<PAGE> 1
As filed with the Securities and Exchange Commission November 3, 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. 44 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 46 [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)
[ ] on (date) pursuant to paragraph (b)
[X] 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.
Title of Securities Being Registered:
Shares of beneficial interest, without par value.
<PAGE> 2
CROSS REFERENCE SHEET
---------------------
FIRST MARKET MONEY MARKET FUND
FIRST MARKET VALUE EQUITY FUND
FIRST MARKET FIXED INCOME FUND
FIRST MARKET TENNESSEE MUNICIPAL OBLIGATIONS FUND
FIRST MARKET GROWTH FUND
Five 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; Prospectus Summary
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 Informa-
tion - 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]
FIRST
MARKET FUNDS
______________________________
Money Market Fund
Value Equity Fund
Fixed Income Fund
Tennessee
Municipal Obligations Fund
Growth Fund
______________________________
[logo]
NATIONAL BANK
OF COMMERCE
Memphis, Tennessee
Investment Adviser
________________
Prospectus dated January 2, 1998
Begins on Page One
________________
<PAGE> 4
FIRST MARKET MONEY MARKET FUND
FIRST MARKET VALUE EQUITY FUND
FIRST MARKET FIXED INCOME FUND
FIRST MARKET TENNESSEE MUNICIPAL OBLIGATIONS FUND
FIRST MARKET GROWTH FUND
<TABLE>
<S> <C>
3435 Stelzer Road For current yield, purchase, and
Columbus, Ohio 43219 redemption information, call
(800) 874-8376.
</TABLE>
The Sessions Group (the "Group") is an open-end management investment
company. The Group includes the First Market Money Market Fund, formerly known
as the Riverside Capital Money Market Fund (the "Money Market Fund"), the First
Market Value Equity Fund, formerly known as the Riverside Capital Value Equity
Fund (the "Value Fund"), the First Market Fixed Income Fund, formerly known as
the Riverside Capital Fixed Income Fund (the "Fixed Income Fund") and the First
Market Growth Fund, formerly known as the Riverside Capital Growth Fund (the
"Growth Fund"), each of which is a diversified investment fund of the Group, and
the First Market Tennessee Municipal Obligations Fund, formerly known as the
Riverside Capital Tennessee Municipal Obligations Fund (the "Tennessee Fund"),
which is a non-diversified investment fund of the Group (the Money Market,
Value, Fixed Income, Tennessee, and Growth 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").
National Bank of Commerce, Memphis, Tennessee (the "Adviser"), which is a
wholly owned subsidiary of National Commerce Bancorporation ("NCBC"), acts as
the investment adviser to each of the Funds. In addition, with respect to the
Value Fund and the Fixed Income Fund, the Adviser has retained Miller Anderson &
Sherrerd, LLP ("Miller Anderson") to provide sub-investment advisory services.
With respect to the Money Market Fund and the Growth Fund, the Adviser has
retained Morgan Stanley Asset Management Inc. ("MSAM") to provide sub-investment
advisory services.
THE SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, THE ADVISER, NCBC, MILLER ANDERSON, MSAM 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.
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.
(Continued on next page)
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("COMMISSION") NOR HAS THE 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 January 2, 1998.
<PAGE> 5
(Continued from previous page)
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.
The MONEY MARKET FUND seeks current income with liquidity and stability of
principal. The Money Market Fund invests in high-quality money market
instruments and other instruments of high quality. All securities or instruments
in which the Money Market Fund invests have remaining maturities of 397 days or
less, although instruments subject to repurchase agreements may bear longer
maturities.
The VALUE FUND seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing
primarily in common stocks with equity capitalizations usually greater than $300
million. The Value Fund will invest in securities of companies believed by the
Adviser to exhibit strong financial characteristics and to be selling below
their long-term intrinsic value.
The FIXED INCOME FUND seeks to achieve above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing in a diversified portfolio of U.S. Government securities, corporate
bonds (including bonds rated below investment grade, commonly referred to as
junk bonds), foreign fixed-income securities and mortgage-backed securities of
domestic issuers and other fixed-income securities.
The TENNESSEE FUND seeks (1) income which is exempt from federal income tax
and Tennessee 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 Tennessee Fund will invest, under normal market
conditions, at least 80% of its net assets in Exempt Securities (as defined
below).
The GROWTH FUND seeks long-term capital appreciation by investing in growth
oriented equity securities of medium and large capitalization companies. The
Growth Fund will invest in securities of companies believed by its investment
adviser to have an attractive outlook for growth in earnings.
Each of the Value Fund's, the Growth Fund's, the Fixed Income Fund's and
the Tennessee 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 Ohio, Inc., Columbus, Ohio, an affiliate of BISYS, acts as
the Funds' transfer agent (the "Transfer Agent"), and BISYS Fund Services, Inc.,
the general partner of BISYS, performs certain fund accounting services for each
of the Funds.
2
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................................................................... 4
Fee Table............................................................................. 7
Financial Highlights.................................................................. 9
Performance Information............................................................... 12
Investment Objectives and Policies.................................................... 13
Investment Restrictions............................................................... 29
Valuation of Shares................................................................... 31
How to Purchase and Redeem Shares..................................................... 31
Dividends and Taxes................................................................... 38
Management of the Group............................................................... 41
General Information................................................................... 45
</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.
3
<PAGE> 7
PROSPECTUS SUMMARY
Shares Offered............... Units of beneficial interest ("Shares") of the
Money Market Fund, the Value Fund, the Fixed
Income Fund, the Tennessee Fund and the Growth
Fund, five 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 ranging from 4.5% to 3%
(depending upon the Fund) 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 $50
minimum subsequent investments. Such minimum
initial investment is reduced to $100 for
investors using the Auto Invest Plan described
herein, such minimum subsequent investment may
be waived if purchases are made in connection
with an IRA, and both minimums may be waived if
purchases are made pursuant to a payroll
deduction plan.
Type of Company.............. Each Fund is a series of an open-end, management
investment company. The Money Market Fund, the
Value Fund, the Fixed Income Fund and the Growth
Fund are each a diversified Fund. The Tennessee
Fund is a non-diversified Fund.
Investment Objectives........ For the MONEY MARKET FUND, current income with
liquidity and stability of principal.
For the VALUE FUND, above-average total return
over a market cycle of three to five years,
consistent with reasonable risk, by investing
primarily in common stocks with equity
capitalizations usually greater than $300
million.
For the FIXED INCOME FUND, to achieve
above-average total return over a market cycle
of three to five years, consistent with
reasonable risk, by investing in a diversified
portfolio of U.S. Government securities,
corporate bonds (including bonds rated below
investment grade, commonly referred to as junk
bonds), foreign fixed income securities and
mortgage-backed securities of domestic issuers
and other fixed-income securities.
For the TENNESSEE FUND, (1) income which is
exempt from federal income tax and Tennessee
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.
For the GROWTH FUND, long-term capital
appreciation by investing in growth oriented
equity securities of medium and large
capitalization companies.
Investment Policies.......... The MONEY MARKET FUND invests in high-quality
money market instruments, including obligations
of the U.S. Government, its agen-
4
<PAGE> 8
cies or instrumentalities, mortgage-backed
securities, bank obligations, commercial paper
and corporate bonds. All securities or
instruments in which the Money Market Fund
invests have remaining maturities of 397 days
(13 months) or less, although instruments
subject to repurchase agreements may bear longer
maturities. The Money Market Fund is expected to
maintain a net asset value of $1.00 per share.
There can bo no assurance, however, that the
Money Market Fund will be successful in
maintaining a net asset value of $1.00 per
share.
Generally the VALUE FUND invests at least 65% of
its total assets in equity securities deemed to
be undervalued relative to the stock market in
general as measured by the Standard & Poor's 500
Index, based on the value measures such as
price/earnings and price/book ratios, as well as
fundamental research.
Generally the FIXED INCOME FUND invests at least
65% of its total assets in fixed income
securities, and up to 50% of its total assets in
mortgage-backed securities. The maturity and
duration structure of the Fixed Income Fund are
actively managed in anticipation of long-term
trends in interest rates and inflation.
Investments are diversified among a wide variety
of fixed income securities in all market
sectors.
Under normal market conditions, the TENNESSEE
FUND will invest at least 80% of its net assets
in municipal securities issued by or on behalf
of the State of Tennessee or any county,
political subdivision or municipality thereof,
including any agency, board, authority or
commission of any of the foregoing, and debt
obligations issued by the Government of Puerto
Rico, which generate interest income which is
exempt from federal and Tennessee state income
taxes (but may be treated as a preference item
of certain Shareholders for purposes of the
federal alternative minimum tax).
Under normal circumstances, the GROWTH FUND will
invest at least 65% of its total assets in
common stocks, preferred stocks, convertible
securities and rights and warrants to purchase
common stocks.
Risk Factors and
Special Considerations..... An investment in any of the Funds 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 any of the Funds will achieve its
investment objectives. The Funds, to the extent
set forth under "INVESTMENT OBJECTIVES AND
POLICIES," may engage in one or more of the
following practices: the purchase of securities
from primarily one state, the use of repurchase
agreements and reverse repurchase agreements,
the lending of portfolio securities, the
purchase of securities on a when-issued or
delayed-delivery basis and investing in foreign
securities and derivatives, including entering
into options, swaps and futures.
