained by such Fund with
the Bank, including such Fund's custodian account under its
Custody Agreement with the Bank as Custodian; or
(vii) by transfer from any other account maintained with the Bank.
All money received by the Bank shall be credited upon receipt, but subject to
final payment and receipt by the Bank of immediately available funds, and
receipt by the Bank of such forms, documents and information as are required by
the Bank from time to time and received in the appropriate time frames. If an
Omnibus Account has been established for the Funds, such money shall be
initially credited to the Omnibus Account pending its allocation to, and deposit
in, an Account. The Bank shall be entitled to reverse any credits previously
made to a Fund's Account or an Omnibus Account where money is not finally
collected or where a credit to such account was in error.
2. Disbursement of Money. The Bank shall disburse money credited
to an Account or an Omnibus Account only:
(i) pursuant to Written Instructions of such Fund transmitted
through ACCESS (except as otherwise provided in Article V,
Section 7 hereof), to transfer funds as directed by such Fund
(including transfers through the Federal Reserve Bank of New
York transfer wire and the New York Automated Clearing House);
(ii) in payment of drafts drawn by an Authorized Person or
Shareholder (as appropriate for the particular Account),
subject to the terms hereof; or
(iii) in payment of charges to such Account representing amounts
payable to the Bank, and chargeable against such Account, as
provided in this Agreement.
The Bank shall be required to disburse money in accordance with the foregoing
only insofar as such money is immediately available and on deposit with the
Bank. If an Omnibus Account has been established for the Funds, such money shall
be credited to the Omnibus Account pending
5
<PAGE> 7
such disbursement. All instructions directing the disbursement of money credited
to an Account or Omnibus Account under this Agreement (whether through ACCESS or
by Oral Instructions pursuant to Article V hereof) must identify an account to
which such money shall be transferred, and include all other information
reasonably required by the Bank from time to time. It is understood and agreed
that with respect to any such instructions, when instructed to credit or pay a
party by both name and a unique numeric or alpha-numeric identifier (e.g., ABA
number or account number), the Bank and any other financial institution
participating in the funds transfer may rely solely on the unique identifier,
even if it identifies a party different than the party named. Such reliance on a
unique identifier shall apply to beneficiaries named in such instructions as
well as any financial institution which is designated in such instruction to act
as an intermediary in a funds transfer.
3. Redemption Drafts; Shareholder Information. (a) Where a Fund
offers its Shareholders draft redemption privileges, each such Fund shall be
entitled to supply its Shareholders with redemption drafts, but only in a form
and substance agreed to by the Bank. The Bank agrees to give each Fund sixty
(60) days prior notice of any changes to the form or substance of redemption
drafts required by the Bank, provided that if such change is required by
applicable rules or procedures of the Federal Reserve or any clearinghouse
through which such drafts may be presented, the Bank may give less than sixty
(60) days prior notice of such change.
(b) Each Fund which offers its Shareholders draft
redemption privileges will promptly furnish to the Bank (i) the name, mailing
address and telephone number of each Shareholder of such Fund, and (ii) specimen
signatures for all individuals authorized to draw redemption drafts (whether on
their own behalf or on behalf of third parties). Each Fund will promptly advise
the Bank of individuals no longer authorized to draw redemption drafts, and
those individuals newly authorized. Such information shall be provided to the
Bank in a mutually agreed upon format.
4. Redemption Draft Returns. The Group, on behalf of a Fund, may
give the Bank Oral or Written Instructions from time to time to return unpaid
redemption drafts of the Fund to the presenting financial institution for any
reason, and the Bank shall use reasonable efforts to comply with such Oral or
Written Instructions provided that such compliance would not prejudice or impair
any rights or privileges of the Bank under prevailing draft return procedures
and would not be contrary to prevailing industry rules, procedures, customs or
practices. Notwithstanding the foregoing, or any other provision in this
Agreement or the Schedules hereto, the Bank (i) may return redemption drafts
with unauthorized or missing signatures to the presenting financial institution
in accordance with prevailing banking industry draft return procedures, and (ii)
shall have no obligation to request Oral or Written Instructions with respect to
any redemption drafts.
6
<PAGE> 8
ARTICLE IV
ADVANCES, OVERDRAFTS OR INDEBTEDNESS
1. If the Bank in its sole discretion advances funds, or if there
shall arise for whatever reason an overdraft or other indebtedness (except fee
indebtedness, the payment of which shall be governed solely by Article VI,
paragraph 10(b) hereof) in connection with any Account or Omnibus Account, such
advance, overdraft or indebtedness shall be deemed a loan made by the Bank to
the Group on behalf of the Fund to which the Account relates, or in the case of
an Omnibus Account, to which such advance, overdraft or indebtedness relates,
payable on demand and bearing interest from the date incurred at the Overdraft
Rate, such Overdraft Rate to be adjusted on the effective date of any change in
the prime commercial lending rate constituting a part thereof. In the event of
any advance, overdraft or other indebtedness in connection with an Omnibus
Account, the Bank shall be furnished promptly (and in any event by 12:00 p.m. on
the next Business Day after such advance, overdraft or indebtedness) with
Written Instructions identifying each Fund to which such advance, overdraft or
indebtedness relates. and the amount allocable to such Fund(s).
2. The Group, on behalf of each Fund, hereby agrees with respect
to such Fund's Account(s), any Omnibus Account(s) and any advances, overdrafts
or other indebtedness that the Bank shall have a continuing lien and security
interest in and to any property at any time held by it for the benefit of such
Fund either hereunder or under the Group's Custody Agreement with the Bank with
respect to such Fund, or in which the Fund may have an interest which is then in
the Bank's possession or control or in possession or control of any third party
acting in the Bank's behalf, including in its behalf as Custodian under the
Group's Custody Agreement with the Bank, having at the time such overdraft or
indebtedness is incurred a fair market value equal to 150% of such overdraft or
indebtedness. Subject to the provisions of Article VI, paragraph 10(b) hereof,
the Group, on behalf of each Fund, authorizes the Bank, in its sole discretion,
at any time to charge any advance, overdraft or indebtedness together with
interest due thereon at the Overdraft Rate against any balance of accounts
standing to the Fund's credit on the books of the Bank, including those books
maintained by the Bank in its capacity as Custodian for the Fund under its
Custody Agreement with the Group. Nothing contained herein shall be construed as
a waiver by any Fund of any right to contest in appropriate proceedings any
charge by the Bank pursuant hereto.
3. The Group, on behalf of each Fund, agrees that upon allocation
of all advances, overdrafts or indebtedness to its account pursuant to paragraph
1 above, its total borrowings from all sources (including the Bank) shall be in
conformity with the requirements and limitations set forth in the Investment
Company Act of 1940, as amended, and the Fund's Prospectus and Statement of
Additional Information. The Group, on behalf of each Fund, shall promptly (and
in any event within one Business Day) notify the Bank in writing whenever it
fails to comply with any of the foregoing requirements.
7
<PAGE> 9
ARTICLE V
ACCESS; CALL-BACK SECURITY PROCEDURE
1. Services Generally. The Group, on behalf of each Fund, shall
be permitted to utilize ACCESS to obtain direct on-line access to its Accounts
and Omnibus Accounts. ACCESS shall permit the Group at the times mutually agreed
upon by the Bank and the Group to receive reports, make inquiries, instruct the
Bank to disburse money in accordance with Article III, and perform such other
functions as are more fully set forth in Schedule I hereto.
2. Permitted Use; Proprietary Information. (a) The Group, on
behalf of each Fund, shall use ACCESS and the services available thereby only
for its own internal and proper business purposes and shall not sell, lease or
otherwise provide, directly or indirectly, ACCESS or any of such services or any
portion thereof to any other person or entity. The Group shall obtain and
maintain at its own cost and expense all equipment and services, including but
not limited to communications services, necessary for it to utilize ACCESS and
receive the services thereby, and the Bank shall not be responsible for the
reliability or availability of any such equipment or any services used in
connection with ACCESS.
(b) The Group, on behalf of each Fund, acknowledges that all data
bases made available as part of, or through ACCESS, and any proprietary data,
processes, information and documentation (other than any such which are or
become part of the public domain or are legally required to be made available to
the public) (collectively, the "Information"), are the exclusive and
confidential property of the Bank. The Group, on behalf of each Fund, shall keep
the Information confidential by using the same care and discretion that it uses
with respect to its own confidential property and trade secrets, and shall
neither make nor permit any disclosure without the express prior written consent
of the Bank.
(c) Upon termination of this Agreement for any reason, the Group,
on behalf of each Fund, shall return to the Bank any and all copies of the
Information which are in the Group's possession or under its control, or
distributed to third parties. The provisions of this Article shall not affect
the copyright status of any of the Information which may be copyrighted and
shall apply to all Information whether or not copyrighted.
3. Modifications. The Bank reserves the right to modify ACCESS
from time to time without notice to any Fund. The Group, on behalf of each Fund,
agrees not to modify or attempt to modify ACCESS without the Bank's prior
written consent. The Group acknowledges that ACCESS is the property of the Bank
and, accordingly, agrees that any modifications to ACCESS, whether by the Group
or the Bank and whether with or without the Bank's consent, shall become the
property of the Bank.
8
<PAGE> 10
4. No Representations or Warranties. Neither the Bank nor any
manufacturers or suppliers it utilizes or the Group utilizes in obtaining ACCESS
makes any warranties or representations, express or implied, in fact or in law,
including but not limited to warranties of merchantability and fitness for a
particular purpose.
5. Security; Reliance; Unauthorized Use. The Group, on behalf of
each Fund, will, and will cause all persons utilizing ACCESS to, treat the user
and authorization codes, passwords and authentication keys applicable to ACCESS
with extreme care. The Bank is hereby irrevocably authorized to act in
accordance with and rely on Written Instructions received by it through ACCESS.
The Group acknowledges that it is its sole responsibility to assure that only
authorized persons use ACCESS and that the Bank shall not be responsible nor
liable for any unauthorized use thereof.
6. Limitations of Liability. (a) Except as otherwise specifically
provided in Section 6(b) below, the Bank shall have no liability for any losses,
damages, injuries, claims, costs or expenses of a Fund arising out of or in
connection with any failure, malfunction or other problem relating to the
Group's use of ACCESS, except for money damages suffered as the direct result of
the negligence of the Bank in an amount not exceeding, in the aggregate for all
such losses, damages, injuries, claims, costs and expenses of a Fund arising
during any month, the total charges paid by the Group on behalf of such Fund to
the Bank for ACCESS and services hereunder which caused such loss, damage,
injury, claim, cost or expense during the 12 months preceding the month in
question, or such lesser number of months as the Group has used ACCESS if the
Group, on behalf of such Fund, has not received 12 months use of ACCESS;
provided however, that the Bank shall have no liability under this Section 6(a)
if the Group fails to comply with the provisions of Section 6(c).
(b) Without limiting the generality of the foregoing, it is hereby
agreed that in no event shall the Bank or any manufacturer or supplier of its
computer equipment, software or services be responsible for any special,
indirect, incidental or consequential damages which the Group or a Fund may
incur arising out of or in connection with ACCESS or the services provided
thereby, even if the Bank or such manufacturer or supplier has been advised of
the possibility of such damages and regardless of the form of action.
(c) The Group, on behalf of each Fund, shall notify the Bank of
any errors, omissions or interruptions in, or delay or unavailability of, ACCESS
as promptly as practicable, and in any event within one Business Day after the
earliest of (i) discovery thereof, (ii) the date discovery should have occurred
through the exercise of reasonable care, and (iii) in the case of any error, the
date of the earliest notice to such Fund which reflects such error.
(d) The Bank shall acknowledge through ACCESS its receipt of each
Written Instruction communicated through ACCESS, and in the absence of such
acknowledgement the Bank shall not be liable for any failure to act in
accordance with such Written Instruction and the Group may not claim that such
Written Instruction was received by the Bank.
9
<PAGE> 11
(e) In no event shall the Bank have any liability for failing to
execute Written Instructions for the transfer of funds which are received by it
through ACCESS other than through the applicable transfer module for the
particular instructions.
7. Funds Transfer Back-Up Procedure. (a) In the event ACCESS is
inoperable and the Group is unable to utilize ACCESS for the transmission of
Written Instructions to the Bank to transfer funds, the Group may give Oral
Instructions regarding funds transfers, it being expressly understood and agreed
that the Bank's acting pursuant to such Oral Instructions shall be contingent
upon the Bank's verification of the authenticity thereof pursuant to the
Call-Back Security Procedure set forth on Schedule III hereto (the "Procedure").
In this regard, the Group, on behalf of each Fund shall deliver to the Bank a
Funds Transfer Telephone Instruction Authorization in the form of Schedule 111-A
hereto, identifying the individuals authorized to deliver and/or confirm all
such Oral Instructions. The Group understands and agrees that the Procedure is
intended to determine whether Oral Instructions received pursuant to this
Section are authorized but is not intended to detect any errors contained in
such instructions. The Group, on behalf of each Fund, hereby accepts the
Procedure and confirms its belief that the Procedure is commercially reasonable.
(b) The Bank shall have no liability whatsoever for any funds
transfer executed in accordance with Oral Instructions delivered and confirmed
pursuant to this Section 7 and Schedule III hereto. The Bank's liability for its
negligence in executing or failing to execute any such Oral Instructions shall
be determined by reference to Section 6(b) of this Article.
(c) The Bank reserves the right to suspend acceptance of Oral
Instructions pursuant to this Section 7 if conditions exist which the Bank, in
its sole discretion, believes have created an unacceptable security risk.
ARTICLE VI
CONCERNING THE BANK
1. Standard of Care; Presentment of Claims. Except as otherwise
provided herein, the Bank shall not be liable for any costs, expenses, damages,
liabilities or claims (including attorney's fees) incurred by the Group or a
Fund, except those costs, expenses, damages, liabilities or claims arising out
of the Bank's own negligence, bad faith or willful misconduct. Notwithstanding
the foregoing or anything contained in the Schedules hereto, the Bank shall not
be liable for any loss or damage, including attorney's fees, resulting from the
Bank paying any redemption draft containing a forged drawer signature, unless
such loss or damage arises out of the Bank's gross negligence, bad faith or
willful misconduct. All claims against the Bank hereunder shall be made by the
Group on behalf of the affected Fund as promptly as practicable, and in any
event within 6 months from the date of the action or inaction on which such
claim is based, and shall include reasonable documentation evidencing such claim
and loss.
10
<PAGE> 12
2. No Liability. The Bank shall have no obligation hereunder for
costs, expenses, damages, liabilities or claims, including attorney's fees,
which are sustained or incurred by reason of any action or inaction by the
Federal Reserve wire transfer system or the New York Automated Clearing House.
Notwithstanding any other provision elsewhere contained in this Agreement, in no
event shall the Bank be liable to the Group or any Fund or any third party for
special, indirect or consequential damages, or lost profits or loss of business,
arising under or in connection with this Agreement, even if previously informed
of the possibility of such damages and regardless of the form of action.
3. Indemnification. The Group, on behalf of each Fund, shall
indemnify and exonerate, save and hold harmless the Bank from and against any
and all costs, expenses, damages, liabilities or claims, including reasonable
attorney's fees and expenses, which the Bank may sustain or incur or which may
be asserted against the Bank by reason of or as a result of any action taken or
omitted by the Bank in connection with its performance under this Agreement,
except those costs, expenses, damages, liabilities or claims arising out of the
Bank's own negligence, bad faith or wilful misconduct. This indemnity shall be a
continuing obligation of the Group on behalf of each Fund notwithstanding the
termination of this Agreement, any Account or Omnibus Account with respect to a
Fund.