Investment Adviser........... National Bank of Commerce (the "Adviser").
Sub-Investment Advisers...... With respect to the Value Fund and the Fixed
Income Fund only, Miller Anderson & Sherrerd,
LLP ("Miller Anderson"). With respect to the
Money Market Fund and the Growth Fund only,
Morgan Stanley Asset Management Inc. ("MSAM").
Miller An-
5
<PAGE> 9
derson and MSAM are hereinafter collectively
referred to as 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, 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").
6
<PAGE> 10
FEE TABLE
<TABLE>
<CAPTION>
MONEY MARKET VALUE FIXED INCOME
FUND FUND FUND
------------ ----- ------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)........................ 0% 4.50% 3.00%
Maximum Sales Load Imposed on Reinvested Dividends (as a
percentage of offering price).............................. 0% 0 % 0%
Deferred Sales Load (as a percentage of original purchase
price or redemption proceeds, as applicable)............... 0% 0 % 0%
Redemption Fees (as a percentage of amount redeemed, if
applicable)................................................ 0% 0 % 0%
Exchange Fee................................................ $ 0 $ 0 $ 0
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees............................................. .35% 1.00% .65%
12b-1 Fees After Voluntary Fee Reduction (1)................ .15 .09 .05
Other Expenses After Voluntary Fee Reduction(1)(2).......... .59 .62 .68
---- ---- ----
Total Fund Operating Expenses After Voluntary Fee
Reduction.................................................. 1.09% 1.71% 1.38%
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
TENNESSEE GROWTH
FUND FUND
--------- ------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)...................................... 3.00% 4.50%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)...................................... 0% 0%
Deferred Sales Load (as a percentage of original purchase price or
redemption proceeds, as applicable)...................................... 0% 0%
Redemption Fees (as a percentage of amount redeemed, if applicable)....... 0% 0%
Exchange Fee.............................................................. $ 0 $ 0
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (3)....................................................... .05% 1.00%
12b-1 Fees After Voluntary Fee Reduction (1).............................. .15 .08
Other Expenses After Voluntary Fee Reduction(1)(2)........................ .81 .63
---- ----
Total Fund Operating Expenses After Voluntary Fee Reduction............... 1.01% 1.71%
==== ====
</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 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Fund.................................. $ 11 $35 $ 60 $133
Value Fund......................................... $ 62 $96 $ 134 $238
Fixed Income Fund.................................. $ 44 $72 $ 103 $191
Tennessee Fund..................................... $ 40 $61 $ 84 $150
Growth Fund........................................ $ 62 $96 $ 134 $238
</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
7
<PAGE> 11
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. As a result of
the payment of sales loads, as applicable, 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 fees for each of the Funds have been restated to reflect current fees. For
further information on fees and expenses for the fiscal year ended June 30,
1997, please see the Funds' annual report or the financial information contained
in the Funds' Statement of Additional Information. THE FOREGOING EXAMPLES SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.
- ------------------------------
(1) BISYS has agreed with the Group to reduce voluntarily the amount of its
12b-1 fees until further written notice to Shareholders to the extent
necessary to cause the total of Rule 12b-1 fees and administrative servicing
fees not to exceed .32% of each Fund's respective net assets. Absent such
voluntary fee reductions, Rule 12b-1 fees and administrative service fees
would each be .25% for each of the Funds. Absent such voluntary fee
reductions and the voluntary advisory fee reduction described in Note 3
below, Total Fund Operating Expenses would be 1.27% for the Money Market
Fund, 1.89% for the Value Fund, 1.58% for the Fixed Income Fund, 1.79% for
the Tennessee Fund and 1.89% for the Growth Fund.
(2) "Other Expenses" include administration fees and administrative servicing
fees.
(3) The Adviser has agreed with the Group to reduce voluntarily the amount of
its investment advisory fee with respect to the Tennessee Fund until further
written notice to Shareholders. Absent such voluntary fee reductions,
Management Fees for the Tennessee Fund would be .65%.
8
<PAGE> 12
FINANCIAL HIGHLIGHTS
Each Fund is a separate fund of the Group. The table below sets forth
certain information concerning the investment results of each Fund since its
inception. Further financial information is included in the Statement of
Additional Information. The Financial Highlights contained in the following
tables have been audited by KPMG Peat Marwick LLP, independent certified public
accountants for the Group, whose most recent report is included in the Statement
of Additional Information and which may be obtained by Shareholders.
<TABLE>
<CAPTION>
THE MONEY MARKET FUND
-----------------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR JULY 25,
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED 1988 TO
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1996 1995 1994 1993 1992 1991 1990 1989(a)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset
value,
Beginning of
period...... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Income from
investment
operations:
Net
investment
income.... 0.044 0.046 0.044 0.026 0.032 0.051 0.071 0.081 0.077
Net gains
or losses
on
securities
(both
realized
and
unrealized).. -- -- (0.004) -- -- 0.003 -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total from
investment
operations.. 0.044 0.046 0.040 0.026 0.032 0.054 0.071 0.081 0.077
------- ------- ------- ------- ------- ------- ------- ------- -------
Less
Distributions:
Dividends
(from net
investment
income)... (0.044) (0.046) (0.044) (0.026) (0.032) (0.051) (0.071) (0.081) (0.077)
Distributions
(from
capital
gains).... -- -- -- -- -- (0.003) -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total
Distributions... (0.044) (0.046) (0.044) (0.026) (0.032) (0.054) (0.071) (0.081) (0.077)
------- ------- ------- ------- ------- ------- ------- ------- -------
Capital
Transactions... -- -- 0.004 -- -- -- -- -- --
Net asset
value,
End of
period...... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======= ======= ======= ======= ======= =======
Total
Return...... 4.44%+ 4.75%+ 4.44%+ 2.65% 3.20% 5.61% 7.29% 8.41% 7.97%(b)
ANNUALIZED
RATIOS/SUPPLEMENTAL
DATA:
Net assets,
End of
period
(000
omitted)... $140,174 $134,146 $157,904 $128,001 $141,840 $162,361 $165,242 $103,809 $85,441
Ratio of
expenses
to average
net
asset..... 1.09% 0.99% 0.97% 0.95% 0.85% 0.66% 0.63% 0.59% 0.83%(c)
Ratio of
net
investment
income to
average
net
assets.... 4.36% 4.65% 4.41% 2.62% 3.17% 5.12% 6.95% 8.09% 8.24%(c)
Ratio of
expenses
to average
net
assets*... 1.30% 1.20% 1.18% 1.09% 0.94% 0.91% 0.68% 0.76% 1.05%(c)
Ratio of
net
investment
income to
average
net
assets*... 4.15% 4.44% 4.20% 2.48% 3.08% 4.87% 6.90% 7.92% 8.02%(c)
</TABLE>
- ---------------
+ The capital contribution had no impact on the total return for the years ended
June 30, 1995, June 30, 1996, and June 30, 1997.
9
<PAGE> 13
<TABLE>
<CAPTION>
THE VALUE FUND
--------------------------------------------------------------------------------------------------
OCTOBER 31, 1991
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED TO
JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1993 JUNE 30, 1992 (a)
-------------- -------------- -------------- -------------- -------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
Beginning of period........... $ 14.54 $12.63 $12.67 $11.57 $11.04 $10.00
Income from investment
operations:
Net investment income........ 0.09 0.14 0.14 0.07 0.21 0.17
Net gains or losses on
securities
(both realized and
unrealized)................. 3.06 2.40 0.76 1.28 0.96 1.03
-------- ------ ------ ------ ------ ------
Total from investment
operations.................. 3.15 2.54 0.90 1.35 1.17 1.20
-------- ------ ------ ------ ------ ------
Less Distributions:
Dividends (from net
investment income).......... (0.10) (0.14) (0.13) (0.05) (0.22) (0.16)
Distributions (from capital
gains)...................... (2.06) (0.49) (0.15) (0.19) (0.42) --
In excess of net realized
gains....................... -- -- (0.66) -- -- --
-------- ------ ------ ------ ------ ------
Total Distribution........... (2.16) (0.63) (0.94) (0.25) (0.64) (0.16)
-------- ------ ------ ------ ------ ------
Net asset value,
End of period................. $ 15.53 $14.54 $12.63 $12.67 $11.57 $11.04
======== ====== ====== ====== ====== ======
Total Return (excludes sales
charges)...................... 23.66% 20.50% 8.03% 11.75% 10.94% 12.04%(b)
ANNUALIZED RATIOS/SUPPLEMENTAL
DATA:
Net assets, End of period
(000 omitted)............... $79,564 $81,055 $80,264 $79,232 $52,629 $25,461
Ratio of expenses to average
net assets.................. 1.62% 1.58% 1.58% 1.36% 0.73% 0.67%(c)
Ratio of net investment
income to average net
assets...................... 0.61% 1.01% 1.13% 0.52% 1.84% 2.43%(c)
Ratio of expenses to average
net assets*................. 1.83% 1.79% 1.79% 1.74% 1.69% 1.95%(c)
Ratio of net investment
income to average net
assets*..................... 0.40% 0.80% 0.92% 0.14% 0.88% 1.15%(c)
Portfolio turnover........... 11.47% 27.89% 35.64% 62.17% 16.13% 23.07%
Average commission rate
paid(d)..................... $ 0.0604 $0.0605 -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
THE FIXED INCOME FUND
--------------------------------------------------------------------------------------------------
OCTOBER 31, 1991
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED TO
JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1993 JUNE 30, 1992 (a)
-------------- -------------- -------------- -------------- -------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
Beginning of period........... $ 8.77 $ 9.27 $ 9.43 $10.44 $10.26 $10.00
Income from investment
operations:
Net investment income........ 0.57 0.59 0.58 0.57 0.68 0.42
Net gains or losses on
securities (both realized
and unrealized)............. (1.39) (0.48) (0.15) (0.76) 0.27 0.22
------- ------ ------ ------ ------ ------
Total from investment
operation.................. (.82) 0.11 0.43 (0.19) 0.95 0.64
------- ------ ------ ------ ------ ------
Less Distributions:
Dividends (from net
investment income).......... (0.56) (0.58) (0.58) (0.57) (0.69) (0.38)
Distributions (from capital
gains)...................... -- -- -- -- (0.08) --
In excess of net realized
gains....................... -- (0.03) -- (0.25) -- --
In excess of net investment
income...................... -- -- (0.01) -- -- --
------- ------ ------ ------ ------ ------
Total Distributions.......... (0.56) (0.61) (0.59) (0.82) (0.77) (0.38)
------- ------ ------ ------ ------ ------
Capital Transactions........... $ 1.29 -- -- -- -- --
Net asset value,
End of period................. $ 8.68 $ 8.77 $ 9.27 $ 9.43 $10.44 $10.26
======= ====== ====== ====== ====== ======
Total Return (excludes sales
charges)..................... 5.55%+ 1.05% 4.82% (2.20)% 9.64% 6.56%(b)
ANNUALIZED RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of period
(000 omitted)............... $18,227 $28,847 $39,496 $42,309 $35,951
Ratio of expenses to average
net assets.................. 1.49% 1.48% 1.43% 1.37% 0.74% 0.69%(c)
Ratio of net investment
income to average net
assets...................... 6.44% 6.32% 6.33% 5.61% 6.65% 6.51%(c)
Ratio of expenses to average
net assets*................. 1.70% 1.69% 1.64% 1.70% 1.42% 1.63%(c)
Ratio of net investment
income to average net
assets*..................... 6.23% 6.11% 6.12% 5.28% 5.97% 5.58%(c)
Portfolio turnover........... 196.97% 363.84% 223.29% 328.44% 234.71% 40.85%
</TABLE>
- ------------------------------
+ The total return for the year ended June 30, 1997, includes the effect of a
capital contribution from the Adviser. Without such capital contribution, the
total return would have been (12.33%).
10
<PAGE> 14
<TABLE>
<CAPTION>
THE TENNESSEE FUND
-------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED NOVEMBER 4, 1992
JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1994 TO JUNE 30, 1993(a)
------------- ------------- ------------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
Net asset value, Beginning of
period............................ $ 9.76 $ 9.84 $ 9.81 $ 10.44 $ 10.00
Income from investment operations:
Net investment income............ 0.53 0.53 0.50 0.48 0.30
Net gains or losses on securities
(both realized and
unrealized)..................... 0.17 (0.08) 0.03 (0.57) 0.43
------- ------- ------- ------- -------
Total from investment operations... 0.70 0.45 0.53 (0.09) 0.73
------- ------- ------- ------- -------
Less Distributions:
Dividends (from net investment
income)........................ (0.51) (0.53) (0.50) (0.48) (0.29)
Distributions (from capital
gains)......................... -- -- -- -- --
In excess of net realized
gains.......................... -- -- -- (0.06) --
------- ------- ------- ------- -------
Total Distributions................ (0.51) (0.53) (0.50) (0.54) (0.29)
------- ------- ------- ------- -------
Net asset value, End of period..... $ 9.95 $ 9.76 $ 9.84 $ 9.81 $ 10.44
======= ======= ======= ======= =======
Total Return (excludes sales
charges)......................... 7.38% 4.67% 5.61% (1.00)% 7.39%(b)
ANNUALIZED RATIOS/SUPPLEMENTAL
DATA:
Net Assets, end of period (000
omitted)........................ $18,352 $19,037 $20,827 $19,965 $17,425
Ratio of expenses to average net
assets.......................... 1.10% 0.98% 1.12% 1.19% 0.82%(c)
Ratio of net investment income to
average net assets.............. 5.33% 5.40% 5.24% 4.67% 4.76%(c)
Ratio of expenses to average net
assets*......................... 1.91% 1.83% 1.98% 1.99% 1.62%(c)
Ratio of net investment income to
average net assets*............. 4.52% 4.55% 4.38% 3.87% 3.96%(c)
Portfolio turnover............... 38.66% 60.76% 62.59% 86.57% 52.52%
</TABLE>
<TABLE>
<CAPTION>
THE GROWTH FUND
------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED APRIL 18, 1994
JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995 TO JUNE 30, 1994(a)
------------- ------------- ------------- -------------------
<S> <C> <C> <C> <C>
Net asset value, Beginning of Period................ $ 14.01 $ 12.14 $ 9.82 $ 10.00
Income from investment operations:
Net investment income............................. 0.16 0.18 0.16 --
Net gains on losses on securities (both realized
and unrealized).................................. 3.92 2.13 2.30 (0.18)
------- ------- ------- -------
Total from investment operations.................... 4.08 2.31 2.46 (0.18)
------- ------- ------- -------
Less Distributions:
Dividends (from net investment income)............ (0.16) (0.18) (0.14) --
In excess of net investment income................ -- (0.01) -- --
Distributions (from capital gains)................ (0.42) (0.25) -- --
------- ------- ------- -------
Total Distributions................................. (0.58) (0.44) (0.14) --
------- ------- ------- -------
Net asset value, End of period...................... $ 17.51 $ 14.01 $ 12.14 $ 9.82
======= ======= ======= =======
Total Return (excludes sales charges)............... 29.91% 19.35% 25.27% (1.80)%(b)
ANNUALIZED RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000 omitted)........... $37,405 $33,767 $21,485 $6,345
Ratios of expenses to average net assets.......... 1.08% 1.05% 1.24% 2.59% (c)
Ratio of net investment income to average net
assets.......................................... 1.06% 1.37% 1.64% 0.25% (c)
Ratio of expenses to average net assets*.......... 1.99% 1.97% 2.51% 3.90% (c)
Ratio of net investment income to average net
assets*......................................... 0.15% 0.45% 0.37% (1.07)%(c)
Portfolio turnover................................ 24.07% 31.22% 29.36% 0.00%
Average commissions rate paid(d).................. $0.0696 $0.0686 -- --
</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) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged. Disclosure of these rates was
not required until fiscal year 1996.
11
<PAGE> 15
PERFORMANCE INFORMATION
From time to time performance information for the Funds showing the Funds'
average annual total return, yield, taxable 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 EARNINGS 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 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. 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. Taxable 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 yield and
taxable equivalent yield, as the case may be, excluding the effect of a sales
charge, if any.
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 Money Market Fund may also present a 30-day yield which is calculated
similarly but instead refers to a 30-day period rather than a seven-day period.
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.
In addition, from time to time, the Funds may 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 NCBC 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.
Further information about the performance of the Funds is contained in the
Funds' Annual Report to Shareholders which may be obtained without charge by
contacting the Group at (800) 874-8376.
12
<PAGE> 16
INVESTMENT OBJECTIVES AND POLICIES
IN GENERAL
The investment objective of the Money Market Fund is to seek current income
with liquidity and stability of principal. The investment objective of the Value
Fund is to achieve above-average total return over a market cycle of three to
five years, consistent with reasonable risk, by investing primarily in common
stocks with equity capitalizations usually greater than $300 million. The
investment objective of the Fixed Income Fund is to achieve above-average total
return over a market cycle of three to five years, consistent with reasonable
risk, by investing in a diversified portfolio of U.S. Government securities,
corporate bonds (including bonds rated below investment grade, commonly referred
to as junk bonds), foreign fixed-income securities and mortgage-backed
securities of domestic issuers and other fixed-income securities. The investment
objectives of the Tennessee Fund are to seek (1) income which is exempt from
federal income tax and Tennessee 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 objective of the
Growth Fund is to seek long-term capital appreciation by investing in growth
oriented equity securities of medium and large capitalization companies.