4. No Obligation to Inquire. Without limiting the generality of
the foregoing, the Bank shall in no event be under any obligation to inquire
into, and shall not be liable for:
(a) the due authority of any Authorized Person acting on behalf of
the Group or a Fund in connection with this Agreement;
(b) the genuineness of any drawer signature on any draft deposited
in any Account or Omnibus Account, or whether such signature is a forgery, other
than the signature of the drawer of any draft drawn on the Bank;
(c) the existence or genuineness of any endorsement or any marking
purporting to be an endorsement on any draft deposited in any Account or Omnibus
Account, or whether such endorsement or marking is a forgery, is being expressly
understood that all risks associated with the acceptance by the Bank of any
draft payable to a payee other than a Fund for deposit in any Account or Omnibus
Account pursuant to Oral or Written Instructions by the Group shall be borne by
the Group on behalf of such Fund;
(d) any discrepancy between the pre-printed investment stub (other
than a substitute stub created by the Bank) and the payee either named on a
draft or written on the face thereof, provided the Bank has acted in accordance
with the investment stub;
(e) any discrepancy between the written amount for which any draft
is drawn and the Magnetic Incription Character Recognition ("MICR") code
enscribed thereon by any bank other than the Bank on any draft presented,
provided the Bank has acted in accordance with the MICR code;
11
<PAGE> 13
(f) any disbursement directed by the Group on behalf of a Fund,
regardless of the purpose therefor;
(g) any determination of the Share balance of any Shareholder
whose name is signed on any redemption draft,
(h) any determination of length of time any Shares have been owned
by any Shareholder or the method of payment utilized to purchase such Shares by
such Shareholder;
(i) any claims, liens, attachments, stays or stop payment orders
with respect to any Shares, proceeds, or money, other than a stop payment order
placed by the Group on a draft drawn by it on behalf of a Fund on its Account or
an Omnibus Account;
(j) the propriety and/or legality of any transaction in any
Account or Omnibus Account;
(k) the lack of authority of any person signing as a drawer of a
draft, provided such person and his specimen signature is specified in the
certificate of authorized signatures last received by the Bank; or
(l) whether any redemption draft equals or exceeds any minimum
amount.
5. Reliance Upon Instructions. The Bank shall be entitled to rely
upon any Written or Oral Instructions received by the Bank. The Group agrees to
forward to the Bank Written Instructions confiding Oral Instructions in such
manner so that such Written Instructions are received by the Bank by the close
of business of the same day that such Oral Instructions are given to the Bank.
The Group, on behalf of each Fund, agrees that the fact that such confirming
Written Instructions are not timely received or that contrary Written
Instructions are received by the Bank shall in no way affect the validity or
enforceability of transactions previously authorized.
6. Force Majeure. The Bank shall not be responsible or liable for
any failure or delay in the performance of its obligations under this Agreement
arising out of or caused, directly or indirectly, by circumstances beyond its
control, including acts of God; earthquakes; fires; floods; wars; civil or
military disturbances; sabotage; epidemics; riots; interruptions, loss or
malfunctions of utilities, computers (hardware or software), transportation, or
communications service; mechanical breakdowns; interruption or loss of ACCESS
(except as otherwise provided in Section 7 of Article V); accidents; acts of
civil or military authority; governmental actions; labor disputes; or inability
to obtain labor, material, equipment or transportation.
7. No Implied Duties; Performance According To Applicable Law.
The Bank shall have no duties or responsibilities except such duties and
responsibilities as are specifically set forth in this Agreement and Schedules I
and II hereto, and no covenant or obligation shall be implied against the Bank.
The Bank's duties and responsibilities hereunder shall be performed
12
<PAGE> 14
in accordance with applicable laws, regulations and rules, including but not
limited to Federal Reserve Regulation CC and the Operating Rules of the New York
Automated Clearing House, and the Bank shall have no obligation to take actions
which in the reasonable opinion of the Bank are either inconsistent with, or
prejudice or impair the Bank's rights under, any such laws, regulations and
rules.
8. Requests for Instructions. At any time the Bank may apply to
an officer of the Group for Oral or Written Instructions with respect to any
matter arising in connection with the Bank's duties and obligations hereunder,
and the Bank shall not be liable for any action taken or permitted by it in good
faith in accordance with such Oral or Written Instructions. Such application for
Oral or Written Instructions may, at the option of the Bank, set forth in
writing any action proposed to be taken or omitted by the Bank with respect to
its duties or obligations hereunder and the date on or after which such action
shall be taken, and the Bank shall not be liable for any action taken or omitted
in accordance with a proposal included in any such application on or after the
date specified therein (which shall be at least 5 days after the date of the
Group's receipt of such application) unless, prior to taking or omitting any
such action, the Bank has received Oral or Written Instructions in response to
such application specifying the action to be taken or omitted. The Bank may
apply for and obtain the advice and opinion of counsel to the Group or of its
own counsel, at the expense of the Group, and shall be fully protected with
respect to anything done or omitted by it in good faith in conformity with such
advice or opinion.
9. Delegation of Duties. The Bank may delegate any of its duties
and obligations hereunder to any delegee and may employ agents or
attorneys-in-fact; provided however, that no such delegation or employment by
the Bank shall discharge the Bank from its obligations hereunder. The Bank shall
have no liability or responsibility whatsoever if any delegee, agent or
attorney-in-fact shall have been selected or approved by the Group.
Notwithstanding the foregoing, nothing contained in this paragraph shall
obligate the Bank to effect any delegation or to employ any agent or
attorney-in-fact.
10. Fees; Invoices. (a) For its services hereunder, the Group, on
behalf of each Fund, agrees to pay the Bank (i) its out-of-pocket expenses, (ii)
the monthly fees and compensation set forth on Schedules I and II attached
hereto, and (iii) any negative Calendar Month Earnings Credits, and such other
amounts as may be mutually agreed upon from time to time. The Bank shall provide
the Group with a monthly activity analysis for each Fund detailing service
volumes, and including average Account Available Balances and average ledger
balances, and all fees owing for such month.
(b) The Bank shall submit periodic invoices specifying the amount
of all out-of-pocket expenses, fees, compensation and negative Calendar Month
Earnings Credits then due hereunder. The Bank may, and is hereby authorized by
the Group on behalf of each Fund, to charge such amounts to an Omnibus Account
or the appropriate Fund's Account(s), but only if such amounts remain unpaid for
ninety (90) days after the date an invoice for such amounts is sent to the
13
<PAGE> 15
Group and the Group has not contested such amounts in good faith by delivery of
written notice thereof to the Bank within such 90 days.
11. Application of Calendar Month Earnings Credits. (a) Any
positive Calendar Month Earnings Credit for a calendar month shall be applied
only as follows and only in the specified order:
(i) First, applied against such compensation, fees, but not
out-of-pocket expenses, payable by the Group on behalf of such
Fund to the Bank under this Agreement for such month; and
(ii) Second, applied against such compensation, fees, and negative
Calendar Month Earnings Credits, but not out-of-pocket
expenses, payable by the Group on behalf of such Fund to the
Bank under this Agreement for any subsequent month in the same
calendar year.
(b) Except as provided above, in no event may any Calendar Month
Earnings Credit be applied to any month other than the month in which it was
earned. Calendar Month Earnings Credits may not be transferred to, or utilized
by, any other Fund, person or entity. The portion, if any, of any Calendar Month
Earnings Credit not used by a Fund may be carried, but only forward; provided,
however, that in no event may any Calendar Month Earnings Credit, including
those earned during the fourth calendar quarter, be carried beyond the end of
the calendar year in which earned.
12. Allocation of Calendar Month Earnings Credits. The Group
agrees that the Bank may pay Calendar Month Earnings Credits with respect to any
Omnibus Account as mutually agreed, and that it is the Group's responsibility to
allocate such Calendar Month Earnings Credits among and between the Funds.
ARTICLE VII
TERMINATION
1. Notice. This Agreement may be terminated by either the Bank
giving to the Group, or the Group giving to the Bank, a notice in writing
specifying the date of such termination and the affected Fund(s), which date
shall be not less than 90 days after the date of the giving of such notice.
Notwithstanding the foregoing, the Bank reserves the right to terminate this
Agreement (a) at any time upon 30 days prior written notice if the condition
precedent set forth in Article II, paragraph 3 is unfulfilled, and (b) upon
notice if the Group, on behalf of a Fund, either (i) fails to comply with
Article IV, Section 3, or (ii) borrows funds from the Bank in an amount
exceeding the Bank's legal lending limit.
14
<PAGE> 16
2. Obligations Upon Termination. Upon termination, the Bank's
sole obligations, which shall arise only after, and not before, each Fund which
is the subject of such termination has paid to the Bank all out-of-pocket
expenses, fees, compensation, negative Calendar Month Earnings Credits and other
amounts owed by the Group on behalf of such Fund to the Bank, shall be (i) to
deliver to the Group such records, if any, as may be owned by the Group on
behalf of such Fund(s), in the form and manner kept by the Bank on such date of
termination, and (ii) to pay to the Group any monies held for the account of the
affected Fund(s) hereunder.
ARTICLE VIII
MISCELLANEOUS
1. Certificates of Authorized Persons. The Group agrees to
furnish to the Bank a new certificate of Authorized Persons in the event that
any present Authorized Person ceases to be an Authorized Person or in the event
that any other Authorized Persons are appointed and authorized. Until such new
certificate is received, the Bank shall be fully protected in acting under the
provisions of this Agreement upon Oral or Written Instructions or signatures of
the present Authorized Persons as set forth in the last delivered certificate.
2. Notices. (a) Any notice or other instrument in writing,
authorized or required by this Agreement to be given to the Bank, shall be
sufficiently given if addressed to the Bank and received by it at its offices at
90 Washington Street, 22nd Floor, New York, New York 10286, Attention: Division
Manager - Mutual Funds, or at such other place as the Bank may from time to time
designate in writing.
(b) Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Group shall be sufficiently given
if addressed to the Group and received by it at 3435 Stelzer Road, Columbus,
Ohio, or at such other place as the Group may from time to time designate in
writing.
3. Cumulative Rights and No Waiver. Each and every right granted
to the Bank hereunder or under any other document delivered hereunder or in
connection herewith, or allowed it by law or equity, shall be cumulative and may
be exercised from time to time. No failure on the part of the Bank to exercise,
and no delay in exercising, any right will operate as a waiver thereof, nor will
any single or partial exercise by the Bank of any right preclude any other or
future exercise thereof or the exercise of any other right.
4. Severability. In case any provision in or obligation under
this Agreement shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions or
obligations shall not in any way be affected or impaired thereby, and if any
provision is inapplicable to any person or circumstances, it shall nevertheless
remain applicable to all other persons and circumstances.
15
<PAGE> 17
5. Amendments. This Agreement may not be amended or modified in
any manner except by a written agreement executed by the Bank and the Group on
behalf of each Fund to be bound thereby, and, except in the case of an amendment
to Schedules I and II hereto, authorized or approved by a resolution of the
Group's Board.
6. Headings. The headings in this Agreement are inserted for
convenience and identification only and are in no way intended to describe,
interpret, define or limit the scope, extent or intent of this Agreement or any
provisions hereof.
7. Applicable Law; Consent to Jurisdiction: Jury Trial Waiver.
This Agreement shall be construed in accordance with the laws of the State of
New York without giving effect to conflict of laws principles thereof. Each
party hereby consents to the jurisdiction of a state or federal court situated
in New York City, New York in connection with any dispute arising hereunder and
hereby waives its right to trial by jury.
8. No Third Party Beneficiaries. The provisions of this Agreement
are intended to benefit only the Bank and the Group, on behalf of each Fund, and
their respective permitted successors and assigns. and no right shall be granted
to any other person by virtue of this Agreement.
9. Successors and Assigns. This Agreement shall extend to and
shall be binding upon the parties hereto, and their respective successors and
assigns; provided, however, that this Agreement shall not be assignable by the
Group without the written consent of the Bank and authorized or approved by a
resolution of the Group's Board.
10. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
11. Several Obligations. The parties acknowledge that the
obligations of the Group, on behalf of each Fund, are several and not joint,
that no Fund shall be liable for any amount owing by another Fund and that the
Group has executed one instrument on behalf of the Funds for convenience only.
16
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective corporate officers, thereunto duly authorized, as
of the day and year first above written.
THE SESSIONS GROUP
By: /s/ Walter B. Grimm
---------------------------
Walter B. Grimm
Title: President
------------------------
THE BANK OF NEW YORK
By: /s/ Stephen E. Grunston
---------------------------
Stephen E. Grunston
Title: Vice President
------------------------
17
<PAGE> 19
January 29, 1997
SCHEDULE A
To Cash Management and Related Services Agreement
dated September 24, 1996
Between The Sessions Group and
The Bank of New York
SERIES
Name of Fund Date
------------ ----
The KeyPremier Prime Money Market Fund September 24, 1996
and The KeyPremier Pennsylvania Municipal
Bond Fund
The KeyPremier Established Growth Fund October 30, 1996
and The KeyPremier Intermediate Term
Income Fund
The KeyPremier Aggressive Growth Fund January 29, 1997
THE SESSIONS GROUP
By /s/ Walter B. Grimm
---------------------------------
Walter B. Grimm, President
THE BANK OF NEW YORK
By /s/ Stephen E. Grunston, V.P.
---------------------------------
(name) (title)
18
<PAGE> 1
EXHIBIT (9)(x)
<PAGE> 2
MANAGEMENT AND ADMINISTRATION AGREEMENT
This Agreement is made this 9th day of July, 1996, between The Sessions
Group, an Ohio business trust (the "Trust"), 3435 Stelzer Road, Columbus, Ohio
43219, and BISYS Fund Services Limited Partnership dba BISYS Fund Services, an
Ohio limited partnership ("Administrator"), 3435 Stelzer Road, Columbus, Ohio
43219.
WHEREAS, the Trust is an open-end management investment company,
organized as an Ohio business trust and registered with the Securities and
Exchange Commission (the "Commission") under the Investment Company Act of 1940,
as amended (the "1940 Act"); and
WHEREAS, the Trust desires to retain Administrator to furnish
management and administration services to certain investment portfolios of the
Trust and may retain Administrator to serve in such capacity with respect to
additional investment portfolios of the Trust, all as now or hereafter may be
identified in Schedule A hereto as such Schedule may be amended from time to
time (individually referred to herein as a "Fund" and collectively referred to
herein as the "Funds"); and
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. Services as Manager and Administrator
Subject to the direction and control of the Board of Trustees of the
Trust, Administrator will assist in supervising all aspects of the operations of
the Funds except those performed by the investment adviser for the Funds under
its Investment Advisory Agreement, the custodian for the Funds under its Custody
Agreement, the transfer agent for the Funds under its Transfer Agency Agreement
and the fund accountant for the Funds under its Fund Accounting Agreement.
Administrator will maintain office facilities (which may be in the
offices of Administrator or an affiliate but shall be in such location as the
Trust shall reasonably determine); furnish statistical and research data,
clerical, certain bookkeeping services and stationery and office supplies;
prepare the periodic reports to the Commission on Form N-SAR or any replacement
forms therefor; compile data for, assist the Trust or its designee in the
preparation of, and file, all the Funds' federal and state tax returns and
required tax filings other than those required to be made by the Funds'
custodian and transfer agent; prepare compliance filings pursuant to state
securities laws with the advice of the Trust's counsel; assist to the extent
requested by the Trust with the Trust's preparation of its Annual and
Semi-Annual Reports to Shareholders and its Registration Statements (on Form
N-1A or any replacement therefor); compile data for, prepare and file timely
Notices to the Commission required pursuant to Rule 24f-2 under the 1940 Act;
keep and maintain the financial accounts and records of the Funds, including
calculation of daily expense accruals; in the case of money market funds,
periodic review of the amount of the
<PAGE> 3
deviation, if any, of the current net asset value per share (calculated using
available market quotations or an appropriate substitute that reflects current
market conditions) from each money market fund's amortized cost price per share;
and generally assist in all aspects of the operations of the Funds. In
compliance with the requirements of Rule 31a-3 under the 1940 Act, Administrator
hereby agrees that all records which it maintains for the Trust are the property
of the Trust and further agrees to surrender promptly to the Trust any of such
records upon the Trust's request. Administrator further agrees to preserve for
the periods prescribed by Rule 31a-2 under the 1940 Act the records required to
be maintained by Rule 31a-1 under the 1940 Act. Administrator may delegate some
or all of its responsibilities under this Agreement.
Administrator may, at its expense, subcontract with any entity or
person concerning the provision of the services contemplated hereunder;
provided, however, that Administrator shall not be relieved of any of its
obligations under this Agreement by the appointment of such subcontractor and
provided further, that Administrator shall be responsible, to the extent
provided in Section 4 hereof, for all acts of such subcontractor as if such acts
were its own.
2. Fees; Expenses; Expense Reimbursement
In consideration of services rendered and expenses assumed pursuant to
this Agreement, each of the Funds will pay Administrator on the first business
day of each month, or at such time(s) as Administrator shall request and the
parties hereto shall agree, a fee computed daily and paid as specified below
calculated at the applicable annual rate set forth on Schedule A hereto. The fee
for the period from the day of the month this Agreement is entered into until
the end of that month shall be prorated according to the proportion which such
period bears to the full monthly period. Upon any termination of this Agreement
before the end of any month, the fee for such part of a month shall be prorated
according to the proportion which such period bears to the full monthly period
and shall be payable upon the date of termination of this Agreement.
For the purpose of determining fees payable to Administrator, the value
of the net assets of a particular Fund shall be computed in the manner described
in the Trust's Declaration of Trust or in the Prospectus or Statement of
Additional Information respecting that Fund as from time to time is in effect
for the computation of the value of such net assets in connection with the
determination of the liquidating value of the shares of such Fund.
Administrator will from time to time employ or associate with itself
such person or persons as Administrator may believe to be particularly fitted to
assist it in the performance of this Agreement. Such person or persons may be
partners, officers, or employees who are employed by both Administrator and the
Trust.
-2-
<PAGE> 4
The compensation of such person or persons shall be paid by Administrator and no
obligation may be incurred on behalf of the Funds in such respect. Other
expenses to be incurred in the operation of the Funds including taxes, interest,
brokerage fees and commissions, if any, fees of Trustees who are not partners,
officers, directors, shareholders or employees of Administrator or the
investment adviser or distributor for the Funds, Commission fees and state Blue
Sky qualification and renewal fees and expenses, advisory fees, pricing service
fees, custodian fees, transfer and dividend disbursing agents' fees, fund
accounting fees, certain insurance premiums, outside and, to the extent
authorized by the Trust, inside auditing and legal fees and expenses, costs of
maintenance of the Trust's existence, typesetting and printing prospectuses for
regulatory purposes and for distribution to current shareholders of the Funds,
costs of shareholders' and Trustees' reports and meetings, fees incurred under
the Trust's Distribution and Shareholder Service Plan and Administrative
Services Plan and any extraordinary expenses will be borne by the Funds.
If in any fiscal year the aggregate expenses of a particular Fund (as
defined under the securities regulations of any state having jurisdiction over
the Trust) exceed the expense limitations of any such state, Administrator will
reimburse such Fund for a portion of such excess expenses equal to such excess
times the ratio of the fees respecting such Fund otherwise payable to
Administrator hereunder to the aggregate fees respecting such Fund otherwise
payable to Administrator hereunder, to Martindale Andres & Company, Inc. under
the Investment Advisory Agreement between Martindale Andres & Company, Inc. and
the Trust and to BISYS Fund Services, Inc. under the Fund Accounting Agreement
between BISYS Fund Services, Inc. and the Trust. The expense reimbursement
obligation of Administrator is limited to the amount of its fees hereunder for
such fiscal year, provided, however, that notwithstanding the foregoing,
Administrator shall reimburse a particular Fund for such proportion of such
excess expenses regardless of the amount of fees paid to it during such fiscal
year to the extent that the securities regulations of any state having
jurisdiction over the Trust so require. Such expense reimbursement, if any, will
be estimated daily and reconciled and paid on a monthly basis.
3. Proprietary and Confidential Information
Administrator agrees on behalf of itself and its partners and employees
to treat confidentially and as proprietary information of the Trust all records
and other information relative to the Trust and prior, present, or potential
shareholders, and not to use such records and information for any purpose other
than performance of its responsibilities and duties hereunder, except after
prior notification to and approval in writing by the Trust, which approval shall
not be unreasonably withheld and may not be withheld
-3-
<PAGE> 5
where Administrator may be exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Trust.
4. Limitation of Liability
Administrator shall not be liable for any loss suffered by the Funds in
connection with the matters to which this Agreement relates, except for a loss
resulting from willful misfeasance, bad faith or negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement. Any person, even though also a partner,
employee, or agent of Administrator, who may be or become an officer, Trustee,
employee, or agent of the Trust or the Funds shall be deemed, when rendering
services to the Trust or the Funds, or acting on any business of that party, to
be rendering such services to or acting solely for that party and not as a
partner, employee, or agent or one under the control or direction of
Administrator even though paid by it.
5. Term
This Agreement shall become effective as of the date first written
above (or, if a particular Fund is not in existence on that date, on the date an
amendment to Schedule A to this Agreement relating to that Fund is executed)
and, unless sooner terminated as provided herein, shall continue until July 9,
1999, and thereafter shall be renewed automatically for successive one-year
terms, unless written notice not to renew is given by the non-renewing party to
the other party at least 60 days prior to the expiration of the then-current
term; provided that the performance of Administrator is specifically reviewed at
least annually by the Trust's Board of Trustees. Such review shall include the
review of acts of negligence, if any, by Administrator, and if such acts of
negligence are determined to be material by the Trustees, such acts shall be an
event of "cause" as used below. This Agreement is terminable with respect to a
particular Fund through a failure to renew at the end of a one-year term; upon
mutual agreement of the parties hereto; upon 180 days' written notice by the
Trust after the initial term hereof but only in connection with the
reorganization of the Funds into another registered management investment
company; or for "cause" (as defined below) by the party alleging "cause," on not
less than 60 days' notice by the Trust's Board of Trustees or by Administrator.
Written notice not to renew may be given for any reason, with or without
"cause."
For purposes of this Agreement, "cause" shall mean (a) willful
misfeasance, bad faith, gross negligence, acts of negligence by Administrator
determined by the Trustees to be material, or reckless disregard on the part of
the party to be terminated with respect to its obligations and duties set forth
herein; (b) a
-4-
<PAGE> 6
final, unappealable judicial, regulatory or administrative ruling or order in
which the party to be terminated has been found guilty of criminal or unethical
behavior in the conduct of its business; (c) the dissolution or liquidation of
either party or other cessation of business other than a reorganization or
recapitalization of such party as an ongoing business; (d) financial
difficulties on the part of the party to be terminated which is evidenced by the
authorization or commencement of, or involvement by way of pleading, answer,
consent, or acquiescence in, a voluntary or involuntary case under Title 11 of
the United States Code, as from time to time in effect, or any applicable law,
other than said Title 11, of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or alteration of the rights of
creditors; or (e) any circumstance which substantially impairs the performance
of the obligations and duties of the party to be terminated, or the ability to
perform those obligations and duties as contemplated herein. Notwithstanding the
foregoing, the absence of an annual review of this Agreement by the Board of
Trustees shall not, in and of itself, constitute "cause" as used herein.
6. Governing Law and Matters Relating to the Trust as an
Ohio Business Trust
This Agreement shall be governed by the law of the State of Ohio. The
Sessions Group is a business trust organized under Chapter 1746, Ohio Revised
Code and under a Declaration of Trust, to which reference is hereby made and a
copy of which is on file at the office of the Secretary of State of Ohio as
required by law, and to any and all amendments thereto so filed or hereafter
filed. The obligations of "The Sessions Group" entered into in the name or on
behalf thereof by any of the Trustees, officers, employees or agents are made
not individually, but in such capacities, and are not binding upon any of the
Trustees, officers, employees, agents or shareholders of the Trust personally,
but bind only the assets of the Trust, as set forth in Section 1746.13(A), Ohio
Revised Code, and all persons dealing with any of the Funds of the Trust must
look solely to the assets of the Trust belonging to such Fund for the
enforcement of any claims against the Trust.
BISYS FUND SERVICES LIMITED THE SESSIONS GROUP
PARTNERSHIP
By BISYS Fund Services, Inc.,
General Partner By /s/ Walter B. Grimm
----------------------------
Walter B. Grimm, President
By /s/ J. David Huber
-----------------------------
(name) (title)
-5-
<PAGE> 7
Dated: January 29, 1997
Schedule A to the
Management and Administration Agreement
between The Sessions Group and
BISYS Fund Services Limited Partnership
dated July 9, 1996
Name of Fund Compensation* Date
The KeyPremier Annual rate of eleven July 9, 1996
Prime Money and one-half
Market Fund one-hundredths of
one percent (.115%)
of such Fund's average
daily net assets
The KeyPremier Annual rate of eleven July 9, 1996
Pennsylvania and one-half
Municipal Bond one-hundredths of
Fund one percent (.115%)
of such Fund's average
daily net assets
The KeyPremier Annual rate of eleven October 30, 1996
Established and one-half
Growth Fund one-hundredths of
one percent (.115%)
of such Fund's average
daily net assets
The KeyPremier Annual rate of eleven October 30, 1996
Intermediate and one-half
Term Income Fund one-hundredths of
one percent (.115%)
of such Fund's average
daily net assets
- --------
*All fees are computed daily and paid periodically.
A-1
<PAGE> 8
The KeyPremier Annual rate of eleven January 29, 1997
Aggressive Growth and one-half
Fund one-hundredths of
one percent (.115%)
of such Fund's average
daily net assets
BISYS FUND SERVICES LIMITED THE SESSIONS GROUP
PARTNERSHIP
By BISYS Fund Services, Inc. By /s/ Walter B. Grimm
----------------------------
General Partner Walter B. Grimm, President
By /s/ J. David Huber
----------------------------
J. David Huber, President
A-2
<PAGE> 1
EXHIBIT (9)(y)
<PAGE> 2
FUND ACCOUNTING AGREEMENT
This Agreement is made as of July 9, 1996 between The Sessions Group
(the "Trust"), an Ohio business trust having its principal place of business at
3435 Stelzer Road, Columbus, Ohio 43219, and BISYS Fund Services, Inc.
("BISYS"), a Delaware corporation having its principal place of business at 3435
Stelzer Road, Columbus, Ohio 43219.
WHEREAS, the Trust desires that BISYS perform certain fund accounting
services for each of The KeyPremier Prime Money Market Fund and The KeyPremier
Pennsylvania Municipal Bond Fund and such other investment portfolios of the
Trust identified on Schedule A hereto, as such Schedule may be amended from time
to time (individually referred to herein as a "Fund" and collectively as the
"Funds"); and
WHEREAS, BISYS is willing to perform such services on the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
Section 1. Services as Fund Accountant.
(a) Maintenance of Books and Records. BISYS will keep and
maintain the following books and records of each Fund pursuant to Rule
31a-1 under the Investment Company Act of 1940 (the "Rule"):
(i) Journals containing an itemized daily record in
detail of all purchases and sales of securities, all
receipts and disbursements of cash and all other debits
and credits, as required by subsection (b)(1) of the Rule;
(ii) General and auxiliary ledgers reflecting all
asset, liability, reserve, capital, income and expense
accounts, including interest accrued and interest
received, as required by subsection (b)(2)(i) of the Rule;
(iii) Separate ledger accounts required by subsection
(b)(2)(ii) and (iii) of the Rule; and
(iv) A monthly trial balance of all ledger accounts
(except shareholder accounts) as required by subsection
(b)(8) of the Rule.
(b) Performance of Daily Accounting Services. In addition
to the maintenance of the books and records specified above, BISYS
shall perform the following accounting services daily for each Fund:
<PAGE> 3
(i) Calculate the net asset value per share utilizing
prices obtained from the sources described in subsection
1(b)(ii) below;
(ii) Obtain security prices from independent pricing
services, or if such quotes are unavailable, then obtain
such prices from each Fund's investment adviser or its
designee, as approved by the Trust's Board of Trustees;
(iii) Verify and reconcile with the Funds' custodian
all daily trade activity;
(iv) Compute, as appropriate, each Fund's net income
and capital gains, dividend payables, dividend factors,
7-day yields, 7-day effective yields, 30-day yields, and
weighted average portfolio maturity;
(v) Review daily the net asset value calculation and
dividend factor (if any) for each Fund prior to release to
shareholders, check and confirm the net asset values and
dividend factors for reasonableness and deviations, and
distribute net asset values and yields to NASDAQ;
(vi) Report to the Trust the daily market pricing of
securities in any money market Funds, with the comparison
to the amortized cost basis;
(vii) Determine unrealized appreciation and
depreciation on securities held in variable net asset
value Funds;
(viii) Amortize premiums and accrete discounts on
securities purchased at a price other than face value, if
requested by the Trust;
(ix) Update fund accounting system to reflect rate
changes, as received from a Fund's investment adviser, on
variable interest rate instruments;
(x) Post Fund transactions to appropriate categories;
(xi) Accrue expenses of each Fund according to
instructions received from the Trust's Administrator;
(xii) Determine the outstanding receivables and
payables for all (1) security trades, (2) Fund share
transactions and (3) income and expense accounts;
-2-
<PAGE> 4
(xiii) Provide accounting reports in connection with
the Trust's regular annual audit and other audits and
examinations by regulatory agencies; and
(xiv) Provide such periodic reports as the parties
shall agree upon, as set forth in a separate schedule.
(c) Special Reports and Services
(i) BISYS may provide additional special reports upon
the request of the Trust or a Fund's investment adviser,
which may result in an additional charge, the amount of
which shall be agreed upon between the parties.
(ii) BISYS may provide such other similar services
with respect to a Fund as may be reasonably requested by
the Trust, which may result in an additional charge, the
amount of which shall be agreed upon between the parties.
(d) Additional Accounting Services. BISYS shall also
perform the following additional accounting services for each Fund:
(i) Provide monthly a download (and hard copy thereof)
of the financial statements described below, upon request
of the Trust. The download will include the following
items:
Statement of Assets and Liabilities,
Statement of Operations,
Statement of Changes in Net Assets, and
Condensed Financial Information;
(ii) Provide accounting information for the following:
(A) federal and state income tax returns and
federal excise tax returns;
(B) the Trust's semi-annual reports with the
Securities and Exchange Commission ("SEC") on Form
N-SAR;
(C) the Trust's annual, semi-annual and quarterly
(if any) shareholder reports;
(D) registration statements on Form-N1A and other
filings relating to the registration of shares;
(E) the Administrator's monitoring of the Trust's
status as a regulated investment company
-3-
<PAGE> 5
under Subchapter M of the Internal Revenue Code, as
amended;
(F) annual audit by the Trust's auditors; and
(G) examinations performed by the SEC.
Section 2. Subcontracting.
BISYS may, at its expense, subcontract with any entity or person
concerning the provision of the services contemplated hereunder; provided,
however, that BISYS shall not be relieved of any of its obligations under this
Agreement by the appointment of such subcontractor and provided further, that
BISYS shall be responsible, to the extent provided in Section 7 hereof, for all
acts of such subcontractor as if such acts were its own.
Section 3. Compensation.
The Trust shall pay BISYS for the services to be provided by BISYS
under this Agreement in accordance with, and in the manner set forth in,
Schedule A hereto, as such Schedule may be amended from time to time.
If in any fiscal year the aggregate expenses of a particular Fund (as
defined under the securities regulations of any state having jurisdiction over
the Trust) exceed the expense limitations of any such state, BISYS will
reimburse such Fund for a portion of such excess expenses equal to such excess
times the ratio of the fees respecting such Fund otherwise payable to BISYS
hereunder to the aggregate fees respecting such Fund otherwise payable to BISYS
hereunder, to Martindale Andres & Company, Inc. under the Investment Advisory
Agreement between Martindale Andres & Company, Inc. and the Trust and to BISYS
Fund Services Limited Partnership under the Management and Administration
Agreement between BISYS Fund Services Limited Partnership and the Trust. The
expense reimbursement obligation of BISYS is limited to the amount of its fees
hereunder for such fiscal year, provided, however, that notwithstanding the
foregoing, BISYS shall reimburse a particular Fund for such proportion of such
excess expenses regardless of the amount of fees paid to it during such fiscal
year to the extent that the securities regulations of any state having
jurisdiction over the Trust so require. Such expense reimbursement, if any, will
be estimated daily and reconciled and paid on a monthly basis.
Section 4. Reimbursement of Expenses.
In addition to paying BISYS the fees described in Section 3 hereof, the
Trust agrees to reimburse BISYS for BISYS's out-of-pocket expenses in providing
services hereunder, including without limitation the following:
-4-
<PAGE> 6
(1) All freight and other delivery and bonding charges
incurred by BISYS in delivering materials to and from
the Trust;
(2) All direct telephone, telephone transmission and
telecopy or other electronic transmission expenses
incurred by BISYS in communication with the Trust, the
Trust's investment adviser or custodian, dealers or
others as required for BISYS to perform the services to
be provided hereunder;
(3) The cost of obtaining security market quotes pursuant
to Section 1(b)(ii) above;
(4) The cost of microfilm or microfiche of records or other
materials;
(5) Any expenses BISYS shall incur at the written direction
of an officer of the Trust thereunto duly authorized by
the Trust's Board of Trustees; and
(6) Any additional out-of-pocket expenses reasonably
incurred by BISYS in the performance of its duties and
obligations under this Agreement.
Section 5. Effective Date. This Agreement shall become effective
with respect to a Fund as of the date first written above (or, if a particular
Fund is not in existence on that date, on the date an amendment to Schedule A to
this Agreement relating to that Fund is executed) (the "Effective Date").