The investment objectives with respect to a Fund are fundamental policies
and as such may not be changed 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
As a money market fund, the Money Market Fund invests exclusively in United
States dollar-denominated instruments which the Trustees of the Group and MSAM,
as sub-investment 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 ("S&P") and Moody's Investors Service, Inc. ("Moody's")) in one of
the two highest rating categories for short-term debt obligations or, if
unrated, are of comparable quality. The Money Market Fund also diversifies its
investments so that, with minor exceptions and except for U.S. Government
securities, not more than 5% of its total assets is invested in the securities
of any one issuer, not more than 5% of its total assets is invested in
securities of issuers rated by the NRSRO at the time of investment in the second
highest rating category for short-term debt obligations or, if unrated, deemed
by MSAM 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 Money Market Fund invests have remaining maturities of
397 calendar days or less. The dollar-weighted average maturity of the
securities in the Money Market Fund will not exceed 90 days.
Subject to the foregoing general limitations, the Money Market Fund expects
to invest in the following types of securities.
The Money Market 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 ("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 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 Money Market
Fund will invest in the
13
<PAGE> 17
obligations of such agencies or instrumentalities only when MSAM believes that
the credit risk with respect thereto is minimal. The Money Market Fund may also
invest in taxable obligations of States of the United States or their counties,
political subdivisions, municipalities, instrumentalities, agencies or
authorities (collectively "State Securities").
The Government Obligations in which the Money Market Fund may invest
include mortgage-backed securities, such as certain GNMA securities.
Mortgage-backed securities differ from other fixed income securities in that the
principal is paid back by the borrower over the life of the loan rather than
returned in a lump sum at maturity. For more information regarding
mortgage-backed securities, see "Risk Factors and Investment Techniques" below.
The Money Market Fund may invest in high quality U.S. dollar-denominationed
negotiable certificates of deposit, time deposits, deposit notes and bankers'
acceptances of (i) banks, savings and loan associations and savings banks which
have more than $2 billion in total assets and are organized under federal or
state law, (ii) foreign branches of these banks ("Euros") and (iii) U.S.
branches of foreign banks of equivalent size ("Yankees"). The Money Market Fund
may also invest in U.S. dollar-denominated obligations of the International Bank
for Reconstruction and Development ("World Bank"). These obligations are
supported by appropriate but unpaid commitments of the World Bank's member
countries, and there is no assurance these commitments will be undertaken or met
in the future.
The Money Market Fund may invest in short-term promissory notes issued by
corporations (including variable amount master demand notes) and in taxable
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, found by MSAM to be of comparable quality to
instruments that are so rated. 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 Fund's Statement of Additional Information. The
Money Market Fund may also invest in commercial paper issued by foreign
corporations if the issuer is a direct subsidiary of a U.S. corporation, the
obligation is U.S. dollar denominated and the obligation is not subject to
foreign withholding tax. Under normal market conditions, the Money Market Fund
will not invest more than 10% of its total assets in foreign securities.
The Money Market 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 Money Market 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
Money Market Fund in accordance with the guidelines adopted by the Group's Board
of Trustees.
Variable amount master demand notes in which the Money Market 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 Money Market Fund and the issuer, they are not normally
traded. Although there is no secondary market in the notes, the Money Market
Fund may demand payment of principal and accrued interest at any time. While the
notes are not typically rated by NRSROs, such variable amount master demand
notes must be determined by MSAM to be of comparable quality to the commercial
paper in which the Fund may invest. MSAM 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 period of time remaining until the principal amount can be
recovered under a variable master demand note shall not exceed seven days.
The Money Market Fund may also acquire variable and floating rate notes
issued by both governmental and nongovernmental issuers, subject to the Money
Market Fund's investment objective, policies and restrictions.
14
<PAGE> 18
THE VALUE FUND
Under normal market conditions, the Value Fund invests generally at least
65% of its total assets in equity securities, which include common stocks,
securities convertible into common stocks (i.e., convertible bonds, convertible
preferred stocks, warrants, options and rights), preferred stocks, securities of
other investment companies, units of real estate investment trusts ("REITs") and
American Depository Receipts ("ADRs"). Such equity securities may also include
equity securities of foreign issuers, although the Value Fund currently intends
to limit its investments in foreign securities (excluding ADRs) to not more than
5% of total assets at the time of purchase.
The Value Fund invests in equity securities of companies with equity
capitalizations usually greater than $300 million and which are believed by
Miller Anderson, as such Fund's sub-investment adviser, to be relatively
undervalued as compared to the stock market in general as measured by the
Standard & Poor's 500 Index. The determination of whether an equity security is
undervalued is based on various measures such as price/earnings ratios and
price/book ratios, as well as fundamental research.
While Miller Anderson follows a policy of having the Value Fund be as fully
invested as possible with respect to equity securities, the Value Fund may also
invest in Government Obligations, corporate bonds and notes, zero coupon
securities, foreign bonds, securities of other investment companies (including
Shares of the Money Market Fund), and short-term obligations (with maturities of
12 months or less) such as commercial paper, corporate obligations, bank
obligations, certificates of deposit (including Eurodollar certificates of
deposit), repurchase agreements, Government Obligations, obligations of foreign
sovereignties, and demand and time deposits of domestic and foreign banks and
savings and loan associations (collectively, "Short-Term Obligations").
In addition, in order to pursue its investment objectives, the Value Fund
may also use "derivatives." Descriptions of derivatives used by the Value Fund
and the other portfolio instruments and techniques in which the Value Fund may
invest or engage, and the risks associated therewith, are set forth below under
"RISK FACTORS AND INVESTMENT TECHNIQUES" and in the Funds' Statement of
Additional Information.
THE FIXED INCOME FUND
Under normal market conditions, the Fixed Income Fund invests generally at
least 65% of its total assets in fixed income securities, which include
Government Obligations, corporate bonds and notes, zero coupon securities,
variable rate and floating rate securities, mortgage-backed securities,
including stripped mortgage-backed securities, collateralized mortgage
obligations ("CMOs"), asset-backed securities, loan participations, convertible
securities, taxable and non-taxable State Securities, Brady Bonds, preferred
stocks, securities of other investment companies (including Shares of the Money
Market Fund) and Short-Term Obligations. Such fixed income securities may also
include fixed income securities of foreign issuers.
Miller Anderson, as the Fixed Income Fund's sub-investment adviser, intends
to actively manage the maturity and duration of the Fixed Income Fund in
anticipation of cyclical interest rate changes. Adjustments are not made in an
effort to capture short-term, day-to-day movements in the market, but instead
are implemented in anticipation of longer term shifts in the levels of interest
rates. Adjustments made to shorten portfolio maturity and duration are made to
limit capital losses during periods when interest rates are expected to rise.
Conversely, adjustments made to lengthen maturity are intended to produce
capital appreciation in periods when interest rates are expected to fall. The
foundation for maturity and duration strategy lies in analysis of the U.S. and
global economies, focusing on levels of real interest rates, monetary and fiscal
policy actions, and cyclical indicators. For more information regarding maturity
and duration, see "INVESTMENT OBJECTIVES AND POLICIES -- Additional Information
on Portfolio Instruments" in the Funds' Statement of Additional Information.
Investments are diversified among a wide variety of fixed income securities in
all market sectors. The Fixed Income Fund's average weighted maturity will
ordinarily be greater than five years.
In addition to focusing on maturity and duration, Miller Anderson also
follows a fixed-income strategy of value investing, whereby Miller Anderson
seeks to identify undervalued sectors and securities through analysis
15
<PAGE> 19
of credit quality, option characteristics and liquidity. Quantitative models are
used in conjunction with judgment and experience to evaluate and select
securities with embedded put or call options which are attractive on a risk- and
option-adjusted basis. Successful value investing will permit the Fixed Income
Fund to benefit from the price appreciation of individual securities during
periods when interest rates are unchanged.
At least 80% of the fixed income securities in which the Fixed Income Fund
invests will be "investment grade securities," meaning that such securities, at
the time of purchase, are rated within one of the four highest rating groups
assigned by one or more NRSROs or, if unrated, which Miller Anderson deems to be
of comparable quality. Securities rated within the fourth highest rating group
(e.g., BBB by S&P or Baa by Moody's) represent the lowest of the four levels of
investment grade securities and are regarded as borderline between definitely
sound obligations and those in which the speculative element begins to
predominate. Mortgage-backed securities, including mortgage pass-throughs and
CMOs, deemed investment grade by Miller Anderson, will either carry a guarantee
from an agency of the U.S. Government or a private issuer of the timely payment
of principal and interest (such guarantees do not extend to the market value of
such securities or the net asset value per share of the Fixed Income Fund) or,
in the case of unrated securities, will be sufficiently seasoned that they are
considered by Miller Anderson to be investment grade quality. Miller Anderson
may retain securities if their ratings fall below investment grade if it deems
retention of the security to be in the best interests of the Fixed Income Fund.
The Fixed Income Fund may also invest up to 20% of its assets in "high
yield securities," meaning securities that are rated Ba through C by Moody's or
BB through D by S&P, and unrated securities considered to be of equivalent
quality by Miller Anderson. Securities rated less than Baa by Moody's or BBB by
S&P are classified as non-investment grade securities are commonly referred to
as junk bonds or high yield, high risk securities. Such securities carry a high
degree of risk and are considered speculative by the NRSROs. For more
information regarding high yield securities, see "RISK FACTORS AND INVESTMENT
TECHNIQUES -- HIGH YIELD SECURITIES" below.
In addition, in order to pursue its investment objectives, the Fixed Income
Fund may also use "derivatives." Descriptions of derivatives used by the Fixed
Income Fund and the other portfolio instruments and techniques in which the
Fixed Income Fund may invest or engage, and the risks associated therewith, are
set forth below under "RISK FACTORS AND INVESTMENT TECHNIQUES" and in the Funds'
Statement of Additional Information.
THE TENNESSEE FUND
Under normal market conditions, at least 80% of the net assets of the
Tennessee Fund will be invested in a portfolio of obligations consisting of
bonds, notes, commercial paper and certificates of indebtedness, issued by or on
behalf of the State of Tennessee, 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 income tax and Tennessee income tax (but may
be treated as a preference item for individuals for purposes of the federal
alternative minimum tax) ("Tennessee 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 Tennessee state income taxes (but may be treated as a
preference item for certain Shareholders for purposes of the federal alternative
minimum tax) (together, with Tennessee Exempt Securities, called "Exempt
Securities"). In addition, under normal market conditions, at least 65% of the
Tennessee Fund's total net assets will be invested in Tennessee Exempt
Securities. As a matter of fundamental policy, under normal market conditions,
at least 80% of the net assets of the Tennessee Fund will be invested in
securities, the interest on which is exempt from federal income tax, although
such income may be subject to the federal alternative minimum tax when received
by certain Shareholders.
The two principal classifications of Exempt Securities which may be held by
the Tennessee 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
16
<PAGE> 20
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 Tennessee 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 Tennessee 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 Tennessee 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 Tennessee 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.
The Tennessee 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
Tennessee Fund will be invested in Exempt Securities. However, investments of
the Tennessee Fund may be made in taxable obligations if, for example, suitable
tax-exempt obligations are unavailable or if acquisition of U.S. Government or
other taxable securities is deemed appropriate for temporary defensive purposes
as determined by the Adviser to be warranted due to market conditions. Such
taxable obligations consist of Government Obligations, certificates of deposit
and bankers' acceptances of selected banks, securities which are restricted as
to disposition, including Rule 144A Securities, and commercial paper meeting the
Tennessee Fund's quality standards (as described above) for tax-exempt
commercial paper, and such taxable obligations which may be subject to
repurchase agreements. These obligations are described further in the Statement
of Additional Information. The Tennessee Fund may also invest up to 10% of its
total assets in money market mutual funds for purposes of short-term cash
management, including shares of the Money Market Fund, as discussed more fully
below under "RISK FACTORS AND INVESTMENT TECHNIQUES -- Other Investment
Policies." Under such circumstances and during the period of such investment,
the Tennessee Fund may not achieve its stated investment objectives.
Interest income from certain types of Exempt Securities may be subject to
federal alternative minimum tax. The Tennessee Fund will include securities
issued by or on behalf of the State of Tennessee, or any county, political
subdivision or municipality thereof, which are subject to federal alternative
minimum tax in the calculation of compliance with the 80% test described above
as a fundamental policy of the Tennessee Fund. Therefore, to the extent the
Tennessee 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 Tennessee Fund's distributions derived from these bonds. For further
information relating to the types of municipal securities the interest on 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 and Tennessee state income taxes are normally
rendered by bond counsel to the respective issuers at the time of issuance.
Neither the Tennessee 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 Tennessee Fund may include rated and
unrated variable and floating rate notes the interest on which is tax-exempt.
Such notes are more fully described above under "The Money Market Fund."
Variable and floating rate notes for which no readily available market exists
will be purchased
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in an amount which, together with other illiquid securities, exceeds 15% of the
Fund's net assets only if such notes are subject to a demand feature that will
permit the Tennessee Fund to receive payment of the principal within seven days
after demand by the Tennessee Fund.
An increase in interest rates will generally reduce the value of the
investments in the Tennessee 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 Tennessee Fund may use one or more of the investment techniques
described below. Use of such techniques may cause such Fund to earn income which
would be taxable to its Shareholders.
THE GROWTH FUND
Under normal circumstances, the Growth Fund will invest at least 65% of its
total assets in equity securities, which include common stocks, securities
convertible into common stocks (i.e., convertible bonds, convertible preferred
stock, warrants, options and rights), preferred stocks, securities of other
investment companies, units of REITs and depository receipts, including ADRs.
Such equity securities may also include equity securities of foreign issuers,
although the Growth Fund currently intends to limit its investments in foreign
securities (including depository receipts) to not more than 25% of total assets
at the time of purchase. Investors should recognize that investing in foreign
companies involves certain special considerations which are not typically
associated with investing in U.S. companies.
The Growth Fund invests in growth-oriented equity securities of medium and
large capitalization companies. MSAM, as the Growth Fund's sub-investment
adviser, employs a flexible and eclectic investment process in pursuit of the
Growth Fund's investment objective. In selecting stocks for the Growth Fund,
MSAM concentrates on a universe of rapidly growing, high quality companies and
lower, but accelerating, earnings growth situations. MSAM's universe of
potential investments generally comprises companies with market capitalizations
of $500 million or more. The Growth Fund is not restricted to investments in
specific market sectors. MSAM uses its research capabilities, analytical
resources and judgment to assess economic, industry and market trends, as well
as individual company developments, to select promising growth investments for
the Growth Fund. MSAM concentrates on companies with strong, communicative
managements and clearly defined strategies for growth. In addition, MSAM
rigorously assesses company developments, including changes in strategic
direction, management focus and current and likely future earnings results.
Valuation is important to MSAM but is viewed in the context of prospects for
sustainable earnings growth and the potential for positive earnings surprises
vis-a-vis consensus expectations. The Growth Fund is free to invest in any
equity security that, in MSAM's judgment, provides above average potential for
capital appreciation.
In selecting investments for the Growth Fund, MSAM emphasizes individual
security selection. The Growth Fund's investments will generally be diversified
by number of issues but concentrated sector positions may result from the
investment process. The Growth Fund has a long-term investment perspective;
however, MSAM may take advantage of short-term opportunities that are consistent
with the Growth Fund's objective by selling recently purchased securities which
have increased in value.
The Growth Fund may invest in convertible securities of domestic and,
subject to the above restrictions, foreign issuers on occasions when, due to
market conditions, it is more advantageous to purchase such securities than to
purchase common stock. Since the Growth Fund invests in both common stocks and
convertible securities, the risks of investing in the general equity markets may
be tempered to a degree by the Growth Fund's investments in convertible
securities which are often not as volatile as common stocks.
While MSAM follows a policy of being as fully invested as possible under
normal market conditions with respect to the Growth Fund's permitted investments
as described above, the Growth Fund may invest in
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Short-Term Obligations. In addition, in order to pursue its investment
objective, the Growth Fund may also use "derivatives." Descriptions of
derivatives used by the Growth Fund and the other portfolio instruments and
techniques in which the Growth Fund may invest or engage, and the risks
associated therewith, are set forth below under "RISK FACTORS AND INVESTMENT
TECHNIQUES" and in the Funds' Statement of Additional Information.
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 Value Fund and the
Growth Fund may invest are more volatile and carry more risk than some other
forms of investment including investments in high grade fixed income securities.
Therefore, the Value and Growth Funds are each 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 Money Market Fund, the Fixed Income Fund and the Tennessee Fund
each invest in debt securities, investors in those Funds are exposed to bond
market risk, i.e., fluctuations in the market value of debt securities. Debt
security prices are influenced primarily by changes in the level of interest
rates. When interest rates rise, the prices of debt securities generally fall;
conversely, when interest rates fall, debt security prices generally rise
although certain types of debt security are subject to the risks of prepayment
as described above when interest rates fall. While debt securities 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 debt security prices and have caused the effective maturity of
securities with prepayment features to be extended, thus effectively converting
short or intermediate term securities (which tend to be less volatile in price)
into longer term securities (which tend to be more volatile in price).
Depending upon the performance of each Fund's 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 Money Market Fund
will attempt to maintain at $1.00.
Derivatives. Derivatives are financial instruments whose value and
performance are based on the value and performance of another security or
financial instrument. The Adviser and Sub-Advisers will use derivatives only in
circumstances where they offer the most economic means of improving the
risk/reward profile of the particular Fund. The Adviser and Sub-Advisers will
not use derivatives to increase portfolio risk above the level that could be
achieved in that Fund using only traditional investment securities. In addition,
the Adviser and Sub-Advisers will not use derivatives to acquire exposure to
changes in the value of assets or indexes of assets that are not a permitted
investment for that Fund. Certain of the Funds may enter into over-the-counter
derivatives transaction (e.g., swaps, caps, floor, puts, etc.) with
counterparties approved by the appropriate Sub-Adviser in accordance with
guidelines established by the Board of Trustees. These guidelines provide for a
minimum credit rating for each counterparty and various credit enhancement
techniques (for example, collateralization of amounts due from counterparties)
to limit exposure to counterparties with rating below AA. Derivatives include,
but are not limited to, CMOs, forwards, futures, and options, stripped
mortgage-backed securities, structured investments, structured notes and swaps.
See the descriptions below of each of these derivatives and which Funds may hold
such instruments.