Section 6. Term. This Agreement shall continue in effect with
respect to a Fund, unless earlier terminated by either party hereto as provided
hereunder, until July 9, 1999, and thereafter shall be renewed automatically for
successive one-year terms unless written notice not to renew is given by the
non-renewing party to the other party at least 60 days prior to the expiration
of the then-current term; provided, however, that after such termination, for so
long as BISYS, with the written consent of the Trust, in fact continues to
perform any one or more of the services contemplated by this Agreement or any
schedule or exhibit hereto, the provisions of this Agreement, including without
limitation the provisions dealing with indemnification, shall continue in full
force and effect. Compensation due BISYS and unpaid by the Trust upon such
termination shall be immediately due and payable upon and notwithstanding such
termination. BISYS shall be entitled to collect from the Trust, in addition to
the compensation described under Section 3 hereof, the amount of all of BISYS'
reasonable cash disbursements for services in connection with BISYS' activities
in effecting such termination, including without limitation, the delivery to the
Trust and/or its designees of the Trust's property, records, instruments and
documents, or any copies thereof. To the extent
-5-
<PAGE> 7
that BISYS may retain in its possession copies of any Trust documents or records
subsequent to such termination, which copies had not been requested by or on
behalf of the Trust in connection with the termination process described above,
for a reasonable fee, BISYS will provide the Trust with reasonable access to
such copies. The performance of BISYS under this Agreement shall be reviewed at
least annually by the Trust's Board of Trustees. Such review shall include the
review of acts of negligence, if any, by BISYS, and if such acts of negligence
are determined to be material by the Trustees, such acts shall be an event of
"cause" as used below. This Agreement is terminable with respect to a particular
Fund only upon mutual agreement of the parties hereto; upon 180 days' written
notice by the Trust after the initial term hereof but only in connection with
the reorganization of the Funds into another registered management investment
company; or for "cause" (as defined below) by the party alleging "cause," on not
less than 60 days' notice by the Trust's Board of Trustees or by BISYS.
For purposes of this Agreement, "cause" shall mean (a) willful
misfeasance, bad faith, gross negligence, acts of negligence by BISYS as
determined by the Trustees to be material or reckless disregard on the part of
either party with respect to its obligations and duties set forth herein; (b) a
final, unappealable judicial, regulatory or administrative ruling or order in
which either party has been found guilty of criminal or unethical behavior in
the conduct of its business; (c) the dissolution or liquidation of either party
or other cessation of business other than a reorganization or recapitalization
of such party as an ongoing business; (d) financial difficulties on the part of
either party which is evidenced by the authorization or commencement of, or
involvement by way of pleading, answer, consent, or acquiescence in, a voluntary
or involuntary case under Title 11 of the United States Code, as from time to
time is in effect, or any applicable law, other than said Title 11, of any
jurisdiction relating to the liquidation or reorganization of debtors or to the
modification or alteration of the rights of creditors; or (e) any circumstance
which substantially impairs the performance of either party's obligations and
duties as contemplated herein.
Section 7. Standard of Care; Reliance on Records and Instructions;
Indemnification. BISYS shall use its best efforts to ensure the accuracy of all
services performed under this Agreement, but shall not be liable to the Trust
for any action taken or omitted by BISYS in the absence of bad faith, willful
misfeasance, negligence or from reckless disregard by it of its obligations and
duties. A Fund agrees to indemnify and hold harmless BISYS, its employees,
agents, directors, officers and nominees from and against any and all claims,
demands, actions and suits, whether groundless or otherwise, and from and
against any and all judgments, liabilities, losses, damages, costs, charges,
counsel fees and other expenses of every nature and character arising out of or
in any way relating to BISYS' actions taken or nonactions with respect to the
performance
-6-
<PAGE> 8
of services under this Agreement with respect to such Fund or based, if
applicable, upon reasonable reliance on information, records, instructions or
requests with respect to such Fund given or made to BISYS by a duly authorized
representative of the Trust; provided that this indemnification shall not apply
to actions or omissions of BISYS in cases of its own bad faith, willful
misfeasance, negligence or from reckless disregard by it of its obligations and
duties, and further provided that prior to confessing any claim against it which
may be the subject of this indemnification, BISYS shall give the Trust written
notice of and reasonable opportunity to defend against said claim in its own
name or in the name of BISYS.
Section 8. Record Retention and Confidentiality. BISYS shall keep
and maintain on behalf of the Trust all books and records which the Trust or
BISYS is, or may be, required to keep and maintain pursuant to any applicable
statutes, rules and regulations, including without limitation Rules 31a-1 and
31a-2 under the Investment Company Act of 1940, as amended (the "1940 Act")
relating to the maintenance of books and records in connection with the services
to be provided hereunder. BISYS further agrees that all such books and records
shall be the property of the Trust and to make such books and records available
for inspection by the Trust or by the Securities and Exchange Commission at
reasonable times and otherwise to keep confidential all books and records and
other information relative to the Trust and its shareholders; except when
requested to divulge such information by duly-constituted authorities or court
process.
Section 9. Uncontrollable Events. BISYS assumes no responsibility
hereunder, and shall not be liable, for any damage, loss of data, delay or any
other loss whatsoever caused by events beyond its
reasonable control.
Section 10. Reports. BISYS will furnish to the Trust and to its
properly authorized auditors, investment advisers, examiners, distributors,
dealers, underwriters, salesmen, insurance companies and others designated by
the Trust in writing, such reports and at such times as are prescribed pursuant
to the terms and the conditions of this Agreement to be provided or completed
by BISYS, or as subsequently agreed upon by the parties pursuant to an
amendment hereto. The Trust agrees to examine each such report or copy promptly
and will report or cause to be reported any errors or discrepancies therein no
later than three business days from the receipt thereof. In the event that
errors or discrepancies, except such errors and discrepancies as may not
reasonably be expected to be discovered by the recipient within ten days after
conducting a diligent examination, are not so reported within the aforesaid
period of time, a report will for all purposes be accepted by and binding upon
the Trust and any other recipient, and except as provided in Section 7 hereof,
BISYS shall have no liability for errors or discrepancies therein and shall
have no further
-7-
<PAGE> 9
responsibility with respect to such report except to perform reasonable
corrections of such errors and discrepancies within a reasonable time after
requested to do so by the Trust.
Section 11. Rights of Ownership. All computer programs and
procedures developed to perform services required to be provided by BISYS under
this Agreement are the property of BISYS. All records and other data except such
computer programs and procedures are the exclusive property of the Trust and all
such other records and data will be furnished to the Trust in appropriate form
as soon as practicable after termination of this Agreement for any reason.
Section 12. Return of Records. BISYS may at its option at any
time, and shall promptly upon the Trust's demand, turn over to the Trust and
cease to retain BISYS' files, records and documents created and maintained by
BISYS pursuant to this Agreement; provided, however, that to the extent needed
by BISYS in the performance of its services or for its legal protection, BISYS
may retain copies of such files, records and documents at BISYS' own expense. If
not so turned over to the Trust, such documents and records will be retained by
BISYS for six years from the year of creation. At the end of such six-year
period, such records and documents will be turned over to the Trust unless the
Trust authorizes in writing the destruction of such records and documents.
Section 13. Representations of the Trust. The Trust certifies to
BISYS that: (1) as of the close of business on the Effective Date, each Fund
which is in existence as of the Effective Date has authorized unlimited shares,
and (2) this Agreement has been duly authorized by the Trust and, when executed
and delivered by the Trust, will constitute a legal, valid and binding
obligation of the Trust, enforceable against the Trust in accordance with its
terms, subject to bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting the rights and remedies of creditors and
secured parties.
Section 14. Representations of BISYS. BISYS represents and warrants
that: (1) the various procedures and systems which BISYS has implemented with
regard to safeguarding from loss or damage attributable to fire, theft, or any
other cause of the blank checks, records, and other data of the Trust and BISYS'
records, data, equipment facilities and other property used in the performance
of its obligations hereunder are adequate and that it will make such changes
therein from time to time as are required for the secure performance of its
obligations hereunder, and (2) this Agreement has been duly authorized by BISYS
and, when executed and delivered by BISYS, will constitute a legal, valid and
binding obligation of BISYS, enforceable against BISYS in accordance with its
terms, subject to bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting the rights and remedies of creditors and
secured parties.
-8-
<PAGE> 10
Section 15. Insurance. BISYS shall notify the Trust should any of
its insurance coverage be cancelled or reduced. Such notification shall include
the date of change and the reasons therefor. BISYS shall notify the Trust of any
material claims against it with respect to services performed under this
Agreement, whether or not they may be covered by insurance, and shall notify the
Trust from time to time as may be appropriate of the total outstanding claims
made by BISYS under its insurance coverage.
Section 16. Information to be Furnished by the Trust and Funds. The
Trust has furnished to BISYS the following:
(a) Copies of the Declaration of Trust of the Trust and of any
amendments thereto, certified by the proper official of the
state in which such Declaration has been filed.
(b) Copies of the following documents:
(i) The Trust's By-Laws and any amendments thereto; and
(ii) Certified copies of resolutions of the Board of
Trustees covering the approval of this Agreement,
authorization of a specified officer of the Trust to
execute and deliver this Agreement and authorization
for specified officers of the Trust to instruct BISYS
thereunder.
(c) A list of all the officers of the Trust, together with
specimen signatures of those officers who are authorized to
instruct BISYS in all matters.
(d) Two copies of the Prospectus and Statement of Additional
Information for each Fund.
Section 17. Information Furnished by BISYS.
(a) BISYS has furnished to the Trust the following:
(i) BISYS's Articles of Incorporation; and
(ii) BISYS's Bylaws and any amendments thereto.
(b) BISYS shall, upon request, furnish certified copies of
actions of BISYS covering the following matters:
(i) Approval of this Agreement, and authorization of a
specified officer of BISYS to execute and deliver
this Agreement; and
(ii) Authorization of BISYS to act as fund accountant
for the Trust and to provide accounting services
for the Trust.
-9-
<PAGE> 11
Section 18. Amendments to Documents. The Trust shall furnish BISYS
written copies of any amendments to, or changes in, any of the items referred to
in Section 16 hereof forthwith upon such amendments or changes becoming
effective. In addition, the Trust agrees that no amendments will be made to the
Prospectuses or Statements of Additional Information of the Trust which might
have the effect of changing the procedures employed by BISYS in providing the
services agreed to hereunder or which amendment might affect the duties of BISYS
hereunder unless the Trust first obtains BISYS' approval of such amendments or
changes.
Section 19. Compliance with Law. Except for the obligations of BISYS
set forth in Section 8 hereof, the Trust assumes full responsibility for the
preparation, contents and distribution of each prospectus of the Trust as to
compliance with all applicable requirements of the Securities Act of 1933, as
amended, the 1940 Act and any other laws, rules and regulations of governmental
authorities having jurisdiction. BISYS shall have no obligation to take
cognizance of any laws relating to the sale of the Trust's shares. The Trust
represents and warrants that no shares of the Trust will be offered to the
public until the Trust's registration statement under the Securities Act of 1933
and the 1940 Act has been declared or becomes effective.
Section 20. Notices. Any notice provided hereunder shall be
sufficiently given when sent by registered or certified mail to the party
required to be served with such notice, at the following address: 3435 Stelzer
Road, Columbus, Ohio 43219, or at such other address as such party may from time
to time specify in writing to the other party pursuant to this Section.
Section 21. Headings. Paragraph headings in this Agreement are included
for convenience only and are not to be used to construe or interpret this
Agreement.
Section 22. Assignment. This Agreement and the rights and duties
hereunder shall not be assignable with respect to a Fund by either of the
parties hereto except by the specific written consent of the other party.
Section 23. Governing Law. This Agreement shall be governed by and
provisions shall be construed in accordance with the laws of the State of Ohio.
Section 24. Limitation of Liability of the Trustees and Shareholders.
The Sessions Group is a business trust organized under Chapter 1746, Ohio
Revised Code and under a Declaration of Trust, to which reference is hereby made
and a copy of which is on file at the office of the Secretary of State of Ohio
as required by law, and to any and all amendments thereto so filed or hereafter
filed. The obligations of "The Sessions Group" entered into in the name or on
behalf thereof by any of the Trustees, officers, employees or
-10-
<PAGE> 12
agents are made not individually, but in such capacities, and are not binding
upon any of the Trustees, officers, employees, agents or shareholders of the
Trust personally, but bind only the assets of the Trust, as set forth in Section
1746.13(A), Ohio Revised Code, and all persons dealing with any of the Funds of
the Trust must look solely to the assets of the Trust belonging to such Fund for
the enforcement of any claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
THE SESSIONS GROUP
By /s/ Walter B. Grimm
---------------------------------
Walter B. Grimm, President
BISYS FUND SERVICES, INC.
By /s/ J. David Huber
---------------------------------
(name) (title)
-11-
<PAGE> 13
Dated: January 29, 1997
SCHEDULE A
TO THE
FUND ACCOUNTING AGREEMENT
BETWEEN
THE SESSIONS GROUP
AND
BISYS FUND SERVICES, INC.
JULY 9, 1996
Name of Fund Compensation* Date
The KeyPremier Prime The greater of (i) the July 9, 1996
Money Market Fund annual rate of .03% of
and The KeyPremier such Fund's average
Pennsylvania daily net assets or (ii)
Municipal Bond Fund the applicable annual
minimum fee of $30,000
per fund ($35,000 for a
municipal or tax-exempt
fund).
The KeyPremier The greater of (i) the October 30, 1996
Established Equity annual rate of .03% of
Fund and The such Fund's average
KeyPremier daily net assets or (ii)
Intermediate Term the applicable annual
Income Fund minimum fee of $30,000
per fund ($35,000 for a
municipal or tax-exempt
fund).
The KeyPremier The greater of (i) the January 29, 1997
Aggressive Growth annual rate of .03% of
Fund such Fund's average
daily net assets or (ii)
the applicable annual
minimum fee of $30,000
per fund ($35,000 for a
municipal or tax-exempt
fund).
BISYS FUND SERVICES, INC. THE SESSIONS GROUP
By /s/ J. David Huber By /s/ Walter B. Grimm
---------------------------- ----------------------------
J. David Huber, President Walter B. Grimm, President
- ----------
* All fees are computed daily and paid periodically.
<PAGE> 1
EXHIBIT (9)(z)
<PAGE> 2
TRANSFER AGENCY AGREEMENT
This Agreement is made as of July 9, 1996, between The Sessions Group
(the "Trust"), an Ohio business trust having its principal place of business at
3435 Stelzer Road, Columbus, Ohio 43219, and BISYS Fund Services, Inc.
("BISYS"), a Delaware corporation having its principal place of business at 3435
Stelzer Road, Columbus, Ohio 43219.
WHEREAS, the Trust desires that BISYS perform certain services for
those series of the Trust set forth in the Schedule A attached hereto, as such
Schedule may be amended from time to time (individually referred to herein as a
"Fund" and collectively as the "Funds"); and
WHEREAS, BISYS is willing to perform such services on the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
Section 1. SERVICES. BISYS shall perform for the Trust the transfer
agent services set forth in Schedule B hereto.
BISYS also agrees to perform for the Trust such special
services incidental to the performance of the services enumerated herein as
agreed to by the parties from time to time. BISYS shall perform such additional
services as are provided on an amendment to Schedule B hereof, in consideration
of such fees as the parties hereto may agree.
BISYS may, in its discretion, appoint in writing other parties
qualified to perform transfer agency services reasonably acceptable to the Trust
(individually, a "Subtransfer Agent") to carry out some or all of its
responsibilities under this Agreement with respect to a Fund; provided, however,
that the Sub-transfer Agent shall be the agent of BISYS and not the agent of the
Trust or such Fund, and that BISYS shall be fully responsible for the acts of
such Sub-transfer Agent and shall not be relieved of any of its responsibilities
hereunder by the appointment of such Sub-transfer Agent.
Section 2. FEES. The Trust shall pay BISYS for the services to be
provided by BISYS under this Agreement in accordance with, and in the manner set
forth in, Schedule C hereto. Fees for any additional services to be provided by
BISYS pursuant to an amendment to Schedule B hereto shall be subject to mutual
agreement at the time such amendment to Schedule C is proposed.