Temporary Investments. For temporary defensive purposes, when the Adviser
or applicable Sub-Adviser determines that market conditions warrant, each Fund
may invest up to 100% of its assets in dollar and non-dollar denominated
Short-Term Obligations and short- and medium-term debt securities that the
Adviser or applicable Sub-Adviser believes to be of high quality, or hold cash.
The short- and medium-term debt securities which a Fund may invest consist of
(a) obligations of the U.S. or foreign country governments, their respective
agencies or instrumentalities; (b) bank deposits and bank obligations (including
certificates of deposit, time deposits and bankers' acceptances) of U.S. or
foreign country banks denominated in any currency; (c) floating rate securities
and other instruments denominated in any currency issued by international
development agencies; (d) commercial paper and other short-term corporate debt
obligations of U.S. and foreign country corporations meeting the Fund's credit
quality standards; and (e) repurchase agreements with banks and broker-dealers
with respect to such securities. To the extent a Fund is so invested
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<PAGE> 23
during a temporary defensive period, such Fund may not achieve its investment
objective. In addition, the Money Market Fund at all times will be invested in
U.S. dollar denominated securities.
Risks of Non-Diversification. Because the Tennessee Fund invests primarily
in securities of the State of Tennessee and its political subdivisions,
municipalities and public authorities, the Tennessee Fund's performance is
closely tied to the general economic conditions within the State as a whole and
to the economic conditions within particular industries and geographic areas
represented or located within the State.
Historically, the economy of Tennessee has been dominated by manufacturing
and agriculture and is sensitive to the effects of recessions. However, since
1969, the retail and wholesale trade and the services industries combined have
accounted for more than 65% of the new jobs created in Tennessee, while
manufacturing accounted for only 20.7% of total employment by 1996, down from
over 34% during the 1960's.
While both the Tennessee economy and the national economy did experience a
downturn during the most recent recession, the downward trend began to reverse
itself in the first quarter of 1991. The economic expansion that began in
Tennessee at such time is continuing; however, the economy of Tennessee began to
slow toward the end of 1996 and into 1997. A number of factors have contributed
to the deceleration of Tennessee's economic growth, including a loss of jobs in
the manufacturing sector of the economy and slower growth in the trade and
services and construction sectors of the economy. The July 1997 unemployment
rate for Tennessee was 5.5% compared to 4.8% for the nation as a whole.
Tennessee is the 17th most populous state in the nation, with an estimated
state-wide population of 5,319,654 as of December 1996 but it has a relatively
small state government in terms of tax collections. During 1996 Tennessee ranked
45th in the nation in terms of state tax collections per capita.
The four largest cities in Tennessee by population are Memphis, Nashville,
Knoxville, and Chattanooga, in order from largest to smallest. Moody's has rated
long-term bonds for all four cities, with Memphis, Nashville, Knoxville, and
Chattanooga receiving ratings of Aa2, Aa, Aa3 and A1, respectively. S&P has
rated Memphis, Knoxville, and Chattanooga at AA, AA, and AA-, respectively.
The Tennessee Fund's classification as "non-diversified" investment
companies means that the proportion of that 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 Tennessee 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, which requires such
Fund generally to invest as of the end of each taxable 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, such Fund is not so
restricted. In no event, however, may the Tennessee 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 such 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 Tennessee 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.
Variable and Floating Rate Securities A variable rate security 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 cost, as the case may be. However, in
the event the interest rate of such a security 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 security, on
readjustment of its interest rate, will not approximate its par value or
amortized cost, as the case may be, which with respect to the Money Market Fund,
could adversely affect such Fund's ability to maintain a stable net asset value.
In such an instance, such Fund's Sub-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 security 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 cost, as the case may be. Such securities are frequently
not rated by credit rating agencies; however, unrated variable and floating rate
securities purchased a Fund will be
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determined by such Fund's Adviser or Sub-Adviser, as the case may be, to be of
comparable quality at the time of purchase to rated instruments eligible for
purchase under such Fund's investment policies. In making such determinations,
such Fund's Adviser or Sub-Adviser as the case may be, 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
security purchased by a Fund, such Fund may attempt to resell the security 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
security in the event the issuer of the security 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 securities may be
secured by bank letters of credit.
To the extent that a Fund holds a security for which that Fund is not
entitled to receive the principal amount within seven days of demand and for
which no readily available market exists, such a security will be treated as an
illiquid security for purposes of calculation of that Fund's limitation on
illiquid securities as set forth below.
Inverse Floaters. Inverse floating rate obligations in which the Fixed
Income Fund may invest, are fixed-income securities, which have coupon rates
that vary inversely at a multiple of a designated floating rate, such as LIBOR
(London Inter-Bank Offered Rate). Any rise in the reference rate of an inverse
floater (as a consequence of an increase in interest rates) causes a drop in the
coupon rate while any drop in the reference rate of an inverse floater causes an
increase in the coupon rate. Inverse floaters may exhibit substantially greater
price volatility than fixed rate obligations have similar credit quality,
redemption provisions and maturity, and inverse floater CMOs exhibit greater
price volatility than the majority of mortgage pass-through securities or CMOs.
In addition, some inverse floater CMOs exhibit extreme sensitivity to changes in
prepayments. As a result, the yield to maturity of an inverse floater CMO is
sensitive not only to changes in interest rates but also to changes in
prepayment rates on the related underlying mortgage assets.
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 term of these agreements is usually from overnight to one week and never
exceeds one year. 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
securities consistent with such Fund's investment restrictions having a value at
least 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 are 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 than the interest expense of the transaction. For
further information about reverse repurchase agreements, see
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"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, 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.
Real Estate Investment Trusts, The Value Fund and the Growth Fund may each
invest in equity REITs. REITs pool investors' funds for investment primarily in
commercial real estate properties. Investment in REITs may subject a Fund to
certain risks. REITs may be affected by changes in the value of the underlying
property owned by the trust. REITs are dependent upon specialized management
skill, may not be diversified and are subject to the risks of financing
projects. REITs are also subject to heavy cash flow dependency, defaults by
borrowers, self liquidation and the possibility of failing to qualify for the
beneficial tax treatment available to REITs under the Internal Revenue Code and
to maintain its exemption from the 1940 Act. As a shareholder in a REIT, a Fund
would bear, along with other shareholders, its pro rata portion of the REIT's
operating expenses. These expenses would be in addition to the advisory and
other expenses a Fund bears directly in connection with its own operations.
[/R]
Illiquid Securities/Restricted Securities. Each Fund may invest up to 15%
of its net assets (10% with respect to the Money Market Fund) in securities that
are illiquid by virtue of the absence of a readily available market, or because
of legal or contractual restrictions on resale. Such securities 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
assist in the placement of 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
readily saleable.
Foreign Investments. Investments in foreign securities (including Euros
and Yankees) 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 or other foreign 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, interest or dividends on
such securities or the purchase or sale thereof. In addition, foreign branches
of U.S. banks, foreign banks and foreign issuers may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting,
financial and recordkeeping standards than those applicable to domestic branches
of U.S. banks or issuers. There also may be limited publicly available
information with respect to foreign issuers. Brokerage commissions and other
transactions costs on foreign securities exchanges are generally higher than in
the United States. Also, it may be more difficult to obtain a judgment in a
court outside the United States. A Fund will acquire securities issued by
foreign branches of U.S. banks, foreign banks, or other foreign issuers only
when the Sub-Adviser believes that the risks associated with such instruments
are minimal.
Each of the Value Fund, the Fixed Income Fund and the Growth Fund may
acquire equity and fixed-income securities which are denominated in a foreign
currency and issued and traded primarily outside of the United States,
including: (1) obligations issued or guaranteed by foreign national governments,
their agencies,
[/R]
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instrumentalities, or political subdivisions; (2) debt securities issued,
guaranteed or sponsored by supranational organizations established or supported
by several national governments, including the World Bank, the European Union,
the Asian Development Bank and others; (3) non-government foreign corporation
securities; and (4) foreign mortgage-backed securities and various other
mortgage and asset-backed securities. Such Funds will regularly transact
security purchases and sales in foreign currencies. These Funds may hold foreign
currencies or purchase or sell currencies on a forward basis.
American Depository Receipts. ADRs are dollar-denominated securities which
are listed and traded in the United States, but which represent claims to shares
of foreign stocks. ADRs may be either sponsored or unsponsored, Unsponsored ADRs
may be less liquid than sponsored ADRs, and unsponsored ADR facilities typically
provide less information to ADR holders. ADRs also include American Depository
Shares.
Asset-Backed Securities. Asset-backed securities are securities
collateralized by shorter term loans such as automobile loans, home equity
loans, computer leases, or credit card receivables. The payments from the
collateral are passed through to the security holder. The collateral behind
asset-backed securities tends to have prepayment rates that do not vary with
interest rates. In addition, the short-term nature of the loans reduces the
impact of any change in prepayment level. Due to amortization, the average life
for these securities is also the conventional proxy for maturity. Due to the
possibility that prepayments (on automobile loans and other collateral) will
alter the cash flow on asset-backed securities, it is not possible to determine
in advance the actual final maturity date or average life. Faster prepayment
will shorten the average life and slower prepayments will lengthen it. However,
it is possible to determine what the range of that movement could be and to
calculate the effect that it will have on the price of the security. In
selecting these securities, the Sub-Adviser will look for those securities that
offer a higher yield to compensate for any variation in average maturity.