Section 3. REIMBURSEMENT OF EXPENSES. In addition to paying BISYS the
fees described in Section 2 hereof, the Trust agrees to reimburse BISYS for
BISYS' out-of-pocket expenses in providing services hereunder, including without
limitation the following:
<PAGE> 3
A. All freight and other delivery and bonding charges incurred
by BISYS in delivering materials to and from the Trust and in
delivering all materials to shareholders;
B. All direct telephone, telephone transmission and telecopy or
other electronic transmission expenses incurred by BISYS in
communication with the Trust, the Trust's investment adviser
or custodian, dealers, shareholders or others as required for
BISYS to perform the services to be provided hereunder;
C. Costs of postage, couriers, stock computer paper, statements,
labels, envelopes, checks, reports, letters, tax forms,
proxies, notices or other form of printed material which shall
be required by BISYS for the performance of the services to be
provided hereunder;
D. The cost of microfilm or microfiche of records or other
materials; and
E. Any expenses BISYS shall incur at the written direction of an
officer of the Trust thereunto duly authorized by the Trust's
Board of Trustees.
Section 4. EFFECTIVE DATE. This Agreement shall become effective as of
the date first written above (the "Effective Date").
Section 5. TERM. This Agreement shall continue in effect, unless
earlier terminated by either party hereto as provided hereunder, until July 9,
1999. Thereafter, this Agreement shall be renewed automatically for successive
one-year terms unless written notice not to renew is given by the non-renewing
party to the other party at least 60 days prior to the expiration of the
then-current term; provided, however, that after such termination, for so long
as BISYS, with the written consent of the Trust, in fact continues to perform
any one or more of the services contemplated by this Agreement or any Schedule
or exhibit hereto, the provisions of this Agreement, including without
limitation the provisions dealing with indemnification, shall continue in full
force and effect. Compensation due BISYS and unpaid by the Trust upon such
termination shall be immediately due and payable upon and notwithstanding such
termination. BISYS shall be entitled to collect from the Trust, in addition to
the fees and disbursements provided by Sections 2 and 3 hereof, the amount of
all of BISYS' reasonable cash disbursements for services in connection with
BISYS' activities in effecting such termination, including without limitation,
the delivery to the Trust and/or its distributor or investment advisers and/or
other parties, of the Trust's property, records, instruments and documents, or
any copies thereof. To the extent that BISYS may retain in its possession copies
of any Trust documents or records subsequent to such termination which copies
had not been requested by or on behalf of the Trust in connection
- 2 -
<PAGE> 4
with the termination process described above, BISYS, for a reasonable fee, will
provide the Trust with reasonable access to such copies. The performance of
BISYS under this Agreement shall be reviewed at least annually by the Trust's
Board of Trustees. Such review shall include the review of acts of negligence,
if any, by BISYS, and if such acts of negligence are determined to be material
by the Trustees, such acts shall be an event of "cause" as used below. Further,
this Agreement is terminable with respect to a particular Fund only upon mutual
agreement of the parties hereto; upon 180 days' written notice by the Trust
after the initial term hereof but only in connection with the reorganization of
the Funds into another registered management investment company; or for "cause"
(as defined below) by the party alleging "cause," on not less than 60 days'
notice by the Trust's Board of Trustees or by BISYS.
For purposes of this Agreement, "cause" shall mean (a) willful
misfeasance, bad faith, gross negligence, acts of negligence by BISYS determined
by the Trustees to be material, or reckless disregard on the part of the party
to be terminated with respect to its obligations and duties set forth herein;
(b) a final, unappealable judicial, regulatory or administrative ruling or order
in which the party to be terminated has been found guilty of criminal or
unethical behavior in the conduct of its business; (c) financial difficulties on
the part of the party to be terminated which are evidenced by the authorization
or commencement of, or involvement by way of pleading, answer, consent, or
acquiescence in, a voluntary or involuntary case under Title 11 of the United
States Code, as from time to time is in effect, or any applicable law, other
than said Title 11, of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or alteration of the rights of
creditors; or (d) any circumstance which substantially impairs the performance
of the obligations and duties as contemplated herein of the party to be
terminated.
Section 6. UNCONTROLLABLE EVENTS. BISYS assumes no responsibility
hereunder, and shall not be liable, for any damage, loss of data, delay or any
other loss whatsoever caused by events beyond its reasonable control.
Section 7. LEGAL ADVICE. BISYS shall notify the Trust at any time BISYS
believes that it is in need of the advice of counsel (other than counsel in the
regular employ of BISYS or any affiliated companies) with regard to BISYS'
responsibilities and duties pursuant to this Agreement; and after so notifying
the Trust, BISYS, at its discretion, shall be entitled to seek, receive and act
upon advice of legal counsel of its choosing, such advice to be at the expense
of the Trust or Funds unless relating to a matter involving BISYS' willful
misfeasance, bad faith, negligence or reckless disregard with respect to BISYS'
responsibilities and duties hereunder and BISYS shall in no event be liable to
the Trust
- 3 -
<PAGE> 5
or any Fund or any shareholder or beneficial owner of the Trust for any action
reasonably taken pursuant to such advice.
Section 8. INSTRUCTIONS. Whenever BISYS is requested or authorized to
take action hereunder pursuant to instructions from a shareholder or a properly
authorized agent of a shareholder ("shareholder's agent"), concerning an account
in a Fund, BISYS shall be entitled to rely upon any certificate, letter or other
instrument or communication, whether in writing, by electronic or telephone
transmission, believed by BISYS to be genuine and to have been properly made,
signed or authorized by an officer or other authorized agent of the Trust or by
the shareholder or shareholder's agent, as the case may be, and shall be
entitled to receive as conclusive proof of any fact or matter required to be
ascertained by it hereunder a certificate signed by an officer of the Trust or
any other person authorized by the Trust's Board of Trustees or by the
shareholder or shareholder's agent, as the case may be.
As to the services to be provided hereunder, BISYS may rely
conclusively upon the terms of the Prospectuses and Statements of Additional
Information of the Trust relating to the Funds to the extent that such services
are described therein unless BISYS receives written instructions to the contrary
in a timely manner from the Trust.
Section 9. STANDARD OF CARE; RELIANCE ON RECORDS AND INSTRUCTIONS;
INDEMNIFICATION. BISYS shall use its best efforts to ensure the accuracy of all
services performed under this Agreement, but shall not be liable to the Trust
for any action taken or omitted by BISYS in the absence of bad faith, willful
misfeasance, negligence or from reckless disregard by it of its obligations and
duties. The Trust agrees to indemnify and hold harmless BISYS, its employees,
agents, directors, officers and nominees from and against any and all claims,
demands, actions and suits, whether groundless or otherwise, and from and
against any and all judgments, liabilities, losses, damages, costs, charges,
counsel fees and other expenses of every nature and character arising out of or
in any way relating to BISYS' actions taken or nonactions with respect to the
performance of services under this Agreement or based, if applicable, upon
reasonable reliance on information, records, instructions or requests given or
made to BISYS by the Trust, the investment adviser and on any records provided
by any fund accountant or custodian thereof; provided that this indemnification
shall not apply to actions or omissions of BISYS in cases of its own bad faith,
willful misfeasance, negligence or from reckless disregard by it of its
obligations and duties; and further provided that prior to confessing any claim
against it which may be the subject of this indemnification, BISYS shall give
the Trust written notice of and reasonable opportunity to defend against said
claim in its own name or in the name of BISYS.
- 4 -
<PAGE> 6
Section 10. RECORD RETENTION AND CONFIDENTIALITY. BISYS shall keep and
maintain on behalf of the Trust all books and records which the Trust or BISYS
is, or may be, required to keep and maintain pursuant to any applicable
statutes, rules and regulations, including without limitation Rules 31a-1 and
31a-2 under the Investment Company Act of 1940, as amended (the "1940 Act"),
relating to the maintenance of books and records in connection with the services
to be provided hereunder. BISYS further agrees that all such books and records
shall be the property of the Trust and to make such books and records available
for inspection by the Trust or by the Securities and Exchange Commission (the
"Commission") at reasonable times and otherwise to keep confidential all books
and records and other information relative to the Trust and its shareholders;
except when requested to divulge such information by duly-constituted
authorities or court process, or requested by a shareholder, or shareholder's
agent, with respect to information concerning an account as to which such
shareholder has either a legal or beneficial interest or when requested by the
Trust, the shareholder, or shareholder's agent, or the dealer of record as to
such account.
Section 11. REPORTS. BISYS will furnish to the Trust and to its
properly authorized auditors, investment advisers, examiners, distributors,
dealers, underwriters, salesmen, insurance companies and others designated by
the Trust in writing, such reports at such times as are prescribed in Schedule D
attached hereto, or as subsequently agreed upon by the parties pursuant to an
amendment to Schedule D. The Trust agrees to examine each such report or copy
promptly and will report or cause to be reported any errors or discrepancies
therein no later than three business days from the receipt thereof. In the event
that errors or discrepancies, except such errors and discrepancies as may not
reasonably be expected to be discovered by the recipient within ten days after
conducting a diligent examination, are not so reported within the aforesaid
period of time, a report will for all purposes be accepted by and binding upon
the Trust and any other recipient, and, except as provided in Section 9 hereof,
BISYS shall have no liability for errors or discrepancies therein and shall have
no further responsibility with respect to such report except to perform
reasonable corrections of such errors and discrepancies within a reasonable time
after requested to do so by the Trust.
Section 12. RIGHTS OF OWNERSHIP. All computer programs and procedures
developed to perform services required to be provided by BISYS under this
Agreement are the property of BISYS. All records and other data except such
computer programs and procedures are the exclusive property of the Trust and all
such other records and data will be furnished to the Trust in appropriate form
as soon as practicable after termination of this Agreement for any reason.
Section 13. RETURN OF RECORDS. BISYS may at its option at any time, and
shall promptly upon the Trust's demand, turn over to the Trust
- 5 -
<PAGE> 7
and cease to retain BISYS' files, records and documents created and maintained
by BISYS pursuant to this Agreement; provided, however, that to the extent
needed by BISYS in the performance of its services or for its legal protection,
BISYS may retain copies of such files, records and documents at BISYS' own
expense. If not so turned over to the Trust, such documents and records will be
retained by BISYS for six years from the year of creation. At the end of such
six-year period, such records and documents will be turned over to the Trust
unless the Trust authorizes in writing the destruction of such records and
documents.
Section 14. BANK ACCOUNTS. The Trust and the Funds shall establish and
maintain such bank accounts with such bank or banks as are selected by the
Trust, as are necessary in order that BISYS may perform the services required to
be performed hereunder. To the extent that the performance of such services
shall require BISYS directly to disburse amounts for payment of dividends,
redemption proceeds or other purposes, the Trust and Funds shall provide such
bank or banks with all instructions and authorizations necessary for BISYS to
effect such disbursements.
Section 15. REPRESENTATIONS OF THE TRUST. The Trust certifies to BISYS
that: (a) as of the close of business on the Effective Date, each Fund which is
in existence as of the Effective Date has authorized unlimited shares, and (b)
by virtue of its Declaration of Trust, shares of each Fund which are redeemed by
the Trust may be sold by the Trust from its treasury, and (c) this Agreement has
been duly authorized by the Trust and, when executed and delivered by the Trust,
will constitute a legal, valid and binding obligation of the Trust, enforceable
against the Trust in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting the rights and remedies of creditors and secured parties.
Section 16. REPRESENTATIONS OF BISYS. BISYS represents and warrants
that: (a) BISYS has been in, and shall continue to be in, substantial compliance
with all provisions of law, including Section 17A(c) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), required in connection with the
performance of its duties under this Agreement; and (b) the various procedures
and systems which BISYS has implemented with regard to safekeeping from loss or
damage attributable to fire, theft, or any other cause of the blank checks,
records, and other data of the Trust and BISYS' records, data, equipment,
facilities and other property used in the performance of its obligations
hereunder are adequate and that it will make such changes therein from time to
time as are required for the secure performance of its obligations hereunder.
Section 17. INSURANCE. BISYS shall notify the Trust should its
insurance coverage with respect to professional liability or errors and
omissions coverage be cancelled or reduced. Such notification shall include the
date of change and the reasons therefor. BISYS shall notify the Trust of any
material claims against it with
- 6 -
<PAGE> 8
respect to services performed under this Agreement, whether or not they may be
covered by insurance, and shall notify the Trust from time to time as may be
appropriate of the total outstanding claims made by BISYS under its insurance
coverage.
Section 18. INFORMATION TO BE FURNISHED BY THE TRUST AND FUNDS. The
Trust has furnished to BISYS the following:
(a) Copies of the Declaration of Trust of the Trust and of any
amendments thereto, certified by the proper official of the
state in which such Declaration has been filed.
(b) Copies of the following documents:
1. The Trust's By-Laws and any amendments thereto;
2. Certified copies of resolutions of the Board of
Trustees covering the following matters:
a. Approval of this Agreement and authorization
of a specified officer of the Trust to
execute and deliver this Agreement and
authorization of specified officers of the
Trust to instruct BISYS hereunder; and
b. Authorization of BISYS to act as Transfer
Agent for the Trust on behalf of the Funds.
(c) A list of all officers of the Trust, together with specimen
signatures of those officers, who are authorized to instruct
BISYS in all matters.
(d) Two copies of the following (if such documents are employed by
the Trust):
1. Prospectuses and Statements of Additional
Information;
2. Distribution Agreement; and
3. All other forms commonly used by the Trust or its
Distributor with regard to their relationships and
transactions with shareholders of the Funds.
(e) A certificate as to shares of beneficial interest of the
Trust authorized, issued, and outstanding as of the
Effective Date of BISYS' appointment as Transfer Agent (or as
of the date on which BISYS' services are commenced, whichever
is the later date) and as to receipt of full consideration by
the Trust for all shares outstanding, such statement to be
certified by the Treasurer of the Trust.
- 7 -
<PAGE> 9
Section 19. INFORMATION FURNISHED BY BISYS. BISYS has furnished to the
Trust the following:
(a) BISYS' Articles of Incorporation.
(b) BISYS' Bylaws and any amendments thereto.
(c) Certified copies of actions of BISYS covering the following
matters:
1. Approval of this Agreement, and authorization of a
specified officer of BISYS to execute and deliver
this Agreement;
2. Authorization of BISYS to act as Transfer Agent for
the Trust.
(d) A copy of the most recent independent accountants' report
relating to internal accounting control systems as filed with
the Commission pursuant to Rule 17Ad-13 of the Exchange Act.
Section 20. AMENDMENTS TO DOCUMENTS. The Trust shall furnish BISYS
written copies of any amendments to, or changes in, any of the items referred to
in Section 18 hereof forthwith upon such amendments or changes becoming
effective. In addition, the Trust agrees that no amendments will be made to the
Prospectuses or Statement of Additional Information of the Trust which might
have the effect of changing the procedures employed by BISYS in providing the
services agreed to hereunder or which amendment might affect the duties of BISYS
hereunder unless the Trust first obtains BISYS' approval of such amendments or
changes.
Section 21. RELIANCE ON AMENDMENTS. BISYS may rely on any amendments to
or changes in any of the documents and other items to be provided by the Trust
pursuant to Sections 18 and 20 of this Agreement and the Trust hereby
indemnifies and holds harmless BISYS from and against any and all claims,
demands, actions, suits, judgments, liabilities, losses, damages, costs,
charges, counsel fees and other expenses of every nature and character which may
result from actions or omissions on the part of BISYS in reasonable reliance
upon such amendments and/or changes. Although BISYS is authorized to rely on the
above-mentioned amendments to and changes in the documents and other items to be
provided pursuant to Sections 18 and 20 hereof, BISYS shall be under no duty to
comply with or take any action as a result of any of such amendments or changes
unless the Trust first obtains BISYS' written consent to and approval of such
amendments or changes.
Section 22. COMPLIANCE WITH LAW. Except for the obligations of BISYS
set forth in Section 10 hereof, the Trust assumes full responsibility for the
preparation, contents and distribution of each prospectus of the Trust as to
compliance with all applicable requirements of the Securities Act of 1933, as
amended (the "1933 Act"), the 1940 Act and any other laws, rules and regulations
of
- 8 -
<PAGE> 10
governmental authorities having jurisdiction. BISYS shall have no obligation to
take cognizance of any laws relating to the sale of the Trust's shares. The
Trust represents and warrants that no shares of the Trust will be offered to the
public until the Trust's registration statement under the 1933 Act and the 1940
Act has been declared or becomes effective.
Section 23. NOTICES. Any notice provided hereunder shall be
sufficiently given when sent by registered or certified mail to the party
required to be served with such notice, at the following address: 3435 Stelzer
Road, Columbus, Ohio 43219, or at such other address as such party may from time
to time specify in writing to the other party pursuant to this Section.