Brady Bonds. Brady Bonds, in which the Fixed Income Fund may invest, are
debt obligations which are created through the exchange of existing commercial
bank loans to foreign entities for new obligations in connection with debt
restructuring under a plan introduced by former U.S. Secretary of the Treasury,
Nicholas F. Brady (the Brady Plan). Brady Bonds have been issued only recently,
and, accordingly, do not have a long payment history. They may be collateralized
or uncollateralized and issued in various currencies (although most are
dollar-denominated) and they are actively traded in the over-the-counter
secondary market. For further information on these securities, see the Funds'
Statement of Additional Information. The Fixed Income Fund will only invest in
Brady Bonds consistent with the quality specifications described above.
Mortgage-Backed Securities. Mortgage-backed securities represent an
ownership interest in a pool of residential and commercial mortgage loans.
Generally, these securities are designed to provide monthly payments of interest
and principal to the investor. The mortgagee's monthly payments to his/her
lending institution are passed through to investors such as the Money Market
Fund or the Fixed Income Fund. Most issuers or poolers provide guarantees of
payments, regardless of whether the mortgagor actually makes the payment. The
guarantees made by issuers or poolers are supported by various forms of credit,
collateral, guarantees or insurance, including individual loan, title, pool and
hazard insurance purchased by the issuer. The pools are assembled by various
Governmental, Government-related and private organizations. The Money Market
Fund and the Fixed Income Fund may invest in securities issued or guaranteed by
GNMA, FHLMC, FNMA, private issuers and other government agencies. There can be
no assurance that the private insurers can meet their obligations under the
policies. Mortgage-backed securities issued by non-government agency issuers,
whether or not such securities are subject to guarantees, may entail greater
risk. If there is no guarantee provided by the issuer, mortgage-backed
securities purchased by such a Fund will be those which at time of purchase are
rated investment grade by one or more NRSRO, or, if unrated, are deemed by the
appropriate Sub-Adviser to be of investment grade quality.
There are two methods of trading mortgage-backed securities. A specified
pool transaction is a trade in which the pool number of the security to be
delivered on the settlement date is known at the time the trade is made. This is
in contrast with the typical mortgage security transaction, called a TBA (to be
announced) transaction, in which the type of mortgage securities to be delivered
is specified at the time of trade but the actual pool numbers of the securities
that will be delivered are not known at the time of the trade. The pool
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numbers of the pools to be delivered at settlement will be announced shortly
before settlement takes place. The terms of the TBA trade may be made more
specific if desired. Generally, agency pass-through mortgage-backed securities
are traded on a TBA basis.
A mortgage-backed bond is a collateralized debt security issued by a thrift
or financial institution. The bondholder has a first priority perfected security
interest in collateral, usually consisting of agency mortgage pass-through
securities, although other assets, including U.S. Treasuries (including zero
coupon treasury bonds), agencies, cash equivalent securities, whole loans and
corporate bonds, may qualify. The amount of collateral must be continuously
maintained at levels from 115% to 150% of the principal amount of the bonds
issued, depending on the specific issue structure and collateral type.
Due to the possibility that prepayments on home mortgages will alter cash
flow on mortgage securities, it is not possible to determine in advance the
actual final maturity date or average life. Like bonds in general,
mortgage-backed securities will generally decline in price when interest rates
rise. Rising interest rates also tend to discourage refinancings of home
mortgages, with the result that the average life of mortgage securities held by
a portfolio may be lengthened. This extension of average life causes the market
price of the securities to decrease further than if their average lives were
fixed. However, when interest rates fall, mortgage-backed securities may not
enjoy as large a gain in market value due to prepayment risk because additional
mortgage prepayments must be reinvested at lower interest rates. Faster
prepayment will shorten the average life and slower prepayments will lengthen
it. However, it is possible to determine what the range of that movement could
be and to calculate the effect that it will have on the price of the security.
In selecting these securities, the appropriate Sub-Adviser will look for those
securities that offer a higher yield to compensate for any variation in average
maturity.
CMOs. Collateralized mortgage obligations are derivatives which are
collateralized by mortgage pass-through securities. Cash flows from the mortgage
pass-through securities are allocated to various tranches (a "tranche" is
essentially a separate security) in a predetermined, specified order. Each
tranche has a stated maturity -- the latest date by which the tranche can be
completely repaid, assuming no prepayments -- and has an average life -- the
average of the time to receipt of a principal payment weighted by the size of
the principal payment. The average life is typically used as a proxy for
maturity because the debt is amortized (repaid a portion at a time), rather than
being paid off entirely at maturity, as would be the case in a straight debt
instrument.
Due to the possibility that prepayments (on home mortgages and other
collateral) will alter the cash flow on CMOs, it is not possible to determine in
advance the actual final maturity date or average life. Faster prepayment will
shorten the average life and slower prepayments will lengthen it. However, it is
possible to determine what the range of that movement could be and to calculate
the effect that it will have on the price of the security. In selecting these
securities, the appropriate Sub-Adviser will look for those securities that
offer a higher yield to compensate for any variation in average maturity.
Like bonds in general, CMOs will generally decline in price when interest
rates rise. Rising interest rates also tend to discourage refinancings of home
mortgages, with the result that the average life of CMOs held by a Fund may be
lengthened. This extension of average life causes the market price of the
securities to decrease further than if their average lives were fixed. In part
to compensate for these risks, CMOs will generally offer higher yields than
comparable bonds. However, when interest rates fall, CMOs may not enjoy as large
a gain in market value due to prepayment risk because additional mortgage
prepayments must be reinvested at lower interest rates.
Stripped Mortgage-Backed Securities. Stripped mortgage-backed securities
("SMBS"), in which the Fixed Income Fund may invest, are derivatives in the form
of multi-class mortgage securities. SMBS may be issued by agencies or
instrumentalities of the U.S. Government and private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose entities of the
foregoing.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. One type of SMBS will have one class receiving some of
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the interest and most of the principal from the mortgage assets, while the other
class will receive most of the interest and the remainder of the principal. In
some cases, one class will receive all of the interest (the interest-only or IO
class), while the other class will receive all of the principal (the
principal-only or PO class). The yield to maturity on IOs and POs is extremely
sensitive to the rate of principal payments (including prepayments) on the
related underlying mortgage assets, and a rapid rate of principal payments may
have a material adverse effect on yield to maturity. If the underlying mortgage
assets experience greater than anticipated prepayments of principal, the Fixed
Income Fund may fail to fully recoup its initial investment in these securities,
even if the security is in one of the highest rating categories.
Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these securities
were only recently developed. As a result, established trading markets have not
yet developed and, accordingly, certain of these securities may be deemed
illiquid and subject to the Fixed Income Fund's limitations on investment in
illiquid securities.
Forwards. Forward foreign currency exchange contracts are derivatives which
are used to protect against uncertainty in the level of future foreign exchange
rates. A forward foreign currency exchange contract is an obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price set at
the time of the contract. Such contracts do not eliminate fluctuations caused by
changes in the local currency prices of the securities, but rather, they
establish an exchange rate at a future date. Also, although such contracts can
minimize the risk of loss due to a decline in the value of the hedged currency,
at the same time they limit any potential gain that might be realized.
The Value Fund, the Fixed Income Fund and the Growth Fund may use currency
exchange contracts in the normal course of business to lock in an exchange rate
in connection with purchases and sales of securities denominated in foreign
currencies (transaction hedge) or to lock in the U.S. dollar value of portfolio
positions (position hedge). In addition, such Funds may cross-hedge currencies
by entering into a transaction to purchase or sell one or more currencies that
are expected to decline in value relative to other currencies to which that Fund
has or expects to have portfolio exposure. Such Funds may also engage in proxy
hedging which is defined as entering into positions in one currency to hedge
investments denominated in another currency, where the two currencies are
economically linked. A Fund's entry into forward contracts, as well as any use
of cross or proxy hedging techniques will generally require that Fund to hold
liquid securities or cash equal to that Fund's obligations in a segregated
account throughout the duration of the contract.
The Value Fund, the Fixed Income Fund and the Growth Fund may each also
combine forward contracts with investments in securities denominated in other
currencies in order to achieve desired credit and currency exposures. Such
combinations are generally referred to as synthetic securities. For example, in
lieu of purchasing a foreign bond, a Fund may purchase a U.S. dollar-denominated
security and at the same time enter into a forward contract to exchange U.S.
dollars for the contract's underlying currency at a future date. By matching the
amount of U.S. dollars to be exchanged with the anticipated value of the U.S.
dollar-denominated security, a Fund may be able to lock in the foreign currency
value of the security and adopt a synthetic investment position reflecting the
credit quality of the U.S. dollar-denominated security.