Section 24. HEADINGS. Paragraph headings in this Agreement are included
for convenience only and are not to be used to construe or interpret this
Agreement.
Section 25. ASSIGNMENT. This Agreement and the rights and duties
hereunder shall not be assignable by either of the parties hereto except by the
specific written consent of the other party. This Section 25 shall not limit or
in any way affect BISYS' right to appoint a Sub-transfer Agent pursuant to
Section 1 hereof.
Section 26. GOVERNING LAW. This Agreement shall be governed by and
provisions shall be construed in accordance with the laws of the State of Ohio.
Section 27. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
The Sessions Group is a business trust organized under Chapter 1746, Ohio
Revised Code and under a Declaration of Trust, to which reference is hereby made
and a copy of which is on file at the Office of the Secretary of State of Ohio
as required by law, and to any and all amendments thereto so filed or hereafter
filed. The obligations of "The Sessions Group" entered into in the name or on
behalf thereof by any of the Trustees, officers, employees or agents are made
not individually, but in such capacities, and are not binding upon any of the
Trustees, officers, employees, agents or shareholders of the Trust personally,
but bind only the assets of the Trust, as set forth in Section 1746.13(A), Ohio
Revised Code, and all persons dealing with any of the Funds of the Trust must
look solely to the assets of the Trust belonging to such Fund for the
enforcement of any claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
BISYS FUND SERVICES, INC. THE SESSIONS GROUP
By /s/ J. David Huber By /s/ Walter B. Grimm
---------------------------- ----------------------------
(name) (title) Walter B. Grimm, President
- 9 -
<PAGE> 11
Dated: January 29, 1997
SCHEDULE A
TO THE
TRANSFER AGENCY AGREEMENT
BETWEEN
THE SESSIONS GROUP
AND
BISYS FUND SERVICES, INC.
JULY 9, 1996
<TABLE>
<CAPTION>
Name of Fund Date
------------ ----
<S> <C>
The KeyPremier Prime Money Market Fund July 9, 1996
and The KeyPremier Pennsylvania Municipal
Bond Fund
The KeyPremier Established Growth Fund October 30, 1996
and The KeyPremier Intermediate Term
Income Fund
The KeyPremier Aggressive Growth Fund January 29, 1997
</TABLE>
THE SESSIONS GROUP
By /s/ Walter B. Grimm
------------------------------
Walter B. Grimm, President
BISYS FUND SERVICES, INC.
By /s/ J. David Huber
------------------------------
J. David Huber, President
- 10 -
<PAGE> 12
SCHEDULE B
TRANSFER AGENCY SERVICES
1. Shareholder Transactions
a. Process shareholder purchase and redemption orders.
b. Set up account information, including address, dividend
option, taxpayer identifications numbers and wire
instructions.
c. Issue confirmations in compliance with Rule 10 under the
Exchange Act.
d. Issue periodic statements for shareholders.
e. Process transfers and exchanges.
f. Process dividend payments, including the purchase of new
shares through dividend reinvestment.
2. Shareholder Information Services
a. Make information available to shareholder servicing unit and
other remote access units regarding trade date, share price,
current holdings, yields, and dividend information.
b. Produce detailed history of transactions through duplicate or
special order statements upon request.
c. Provide mailing labels for distribution of financial reports,
prospectuses, proxy statements, or marketing material to
current shareholders.
3. Compliance Reporting
a. Provide reports to the Securities and Exchange Commission, the
National Association of Securities Dealers and the States in
which the Fund is registered.
b. Prepare and distribute appropriate Internal Revenue Service
forms for corresponding Fund and shareholder income and
capital gains.
c. Issue tax withholding reports to the Internal Revenue Service.
- 11 -
<PAGE> 13
4. Dealer/Load Processing (if applicable)
a. Provide reports for tracking rights of accumulation and
purchases made under a Letter of Intent.
b. Account for separation of shareholder investments from
transaction sale charges for purchases of Fund shares.
c. Calculate fees due under 12b-1 plans for distribution and
marketing expenses.
d. Track sales and commission statistics by dealer and provide
for payment of commissions on direct shareholder purchases in
a load Fund.
5. Shareholder Account Maintenance
a. Maintain all shareholder records for each account in the
Trust.
b. Issue customer statements on scheduled cycle, providing
duplicate second and third party copies if required.
c. Record shareholder account information changes.
d. Maintain account documentation files for each shareholder.
- 12 -
<PAGE> 14
Date: July 9, 1996
SCHEDULE C
Fees
Transfer Agent:
Annual fees per fund:
Daily dividend fund base fee $ 25 per shareholder
Variable NAV fund fee $ 23 per shareholder
Annual Minimums per fund: $20,000
Multiple classes of shares:
Classes of shares which have different net asset values or pay different daily
dividends will be treated as separate classes, and the fee schedule above,
including the appropriate minimums, will be charged for each separate class.
Additional services:
Additional services such as IRA processing are subject to additional fees which
will be quoted upon request. Programming costs or data base management fees for
special reports or specialized processing will be quoted upon request.
Out of pocket charges:
Out-of-pocket costs, including postage, Tymnet charges, statement/confirm paper
and forms, and microfiche, will be added to the transfer agent fees.
THE SESSIONS GROUP
By /s/ Walter B. Grimm
--------------------------------
Walter B. Grimm, President
BISYS FUND SERVICES, INC.
By /s/ J. David Huber
--------------------------------
(name) (title)
- 13 -
<PAGE> 15
SCHEDULE D
REPORTS
I. Daily Shareholder Activity Journal
II. Daily Fund Activity Summary Report
A. Beginning Balance
B. Dealer Transactions
C. Shareholder Transactions
D. Reinvested Dividends
E. Exchanges
F. Adjustments
G. Ending Balance
III. Daily Wire and Check Registers
IV. Monthly Dealer Processing Reports
V. Monthly Dividend Reports
VI. Sales Data Reports for Blue Sky Registration
VII. Annual report by independent public accountants concerning BISYS'
shareholder system and internal accounting control systems to be filed
with the Securities and Exchange Commission pursuant to Rule 17Ad-13 of
the Exchange Act.
- 14 -
<PAGE> 1
EXHIBIT (11)(a)
<PAGE> 2
AUDITORS' CONSENT
The Board of Trustees
The Sessions Group -- The KeyPremier Prime Money Market Fund and
The KeyPremier Pennsylvania Municipal Bond Fund:
We consent to the reference to our firm under the heading "Auditors" in the
Statement of Additional Information.
KPMG PEAT MARWICK LLP
Columbus, Ohio
March 17, 1997
<PAGE> 1
EXHIBIT (11)(c)
<PAGE> 2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our Firm under the caption "Auditors" in the
Prospectus and Statement of Additional Information relating to the 1st Source
Monogram Funds (comprising, respectively, the U.S. Treasury Obligations Money
Market Fund, Diversified Equity Fund, Income Equity Fund, Special Equity Fund,
Income Fund, and Intermediate Tax-Free Bond Fund) in this Post-Effective
Amendment No. 39 to the Registration Statement on Form N-1A of The Sessions
Group (File No. 33-21489).
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
March 17, 1997
<PAGE> 1
EXHIBIT 16(i)
<PAGE> 2
THE KEYPREMIER FUNDS
EXHIBIT 16
YIELD COMPUTATION SCHEDULE
PRIME MONEY MARKET FUND
<TABLE>
<CAPTION>
7 DAY YIELD CALCULATION 30 DAY YIELD CALCULATION
Base Period 7 Days 30 Days
Beginning Account Balance - 1 share at $1.00 1.000000000 1.000000000
----------------------- ------------------------
Dividend Declaration
<S> <C> <C>
DECEMBER 2 0.000144087
DECEMBER 3 0.000139680
DECEMBER 4 0.000138246
DECEMBER 5 0.000137175
DECEMBER 6 0.000136073
DECEMBER 7 0.000136073
DECEMBER 8 0.000136073
DECEMBER 9 0.000136391
DECEMBER 10 0.000135843
DECEMBER 11 0.000135587
DECEMBER 12 0.000136617
DECEMBER 13 0.000137264
DECEMBER 14 0.000137264
DECEMBER 15 0.000137264
DECEMBER 16 0.000142922
DECEMBER 17 0.000139218
DECEMBER 18 0.000144525
DECEMBER 19 0.000140180
DECEMBER 20 0.000138579
DECEMBER 21 0.000138579
DECEMBER 22 0.000138579
DECEMBER 23 0.000139622
DECEMBER 24 0.000140250
DECEMBER 25 0.000140250 0.000140250
DECEMBER 26 0.000141389 0.000141389
DECEMBER 27 0.000142986 0.000142986
DECEMBER 28 0.000142986 0.000142986
DECEMBER 29 0.000142986 0.000142986
DECEMBER 30 0.000138423 0.000138423
DECEMBER 31 0.000138199 0.000138199
Less: Deductions from Shareholders Accounts 0.000000000 0.000000000
----------- -----------
Base period return 0.000987219 0.004173309
----------- -----------
Ending Account Balance 1.000987219 1.004173309
Less: Beginning Account Balance 1.000000000 1.000000000
----------- -----------
Difference 0.000987219 0.004173309
Base Period Return
(Difference/Beginning Account Balance) 0.000987219 0.004173309
Yield Quotation
(Base Period Return * 365/Base Period) 5.15% 5.08%
Effective Yield Quotation
[(Base Period Return + 1)[to the power of]365/Base Period] -1 5.28% 5.20%
</TABLE>
The quotations were computed based on the seven and thirty days ending
December 31, 1996.
<PAGE> 3
THE SESSIONS
KEY PREMIER FUNDS
EXHIBIT 16
TOTAL RETURN
PRIME MONEY MARKET FUND
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
- -----------------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 12/01/96 TO 12/31/96):
1,011.60/1,000) - 1 = 1.16%
MONTHLY: ( 12/01/96 TO 12/31/96):
1,004.30/1,000) - 1 = 0.43%
SINCE INCEPTION: (10/07/96 TO 12/31/96):
1,011.60/1,000) - 1 = 1.16%
<PAGE> 4
THE SESSIONS
KEYPREMIER FUNDS
DISTRIBUTION RATES
EXHIBIT 16
DISTRIBUTION RATE (INCLUDING CAPITAL GAINS)
- -------------------------------------------
DISTRIBUTION RATE = D/P
WHERE: D = Distributions per share over a 12 month period
(income and capital gain distributions)
P = Share price at end of 12 month period
EXAMPLES (09/01/95 TO 08/31/96)
LOAD NAV
---- ---
PRIME MONEY MARKET 0.00% 1.00 0.0116 / 1.00 = 1.16%
PA MUNI BOND 4.50% 10.35 0.0987 / 10.84 = 0.91%
DISTRIBUTION RATE (EXCLUDING CAPITAL GAINS)
- -------------------------------------------
DISTRIBUTION RATE = D/P
WHERE: D = Distributions per share over a 12 month period
(income distributions only)
P = Share price at end of 12 month period
EXAMPLES (09/01/95 TO 08/31/96)
LOAD NAV
---- ---
PRIME MONEY MARKET 0.00% 1.00 0.0116 / 1.00 = 1.16%
PA MUNI BOND 4.50% 10.35 0.0980 / 10.84 = 0.90%
DISTRIBUTION RATE (INCLUDING CAPITAL GAINS) (NO LOAD)
- -----------------------------------------------------
DISTRIBUTION RATE = D/P
WHERE: D = Distributions per share over a 12 month period
(income and capital gain distributions)
P = Net Asset Value at end of 12 month period
EXAMPLES (09/01/95 TO 08/31/96)
PRIME MONEY MARKET 0.0116 / 1.00 = 1.16%
PA MUNI BOND 0.0987 / 10.35 = 0.95%
DISTRIBUTION RATE (EXCLUDING CAPITAL GAINS) (NO LOAD)
- ----------------------------------------------------
DISTRIBUTION RATE = D/P
WHERE: D = Distributions per share over a 12 month period
(income distributions only)
P = Net Asset Value at end of 12 month period
EXAMPLES (09/01/95 TO 08/31/96)
PRIME MONEY MARKET 0.0116 / 1.00 = 1.16%
PA MUNI BOND 0.0980 / 10.35 = 0.95%
<PAGE> 5
THE SESSIONS
KEY PREMIER FUNDS
DISTRIBUTION RATES
EXHIBIT 16
TOTAL RETURN
PA Muni
AGGREGATE TOTAL RETURN
WITH A SALES CHARGE OF: 4.50%
- -------------------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/96 TO 12/31/96):
977.51 /1,000) - 1 = -2.25%
QUARTERLY: ( 10/01/96 TO 12/31/96):
977.51 /1,000) - 1 = -2.25%
MONTHLY: ( 12/02/96 TO 12/31/96):
996.50 /1,000) - 1 = -0.35%
SIX MONTH: ( 07/02/96 TO 12/31/96):
0.00 /1,000 - 1 = 0.00%
SINCE INCEPTION: ( 07/01/94 TO 12/31/96):
977.44 /1,000) - 1 = -2.26%
<PAGE> 6
THE SESSIONS
KEY PREMIER FUNDS
EXHIBIT 16
TOTAL RETURN
PA Muni
AGGREGATE TOTAL RETURN
WITH A SALES CHARGE OF: 0.00%
- -------------------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/96 TO 12/31/96):
1,023.38 /1,000)-1 = 2.34%
QUARTERLY: ( 10/01/96 TO 12/31/96):
1,023.38 /1,000)-1 = 2.34%
MONTHLY: (12/02/96 TO 12/31/96):
996.45 /1,000)-1 = -0.35%
SIX MONTH: ( 07/02/96 TO 12/31/96):
0.00 /1,000)-1 = 0.00%
SINCE INCEPTION: ( 09/30/96 TO 12/31/96):
1,023.38 /1,000)-1 = 2.34%
<PAGE> 7
KEYPREMIER
EXHIBIT 16
30-DAY S.E.C. YIELD CALCULATIONS
PA MUNI BOND
<TABLE>
<S> <C> <C>
(a-b)
----------
30-Day S.E.C. Yield Equation = 2 *{[( (cd) +1)[to the power of]6]-1} =
</TABLE>
WHERE a = Dividends and interest earned during the period
b = Expenses accrued for the period (net of reimbursements)
c = The average daily number of shares outstanding during
the period that were entitled to receive dividends
d = The maximum offering price (NAV for No Load) per
share on the last day of the period
WITH 4.50% LOAD:
<TABLE>
<S> <C>
( 468,085.01 - 24,621.48)
----------------------------------------
2*{[( +1)[to the power of]6]-1}= 4.67%
( 10,612,390.397* 10.84)
WITHOUT 4.50% LOAD:
( 468,085.01 - 24,621.48)
----------------------------------------
2*{[( +1)[to the power of]6]-1}= 4.89%
( 10,612,390.397* 10.35)
</TABLE>
The performance was computed based on the thirty day period ending December 31,
1996
<PAGE> 8
KEY PREMIER TAX EQUIVALENT SEC YIELDS
THIRTY DAY PERIOD ENDING DECEMBER 31, 1996
PENNSYLVANIA MUNICIPAL BOND FUND
TAX EQUIV.
YIELD
----------
SEC Yield (with load) 7.73%
SEC Yield (w/o load) 8.10%
SEC Yield (with load, w/o waiving mgmt fee) 6.79%
SEC Yield (w/o load, w/o waiving mgmt fee) 7.10%
All calculations performed using the following equation:
TAX EQUIV. = SEC YIELD
---------
YIELD (1-.396)
<PAGE> 9
THE SESSIONS
KEY PREMIER FUNDS
EXHIBIT 16
TOTAL RETURN
ESTABLISHED GROWTH FUND
<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
- -----------------------------
T = (ERV/P)[to the power of]1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING
OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000
N = A NUMBER OF DAYS
</TABLE>
EXAMPLE:
<TABLE>
<S> <C> <C>
SINCE INCEPTION: (01/01/95 TO 09/30/96):
(1,601.4/1,000[to the power of](1/( 639 /365))-1)= 30.86%
ONE YEAR (10/01/95 TO 09/30/96):
(1,174.30/1,000)-1 = 17.43%
</TABLE>
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
- -----------------------------
T = (ERV/P)-1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING
OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000
EXAMPLE:
YEAR TO DATE: (01/01/96 TO 09/30/96):
1,133.40 /1,000)-1 = 13.34%
QUARTERLY: (07/01/96 TO 09/30/96):
1,039.00 /1,000)-1 = 3.90%
MONTHLY: (09/01/96 TO 09/30/96):
1,060.00 /1,000)-1 = 6.00%
SIX MONTH: (04/01/96 TO 09/30/96):
1,066.80 /1,000)-1 = 6.68%
SINCE INCEPTION: (01/01/95 TO 09/30/96):
1,601.00 /1,000)-1 = 60.10%
<PAGE> 10
THE SESSIONS
KEY PREMIER FUNDS
EXHIBIT 16
TOTAL RETURN
ESTABLISHED GROWTH FUND
<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 4.50%
- -----------------------------
T=(ERV/P)[to the power of]1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 01/01/95 TO 09/30/96 ):
( 1,442.95 /1,000[to the power of](1/( 638/365))-1)= 23.34%
ONE YEAR: ( 10/01/95 TO 09/30/96 ):
( 1,121.39 /1,000)-1= 12.14%
AGGREGATE TOTAL RETURN
WITH SALES CHARGES OF: 4.50%
- ---------------------------------
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/96 TO 09/30/96 ):
1,082.72 /1,000)-1= 8.27%
QUARTERLY: ( 07/01/96 TO 09/30/96 ):
992.17 /1,000)-1= -0.78%
MONTHLY: ( 09/01/96 TO 09/30/96 ):
1,012.23 /1,000)-1= 1.22%
SIX MONTH: ( 04/01/96 TO 09/30/96 ):
1,018.67 /1,000)-1= 1.87%
SINCE INCEPTION: ( 01/10/95 TO 09/30/96 ):
1,442.95 /1,000)-1= 44.30%
</TABLE>
<PAGE> 11
THE SESSIONS
KEY PREMIER FUNDS
EXHIBIT 16
TOTAL RETURN
AGGRESSIVE GROWTH FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 4.50%
- ----------------------------
T = (ERV/P)[to the power of]1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF THE
PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000
N = NUMBER OF DAYS
EXAMPLE:
<TABLE>
<S> <C> <C>
SINCE INCEPTION: ( 07/01/94 TO 9/30/96):
( 1,407.54 /1,000[to the power of](1/( 823/365))-1) = 16.37%
ONE YEAR: ( 10/01/95 TO 09/30/96):
( 1,032.00 /1,000 - 1 = 3.20%
TWO YEAR: ( 10/01/94 TO 09/30/96):
( 1,298.42 /1,000[to the power of](1/( 730/365))-1) = 13.95%
</TABLE>
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 4.50%
- ----------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF THE
PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000
EXAMPLE:
<TABLE>
<S> <C> <C>
YEAR TO DATE: ( 01/01/96 TO 09/30/96):
1,051.15 /1,000)-1 = 5.12%
QUARTERLY: ( 07/01/96 TO 09/30/96):
933.90 /1,000)-1 = -6.61%
MONTHLY: ( 09/01/96 TO 09/30/96):
981.16 /1,000)-1 = -1.88%
SIX MONTH: ( 04/01/96 TO 09/30/96):
997.77 /1,000)-1 = -0.22%
SINCE INCEPTION: ( 07/01/94 TO 09/30/96):
1,407.54 /1,000)-1 = 40.75%
</TABLE>
<PAGE> 12
THE SESSIONS
KEY PREMIER FUNDS
EXHIBIT 16
TOTAL RETURN
AGGRESSIVE GROWTH FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
- ------------------------------
T = (ERV/P)[to the power of]1/N - 1
WHERE: T = TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000
N = NUMBER OF DAYS
EXAMPLE:
<TABLE>
<S> <C> <C>
SINCE INCEPTION: ( 07/01/94 TO 09/30/96 ):
( 1,473.70 /1,000[to the power of](1/( 823 /365))-1) = 18.77%
ONE YEAR: ( 10/01/95 TO 09/30/96 ):
( 1,080.43 /1,000)-1 = 8.04%
TWO YEAR: ( 10/01/94 TO 09/30/96 ):
( 1,359.25 /1,000[to the power of](1/( 730 /365))-1) = 16.59%
</TABLE>
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
- ------------------------------
T = (ERV/P)-1
WHERE: T = TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000
EXAMPLE:
YEAR TO DATE: ( 01/01/96 TO 09/30/96 ):
( 1,101.00 /1,000)-1 = 10.10%
QUARTERLY: ( 07/01/96 TO 09/30/96 ):
( 1,022.00 /1,000)-1 = 2.20%
MONTHLY: ( 09/01/96 TO 09/30/96 ):
( 1,027.50 /1,000)-1 = 2.75%
SIX MONTH: ( 04/01/96 TO 09/30/96 ):
( 1,044.50 /1,000)-1 = 4.45%
SINCE INCEPTION: ( 07/01/94 TO 09/30/96 ):
( 1,473.70 /1,000)-1 = 47.37%
<PAGE> 1
EXHIBIT 16(j)
<PAGE> 2
THE SESSIONS
1st SOURCE FUNDS
EXHIBIT 16
TOTAL RETURN
DIVERSIFIED EQUITY FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
- ------------------------------
T = (ERV/P)[to the power of]1/N-1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
<TABLE>
<C> <C> <C>
SINCE INCEPTION: ( 06/30/85 TO 12/31/96 ):
( 3,557.07 /1,000[to the power of](1/( 4203 /365))-1) = 11.65%
ONE YEAR: ( 01/01/96 TO 12/31/96 ):
( 1,191.32 /1,000) - 1 = 19.13%
TWO YEAR: ( 01/01/95 TO 12/31/96 ):
( 1,558.28 /1,000[to the power of](1/( 730 /365))-1) = 24.83%
THREE YEAR: ( 01/01/94 TO 12/31/96 ):
( 1,531.46 /1,000[to the power of](1/( 1095 /365))-1) = 15.27%
FIVE YEAR: ( 01/01/92 TO 12/31/96 ):
( 1,776.08 /1,000[to the power of](1/( 1825 /365))-1) = 12.17%
TEN YEAR: ( 01/01/87 TO 12/31/96 ):
( 3,314.98 /1,000[to the power of](1/( 3650 /365))-1 = 12.73%
</TABLE>
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
- ------------------------------
T = (ERV/P)-1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/96 TO 12/31/96 ):
1,191.32 /1,000) - 1 = 19.13%
QUARTERLY: ( 10/01/96 TO 12/31/96 ):
1,060.01 /1,000) - 1 = 6.00%
MONTHLY: ( 12/01/96 TO 12/31/96 ):
976.60 /1,000) - 1 = -2.34%
SIX MONTH: ( 07/01/96 TO 12/31/96 ):
1,084.79 /1,000) - 1 = 8.48%
SINCE INCEPTION: ( 06/30/85 TO 12/31/96 ):
3,558.07 /1,000) - 1 = 255.81%
<PAGE> 3
THE SESSIONS
1ST SOURCE FUNDS
EXHIBIT 16
TOTAL RETURN
DIVERSIFIED EQUITY FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 5.00%
- -------------------------------
T=(ERV/P)[to the power of]1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF DAYS
EXAMPLE:
<TABLE>
<S> <C> <C>
SINCE INCEPTION: ( 06/30/85 TO 12/31/96 ):
( 3,377.93 /1,000[to the power of](1/( 4203 /365))-1)= 11.15%
ONE YEAR: ( 01/01/96 TO 12/31/96 ):
( 1,131,95 /1,000) -1= 13.19%
TWO YEAR: ( 01/01/95 TO 12/31/96 ):
( 1,480.48 /1,000[to the power of](1/( 730 /365))-1)= 21.67%
THREE YEAR: ( 01/01/94 TO 12/31/96 ):
( 1,454.25 /1,000[to the power of](1/( 1095 /365))-1)= 13.30%
FIVE YEAR: ( 01/01/92 to 12/31/96 ):
( 1,686.30 /1,000[to the power of](1/( 1825 /365))-1)= 11.02%
TEN YEAR: ( 01/01/87 TO 12/31/96 ):
( 3,148.74 /1,000[to the power of](1/( 3650 /365))-1)= 12.15%
</TABLE>
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 5.00%
- ------------------------------
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/96 TO 12/31/96 ):
1,131.95 /1,000) -1= 13.19%
QUARTERLY: ( 01/01/96 TO 12/31/96 ):
1,007.01 /1,000) -1= 0.70%
MONTHLY: ( 12/01/96 TO 12/31/96 ):
927.39 /1,000) -1= -7.26%
SIX MONTH: ( 07/01/96 TO 12/31/96 ):
1,030.33 /1,000) -1= 3.03%
SINCE INCEPTION: ( 06/30/85 to 12/31/96 ):
3,377.93 /1,000) -1= 237.79%
<PAGE> 4
THE SESSIONS
1st SOURCE FUNDS
EXHIBIT 16
TOTAL RETURN
INCOME EQUITY FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
- -----------------------------
T = (ERV/P)[to the power of]1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
<TABLE>
<S> <C> <C>
SINCE INCEPTION: (11/30/85 TO 12/31/96 ):
(3,908.40 /1,000[to the power of](1/( 4049 /365))-1)= 13.07%
ONE YEAR: (01/01/96 TO 12/31/96 ):
(1,175.92 /1,000) - 1 = 17.59%
TWO YEAR: (01/01/95 TO 12/31/96 ):
(1,480.30 /1,000[to the power of](1/( 730 /365))-1)= 21.67%
THREE YEAR: (01/01/94 TO 12/31/96 ):
(1,448.73 /1,000[to the power of](1/( 1095 /365))-1)= 13.15%
FIVE YEAR: (01/01/92 TO 12/31/96 ):
(2,019.60 /1,000[to the power of](1/( 1825 /365))-1)= 15.09%
TEN YEAR: (01/01/87 TO 12/31/96 ):
(3,140.30 /1,000[to the power of](1/( 3650 /365))-1)= 12.12%
</TABLE>
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
- -----------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: (01/01/96 TO 12/31/96 ):
(1,175.92 /1,000) -1= 17.59%
QUARTERLY: (06/01/96 TO 12/31/96 ):
(1,079.00 /1,000) -1= 7.90%
MONTHLY: (08/01/96 TO 12/31/96 ):
(1,007.78 /1,000) -1= 0.78%
SIX MONTH: (07/01/96 TO 12/31/96 ):
(1,101.97 /1,000) -1= 10.20%
SINCE INCEPTION: (12/02/96 TO 12/31/96 ):
(3,908.37 /1,000) -1= 290.84%
<PAGE> 5
THE SESSIONS
1st SOURCE FUNDS
EXHIBIT 16
TOTAL RETURN
INCOME EQUITY FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 5.00%
- ------------------------------
T = (ERV/P)[to the power of]1/N = 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
<TABLE>
<S> <C> <C>
SINCE INCEPTION: (11/30/85 TO 12/31/96 ):
(3,708.30 /1,000[to the power of](1/( 4049 /365))-1= 12.54%
ONE YEAR: (01/01/96 TO 12/31/96 ):
(1,116.70 /1,000)-1= 11.67%
TWO YEAR: (01/01/95 TO 12/31/96 ):
(1,405.62 /1,000[to the power of](1/( 730 /365))-1= 18.56%
THREE YEAR: (01/01/94 TO 12/31/96 ):
(1,377.13 /1,000[to the power of](1/( 1095 /365))-1= 11.26%
FIVE YEAR: (01/01/92 TO 12/31/96 ):
(1,919.67 /1,000[to the power of](1/( 1825 /365))-1= 13.93%
TEN YEAR: (01/01/87 TO 12/31/96 ):
(2,985.01 /1,000[to the power of](1/( 3650 /365))-1= 11.56%
</TABLE>
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 5.00%
- ------------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: (01/01/96 TO 12/31/96 ):
1,116.70 /1,000)-1= 11.67%
QUARTERLY: (06/01/96 TO 12/31/96 ):
1,025.05 /1,000)-1= 2.51%
MONTHLY: (08/01/96 TO 12/31/96 ):
957.80 /1,000)-1= -4.22%
SIX MONTH: (07/01/96 TO 12/31/96 ):
1,046.77 /1,000)-1= 4.68%
SINCE INCEPTION: (12/02/96 TO 12/31/96 ):
3,708.30 /1,000)-1= 270.83%
<PAGE> 6
THE SESSIONS
1st SOURCE FUNDS
EXHIBIT 16
TOTAL RETURN
SPECIAL EQUITY FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
- -------------------------------
T=(ERV/P)[to the power of]1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF DAYS
EXAMPLE:
<TABLE>
<S> <C> <C>
SINCE INCEPTION: ( 11/30/85 TO 12/31/96 ):
( 4,328.0 /1,000[to the power of](1/( 4050 /365))-1)= 14.12%
ONE YEAR: ( 01/01/96 TO 12/31/96 ):
( 1,220.72 /1000)-1= 22.07%
TWO YEAR: ( 01/01/95 TO 12/31/96 ):
( 1,652.51 /1000[to the power of](1/( 730 /365))-1)= 28.55%
THREE YEAR: ( 01/01/94 TO 12/31/96 ):
( 1,457.40 /1000[to the power of](1/( 1095 /365))-1)= 13.38%
FIVE YEAR: ( 01/01/92 to 12/31/96 ):
( 1,868.73 /1,000[to the power of](1/( 1825 /365))-1)= 13.32%
TEN YEAR: ( 01/01/87 TO 12/31/96 ):
( 4,404.28 /1,000[to the power of](1/( 3650 /365))-1)= 15.98%
</TABLE>
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
- ------------------------------
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/96 TO 12/31/96 ):
( 1,220.72 /1,000 1= 22.07%
QUARTERLY: ( 01/01/96 TO 12/31/96 ):
( 968.77 /1000)-1= -3.12%
MONTHLY: ( 12/01/96 TO 12/31/96 ):
( 1,004.79 /1000-1= 0.48%
SIX MONTH: ( 07/01/96 TO 12/31/96 ):
( 977.29 /1000-1= -2.27%
SINCE INCEPTION: ( 11/30/85 to 12/31/96 ):
( 4,328.00 /1,000-1= 332.80%
<PAGE> 7
THE SESSIONS
1st SOURCE FUNDS
EXHIBIT 16
TOTAL RETURN
SPECIAL EQUITY FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 5.00%
- ----------------------------
T = (ERV/P)[to the power of]1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF THE
PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000
N = NUMBER OF DAYS
EXAMPLE:
<TABLE>
<S> <C> <C>
SINCE INCEPTION: ( 11/30/85 TO 12/31/96):
( 4,114.29 /1,000[to the power of](1/( 4050/365))-1) = 13.60%
ONE YEAR: ( 01/01/95 TO 12/31/96):
( 1,159.83 /1,000)- 1 = 15.98%
TWO YEAR: ( 01/01/95 TO 12/31/96):
( 1,569.50 /1,000[to the power of](1/( 730/365))-1) = 25.28%
THREE YEAR: ( 01/01/94 TO 12/31/96):
( 1,384.72 /1,000[to the power of](1/( 1095/365))-1) = 11.46%
FIVE YEAR: ( 01/01/92 TO 12/31/96):
( 1,775.79 /1,000[to the power of](1/( 1825/365))-1) = 12.17%
TEN YEAR: ( 01/01/87 TO 12/31/96):
( 4,183.13 /1,000[to the power of](1/( 3650/365))-1) = 15.39%
</TABLE>
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 5.00%
- ----------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF THE
PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000
EXAMPLE:
<TABLE>
<S> <C> <C>
YEAR TO DATE: ( 01/01/96 TO 12/31/96):
1,159.83 /1,000) -1 = 15.98%
QUARTERLY: ( 10/01/96 TO 12/31/96):
920.60 /1,000) -1 = -7.94%
MONTHLY: ( 12/01/96 TO 12/31/96):
954.89 /1,000) -1 = -4.51%
SIX MONTH: ( 03/01/96 TO 12/31/96):
928.29 /1,000) -1 = -7.17%
SINCE INCEPTION: ( 11/30/85 TO 12/31/96):
4,114.29 /1,000) -1 = 311.43%
</TABLE>
<PAGE> 8
THE SESSIONS
1st SOURCE FUNDS
EXHIBIT 16
TOTAL RETURN
INCOME FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
- ----------------------------
T = (ERV/P)[to the power of]1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF THE
PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000
N = NUMBER OF DAYS
EXAMPLE:
<TABLE>
<S> <C> <C>
SINCE INCEPTION: ( 06/30/85 TO 12/31/96):
( 2,347.07 /1,000[to the power of](1/( 4203/365))-1) = 7.69%
ONE YEAR: ( 01/01/96 TO 12/31/96):
( 1,025.53 /1,000 - 1 = 2.55%
TWO YEAR: ( 01/01/95 TO 12/31/96):
( 1,195.27 /1,000[to the power of](1/( 730/365))-1) = 9.33%
THREE YEAR: ( 01/01/94 TO 12/31/96):
( 1,150.02 /1,000[to the power of](1/( 1095/365))-1) = 4.77%
FIVE YEAR: ( 01/01/92 TO 12/31/96):
( 1,342.94 /1,000[to the power of](1/( 1825/365))-1) = 6.07%
TEN YEAR: ( 01/01/87 TO 12/31/96):
( 1,944.85 /1,000[to the power of](1/( 3650/365))-1) = 6.88%
</TABLE>
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
- ----------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF THE
PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000
EXAMPLE:
<TABLE>
<S> <C> <C>
YEAR TO DATE: ( 01/01/96 TO 12/31/96):
1,025.53 /1,000) -1 = 2.55%
QUARTERLY: ( 10/01/96 TO 12/31/96):
1,025.53 /1,000) -1 = 2.55%
MONTHLY: ( 12/01/96 TO 12/31/96):
991.04 /1,000) -1 = -0.90%
SIX MONTH: ( 07/01/96 TO 12/31/96):
1,044.20 /1,000) -1 = 4.42%
SINCE INCEPTION: ( 11/30/85 TO 12/31/96):
2,347.07 /1,000) -1 = 134.71%
</TABLE>
<PAGE> 9
THE SESSIONS
1st SOURCE FUNDS
EXHIBIT 16
TOTAL RETURN
INCOME FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 4.00%
- -------------------------------
T=(ERV/P)[to the power of]1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF DAYS
EXAMPLE:
<TABLE>
<S> <C> <C>
SINCE INCEPTION: ( 06/30/85 TO 12/31/96 ):
( 2,230.48 /1,000[to the power of](1/( 4203 /365))-1)= 7.22%
ONE YEAR: ( 01/01/96 TO 12/31/96 ):
( 984.48 /1,000) -1= -1.55%
TWO YEAR: ( 01/01/95 TO 12/31/96 ):
( 1,147.46 /1,000[to the power of](1/( 730 /365))-1)= 7.12%
THREE YEAR: ( 01/01/94 TO 12/31/96 ):
( 1,104.50 /1,000[to the power of](1/( 1095 /365))-1)= 3.37%
FIVE YEAR: ( 01/01/92 to 12/31/96 ):
( 1,289.28 /1,000[to the power of](1/( 1825 /365))-1)= 5.21%
TEN YEAR: ( 01/01/87 TO 12/31/96 ):
( 1,867.48 /1,000[to the power of](1/( 3650 /365))-1)= 6.45%
</TABLE>
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 4.00%
- ------------------------------
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/96 TO 12/31/96 ):
984.48 /1,000 1= -1.55%
QUARTERLY: ( 10/01/96 TO 12/31/96 ):
984.48 /1,000) -1= -1.55%
MONTHLY: ( 12/01/96 TO 12/31/96 ):
951.39 /1,000 -1= -4.86%
SIX MONTH: ( 07/01/96 TO 12/31/96 ):
1,002.64 /1,000 -1= 0.26%
SINCE INCEPTION: ( 11/30/85 TO 12/31/96 ):
2,230.48 /1,000 -1= 123.05%
<PAGE> 10
1ST SOURCE
EXHIBIT 16
30-DAY S.E.C. YIELD CALCULATIONS
Income Equity Fund
<TABLE>
<S> <C>
(a-b)
----------
30-Day S.E.C. Yield Equation = 2 *{[( (cd) +1)[to the power of]6]-1} =
WHERE a = Dividends and interest earned during the period
b = Expenses accrued for the period (net of reimbursements)
c = The average daily number of shares outstanding during
the period that were entitled to receive dividends
d = The maximum offering price (NAV for No Load) per
share on the last day of the period
WITH 5.00% LOAD:
( 96,756.74 - 34,578.21)
----------------------------------------
2*{[( +1)[to the power of]6]-1}= 2.19%
( 3,033,576.330* 11.29)
WITHOUT 5.00% LOAD:
( 96,756.74 - 34,578.21)
----------------------------------------
2*{[( +1)[to the power of]6]-1}= 2.30%
( 3,033,576.330* 10.73)
</TABLE>
The performance was computed based on the thirty day period ending December 31,
1996
<PAGE> 11
1ST SOURCE
EXHIBIT 16
30-DAY S.E.C. YIELD CALCULATIONS
INCOME FUND
<TABLE>
<S> <C>
(a-b)
----------
30-Day S.E.C. Yield Equation = 2 *{[( (cd) +1)[to the power of]6]-1} =
WHERE a = Dividends and interest earned during the period
b = Expenses accrued for the period (net of reimbursements)
c = The average daily number of shares outstanding during
the period that were entitled to receive dividends
d = The maximum offering price (NAV for No Load) per
share on the last day of the period
WITH 4.00% LOAD:
( 255,351.27 - 39,629.94)
----------------------------------------
2*{[( +1)[to the power of]6]-1}= 5.16%
( 4,784,193.320* 10.59)
WITHOUT 4.00% LOAD:
( 255,351.27 - 39,629.94)
----------------------------------------
2*{[( +1)[to the power of]6]-1}= 5.38%
( 4,784,193.320* 10.17)
</TABLE>
The performance was computed based on the thirty day period ending December 31,
1996
<PAGE> 12
THE SESSIONS
1st SOURCE FUNDS
DISTRIBUTION RATES
EXHIBIT 16
DISTRIBUTION RATE (INCLUDING CAPITAL GAINS)
- -------------------------------------------
DISTRIBUTION RATE= D/P
WHERE: D= Distributions per share over a 12 month period
(income and capital gain distributions)
P= Share price at end of 12 month period
EXAMPLES (09/20/96 TO 12/31/96)
LOAD NAV
----- ------
INCOME EQUITY 5.00% 10.73 0.1332 / 11.29 = 1.18%
INCOME 4.00% 10.17 0.1573 / 10.59 = 1.49%
DISTRIBUTION RATE (EXCLUDING CAPITAL GAINS)
- -------------------------------------------
DISTRIBUTION RATE= D/P
WHERE: D= Distributions per share over a 12 month period
(income distributions only)
P= Share price at end of 12 month period
EXAMPLES (09/20/96 TO 12/31/96)
LOAD NAV
----- ------
INCOME EQUITY 5.00% 10.73 0.0805 / 11.29 = 0.71%
INCOME 4.00% 10.17 0.1573 / 10.59 = 1.49%
DISTRIBUTION RATE (INCLUDING CAPITAL GAINS)(NO LOAD)
- ----------------------------------------------------
DISTRIBUTION RATE= D/P
WHERE: D= Distributions per share over a 12 month period
(income and capital gain distributions)
P= Net Asset Value at end of 12 month period
EXAMPLES (09/20/96 TO 12/31/96)
INCOME EQUITY 0.1332 / 10.73 = 1.24%
INCOME 0.1573 / 10.17 = 1.55%
DISTRIBUTION RATE (EXCLUDING CAPITAL GAINS)(NO LOAD)
- ----------------------------------------------------
DISTRIBUTION RATE= D/P
WHERE: D= Distributions per share over a 12 month period
(income distributions only)
P= Net Asset Value at end of 12 month period
EXAMPLES (09/20/96 TO 12/31/96)
INCOME EQUITY 0.0805 / 10.73 = 0.75%
INCOME 0.1573 / 10.17 = 1.55%
<PAGE> 1
EXHIBIT (19)(b)
<PAGE> 2
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the references to our
firm under the caption of "Legal Counsel" included in or made a part of the
Registration Statement on Form N-1A, File No. 33-21489, filed under the
Securities Act of 1933, as amended, of The Sessions Group.
BAKER & HOSTETLER LLP
Columbus, Ohio
March 17, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000832403
<NAME> THE SESSIONS GROUP
<SERIES>
<NUMBER> 11
<NAME> THE KEYPREMIER PRIME MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> OCT-07-1996<F1>
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 102,898,736
<INVESTMENTS-AT-VALUE> 102,898,736
<RECEIVABLES> 0
<ASSETS-OTHER> 2,097,773
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 104,996,509
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 482,424
<TOTAL-LIABILITIES> 482,424
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 104,512,330
<SHARES-COMMON-STOCK> 104,512,330
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,755
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 104,514,085
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,257,381
<OTHER-INCOME> 0
<EXPENSES-NET> 69,906
<NET-INVESTMENT-INCOME> 1,187,475
<REALIZED-GAINS-CURRENT> 1,755
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,189,230
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,187,475
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 179,091,701
<NUMBER-OF-SHARES-REDEEMED> 74,579,371
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 104,512,330
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 96,110
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 166,016
<AVERAGE-NET-ASSETS> 101,977,208
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .004
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .004
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .29
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1> DATE OF INCEPTION
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000832403
<NAME> THE SESSIONS GROUP
<SERIES>
<NUMBER> 12
<NAME> THE KEYPREMIER PENNSYLVANIA MUNICIPAL FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> OCT-10-1996<F1>
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 105,025,259
<INVESTMENTS-AT-VALUE> 106,411,146
<RECEIVABLES> 2,041,710
<ASSETS-OTHER> 24,146
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 108,477,002
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 476,540
<TOTAL-LIABILITIES> 476,540
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 106,510,905
<SHARES-COMMON-STOCK> 10,437,558
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 278
<ACCUMULATED-NET-GAINS> 103,948
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,385,887
<NET-ASSETS> 108,000,462
<DIVIDEND-INCOME> 4,799
<INTEREST-INCOME> 1,098,607
<OTHER-INCOME> 0
<EXPENSES-NET> 74,482
<NET-INVESTMENT-INCOME> 1,028,924
<REALIZED-GAINS-CURRENT> 111,438
<APPREC-INCREASE-CURRENT> 1,385,887
<NET-CHANGE-FROM-OPS> 2,526,249
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,029,202
<DISTRIBUTIONS-OF-GAINS> 7,490
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,289,561
<NUMBER-OF-SHARES-REDEEMED> 852,003
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 108,000,462
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 167,165
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 241,647
<AVERAGE-NET-ASSETS> 109,346,207
<PER-SHARE-NAV-BEGIN> 10.21
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> .14
<PER-SHARE-DIVIDEND> .04
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.35
<EXPENSE-RATIO> .27
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1> DATE OF INCEPTION
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000832403
<NAME> THE SESSIONS GROUP
<SERIES>
<NUMBER> 15
<NAME> THE 1ST SOURCE MONOGRAM DIVERSIFIED EQUITY FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> SEP-20-1996<F1>
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 55,146,136
<INVESTMENTS-AT-VALUE> 65,683,448
<RECEIVABLES> 179,301
<ASSETS-OTHER> 15,573
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 65,878,322
<PAYABLE-FOR-SECURITIES> 105,156
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 92,519
<TOTAL-LIABILITIES> 197,675
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 53,849,964
<SHARES-COMMON-STOCK> 6,280,137
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 15,302
<ACCUMULATED-NET-GAINS> 1,308,673
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,537,312
<NET-ASSETS> 65,680,647
<DIVIDEND-INCOME> 273,706
<INTEREST-INCOME> 1,222
<OTHER-INCOME> 0
<EXPENSES-NET> 290,230
<NET-INVESTMENT-INCOME> (15,302)
<REALIZED-GAINS-CURRENT> 2,641,501
<APPREC-INCREASE-CURRENT> 10,537,312
<NET-CHANGE-FROM-OPS> 13,163,511
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 1,332,828
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,508,928
<NUMBER-OF-SHARES-REDEEMED> 1,354,747
<SHARES-REINVESTED> 125,956
<NET-CHANGE-IN-ASSETS> 65,680,647
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 203,061
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 336,381
<AVERAGE-NET-ASSETS> 65,417,252
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> .68
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .22
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.46
<EXPENSE-RATIO> 1.57
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1> DATE OF INCEPTION
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000832403
<NAME> THE SESSIONS GROUP
<SERIES>
<NUMBER> 16
<NAME> THE 1ST SOURCE MONOGRAM SPECIAL EQUITY FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> SEP-19-1996<F1>
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 24,173,510
<INVESTMENTS-AT-VALUE> 26,071,582
<RECEIVABLES> 16,060
<ASSETS-OTHER> 5,443
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 26,093,085
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 34,618
<TOTAL-LIABILITIES> 34,618
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 24,563,728
<SHARES-COMMON-STOCK> 2,688,604
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 4,870
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 398,463
<ACCUM-APPREC-OR-DEPREC> 1,898,072
<NET-ASSETS> 26,058,467
<DIVIDEND-INCOME> 50,160
<INTEREST-INCOME> 41,056
<OTHER-INCOME> 0
<EXPENSES-NET> 96,086
<NET-INVESTMENT-INCOME> (4,870)
<REALIZED-GAINS-CURRENT> 402,552
<APPREC-INCREASE-CURRENT> 1,898,072
<NET-CHANGE-FROM-OPS> 2,295,754
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 801,015
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,076,523
<NUMBER-OF-SHARES-REDEEMED> 470,559
<SHARES-REINVESTED> 82,639
<NET-CHANGE-IN-ASSETS> 26,058,467
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 57,893
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 114,180
<AVERAGE-NET-ASSETS> 25,401,665
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .31
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.69
<EXPENSE-RATIO> 1.33
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1> DATE OF INCEPTION
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000832403
<NAME> THE SESSIONS GROUP
<SERIES>
<NUMBER> 17
<NAME> THE 1ST SOURCE MONOGRAM INCOME FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> SEP-19-1996<F1>
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 48,295,225
<INVESTMENTS-AT-VALUE> 48,303,209
<RECEIVABLES> 688,730
<ASSETS-OTHER> 14,656
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 49,006,595
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 47,326
<TOTAL-LIABILITIES> 47,326
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 49,032,402
<SHARES-COMMON-STOCK> 4,812,756
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 969
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 82,086
<ACCUM-APPREC-OR-DEPREC> 7,984
<NET-ASSETS> 48,959,269
<DIVIDEND-INCOME> 17,869
<INTEREST-INCOME> 871,853
<OTHER-INCOME> 0
<EXPENSES-NET> 134,325
<NET-INVESTMENT-INCOME> 755,397
<REALIZED-GAINS-CURRENT> (82,086)
<APPREC-INCREASE-CURRENT> 7,984
<NET-CHANGE-FROM-OPS> 681,295
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 754,428
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,619,664
<NUMBER-OF-SHARES-REDEEMED> 880,894
<SHARES-REINVESTED> 73,986
<NET-CHANGE-IN-ASSETS> 48,959,269
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 73,128
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 167,565
<AVERAGE-NET-ASSETS> 48,530,410
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .16
<PER-SHARE-GAIN-APPREC> .17
<PER-SHARE-DIVIDEND> .16
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.17
<EXPENSE-RATIO> 1.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1> DATE OF INCEPTION
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000832403
<NAME> THE SESSIONS GROUP
<SERIES>
<NUMBER> 18
<NAME> THE 1ST SOURCE MONOGRAM INCOME EQUITY FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> SEP-24-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 28,424,948
<INVESTMENTS-AT-VALUE> 33,576,629
<RECEIVABLES> 154,005
<ASSETS-OTHER> 9,847
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 33,740,481
<PAYABLE-FOR-SECURITIES> 1,118,915
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 41,197
<TOTAL-LIABILITIES> 1,160,112
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 26,610,288
<SHARES-COMMON-STOCK> 3,035,244
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 4,988
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 813,412
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,151,681
<NET-ASSETS> 32,580,369
<DIVIDEND-INCOME> 258,821
<INTEREST-INCOME> 101,517
<OTHER-INCOME> 0
<EXPENSES-NET> 111,769
<NET-INVESTMENT-INCOME> 248,569
<REALIZED-GAINS-CURRENT> 972,001
<APPREC-INCREASE-CURRENT> 5,151,681
<NET-CHANGE-FROM-OPS> 6,372,251
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 243,581
<DISTRIBUTIONS-OF-GAINS> 158,589
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,556,123
<NUMBER-OF-SHARES-REDEEMED> 558,838
<SHARES-REINVESTED> 37,959
<NET-CHANGE-IN-ASSETS> 32,580,369
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 67,739
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 132,947
<AVERAGE-NET-ASSETS> 31,231,637
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .08
<PER-SHARE-GAIN-APPREC> .78
<PER-SHARE-DIVIDEND> .08
<PER-SHARE-DISTRIBUTIONS> .05
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.73
<EXPENSE-RATIO> 1.32
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