There is a risk in adopting a transaction hedge or position hedge to the
extent that the value of a security denominated in foreign currency is not
exactly matched with such Fund's obligation under the forward contract. On the
date of maturity, a Fund may be exposed to some risk of loss from fluctuations
in that currency. Although the appropriate Sub-Adviser will attempt to hold such
mismatching to a minimum, there can be no assurance that the Sub-Adviser will be
able to do so. For proxy hedges, cross-hedges, or a synthetic position, there is
an additional risk in that those transactions create residual foreign currency
exposure. When a Fund enters into a forward contract for purposes of creating a
position hedge, transaction hedge, cross hedge, or a synthetic security, it will
generally be required to hold liquid securities or cash in a segregated account
with a daily value at least equal to its obligation under the forward contract.
Futures & Options. Each of the Funds, except the Money Market Fund, may
enter into futures contracts, options on futures contracts and options, each of
which is considered a derivative. Futures contracts provide for the sale by one
party and purchase by another party of a specified amount of a specific
security, at a
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specified future time and price. An option is a legal contract that gives the
holder the right to buy or sell a specified amount of the underlying security or
futures contract at a fixed or determinable price upon the exercise of the
option. A call option conveys the right to buy and a put option conveys the
right to sell a specified quantity of the underlying security or futures
contract.
Such Funds will not enter into futures contracts to the extent that their
outstanding obligations to purchase securities under these contracts in
combination with its outstanding obligations with respect to options
transactions would exceed 50% of its total assets. Each such Fund will maintain
assets sufficient to meet its obligations under such contracts in a segregated
account with the custodian bank or will otherwise comply with the Commission's
position on asset coverage.
The primary risks associated with the use of futures and options are (i)
imperfect correlation between the change in market value of the securities held
by a Fund and the prices of futures and options relating to the stocks, bonds or
futures contracts purchased or sold by that Fund; and (ii) possible lack of a
liquid secondary market for a futures contract and the resulting inability to
close a futures position which could have an adverse impact on a Fund's ability
to execute futures and options strategies. Additional risks associated with
options transactions are (i) the risk that an option will expire worthless; (ii)
the risk that the issuer of an over-the-counter option will be unable to fulfill
its obligation to a Fund due to bankruptcy or related circumstances; (iii) the
risk that options may exhibit greater short-term price volatility than the
underlying security; and (iv) the risk that a Fund may be forced to forego
participation in the appreciation of the value of underlying securities, futures
contracts or currency due to the writing of a call option.
In addition, the Tennessee Fund may acquire "puts" with respect to Exempt
Securities held in its portfolio. Under a put, the Tennessee 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 Tennessee 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 Tennessee 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 Tennessee 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).
High Yield Securities. The following are excerpts from the Moody's and
S&P's definitions for high yield or speculative-grade debt obligations:
Moody's: Ba-rated bonds have "speculative elements" so their future
"cannot be considered assured," and protection of principal and interest is
"moderate" and "not well safeguarded during both good and bad times in the
future." B-rated bonds "lack characteristics of a desirable investment" and
the assurance of interest or principal payments "may be small." Caa-rated
bonds are "of poor standing" and "may be in default" or may have "elements
of danger with respect to principal or interest." Ca-rated bonds represent
obligations which are speculative in a high degree. Such issues are often
in default or have other marked shortcomings. C-rated bonds are the "lowest
rated" class of bonds, and issues so rated can be regarded as having
"extremely poor prospects" of ever attaining any real investment standing.
S&P: BB-rated bonds have "less near-term vulnerability to default"
than B- or CCC-rated securities but face "major ongoing uncertainties . . .
which may lead to inadequate capacity" to pay interest or principal.
B-rated bonds have a "greater vulnerability to default than BB-rated bonds
and the ability to pay interest or principal will likely be impaired by
adverse business conditions." CCC-rated bonds have a currently identifiable
"vulnerability to default" and, without favorable business conditions, will
be "unable to repay interest and principal." The rating C is reserved for
income bonds on which "no interest is being paid." Debt rated D is in
"default", and "payment of interest and/or repayment of principal is in
arrears."
While these securities offer high yields, they also normally carry with
them a greater degree of risk than securities with higher ratings. Lower-rated
bonds are considered speculative by traditional investment standards. High yield
securities may be issued as a consequence of corporate restructuring or similar
events.
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Also, high yield securities are often issued by smaller, less credit worthy
companies, or by highly leveraged (indebted) firms, which are generally less
able than more established or less leveraged firms to make scheduled payments of
interest and principal. The price movement of these securities is influenced
less by changes in interests rates and more by the financial and business
position of the issuing corporation when compared to investment grade bonds.
The risks posed by securities issued under such circumstances are
substantial. If a security held by the Fixed Income Fund is down-graded, the
Fixed Income Fund may retain the security.
Loan Participations. Loan participations, in which the Fixed Income Fund
may invest, are loans or other direct debt instruments which are interests in
amounts owed by a corporate, governmental or other borrower to another party.
They may represent amounts owed to lenders or lending syndicates, to suppliers
of goods or services (trade claims or other receivables), or to other parties.
Direct debt instruments involve the risk of loss in case of default or
insolvency of the borrower. Direct debt instruments may offer less legal
protection to the Fixed Income Fund in the event of fraud or misrepresentation.
In addition, loan participations involve a risk of insolvency of the lending
bank or other financial intermediary. Direct debt instruments may also include
standby financing commitments that obligate the Fixed Income Fund to supply
additional cash to the borrower on demand.
Caps, Floors and Collars. The Value Fund, the Fixed Income Fund and the
Growth Fund may each invest in caps, floors and collars, which are instruments
analogous to options. In particular, a cap is the right to receive the excess of
a reference rate over a given rate and is analogous to a put option. A floor is
the right to receive the excess of a given rate over a reference rate and is
analogous to a call option. Finally, a collar is an instrument that combines a
cap and a floor. That is, the buyer of a collar buys a cap and writes a floor,
and the writer of a collar writes a cap and buys a floor. The risks associated
with caps, floors and collars are similar to those associated with options. In
addition, caps, floors and collars are subject to risk of default by the
counterparty because they are privately negotiated instruments.
Structured Notes. Structured notes, in which the Fixed Income Fund may
invest, are derivatives on which the amount of principal repayment and or
interest payments is based upon the movement of one or more factors. These
factors include, but are not limited to, currency exchange rates, interest rates
(such as the prime lending rate and LIBOR) and stock indices such as the S&P 500
Index. In some cases, the impact of the movements of these factors may increase
or decrease through the use of multipliers or deflators. The use of structured
notes allows the Fixed Income Fund to tailor its investments to the specific
risks and returns Miller Anderson wishes to accept while avoiding or reducing
certain other risks.
Swaps. Swap contracts are derivatives in the form of a contract or other
similar instrument which is an agreement to exchange the return generated by one
instrument for the return generated by another instrument. Each of the Value,
Fixed Income and Growth Funds may enter into swap contracts. The payment streams
are calculated by reference to a specific index and agreed upon notional amount.
The term "specified index" includes, but is not limited to, currencies, fixed
interest rates, prices and total return on interest rate indices, fixed-income
indices, stock indices and commodity indices (as well as amounts derived from
arithmetic operations on these indices). For example, such a Fund may agree to
swap the return generated by a fixed-income index for the return generated by a
second fixed-income index. The currency swaps in which such Funds may enter will
generally involve an agreement to pay interest streams in one currency based on
a specified index in exchange for receiving interest streams denominated in
another currency. Such swaps may involve initial and final exchanges that
correspond to the agreed upon notional amount.
A Fund will usually enter into swaps on a net basis, i.e., the two return
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with that Fund receiving or paying, as the case may
be, only the net amount of the two returns. A Fund's obligations under a swap
agreement will be accrued daily (offset against any amounts owing to the Fund)
and any accrued but unpaid net amounts owed to a swap counterparty will be
covered by the maintenance of a segregated account consisting of cash or liquid
securities. A Fund will not enter into any swap agreement unless the
counterparty meets the rating requirements set forth in guidelines established
by the Group's Board of Trustees.
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Interest rate and total rate of return swaps do not involve the delivery of
securities, other underlying assets or principal. Accordingly, the risk of loss
with respect to interest rate and total rate of return swaps is limited to the
net amount of interest payments that a Fund is contractually obligated to make.
If the other party to an interest rate or total rate of return swap defaults, a
Fund's risk of loss consists of the net amount of interest payments that a Fund
is contractually entitled to receive. In contrast, currency swaps may involve
the delivery of the entire principal value of one designated currency in
exchange for the other designated currency. Therefore, the entire principal
value of a currency swap may be subject to the risk that the other party to the
swap will default on its contractual delivery obligations. If there is a default
by the counterparty, a Fund may have contractual remedies pursuant to the
agreements related to the transaction. The swap market has grown substantially
in recent years with a large number of banks and investment banking firms acting
both as principals and as agents utilizing standardized swap documentation. As a
result, the swap market has become relatively liquid. Swaps that include caps,
floors, and collars are more recent innovations for which standardized
documentation has not yet been fully developed and, accordingly, they are less
liquid than swaps.
The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If a Sub-Adviser is incorrect in its forecasts of
market values, interest rates, and currency exchange rates, the investment
performance of those Funds would be less favorable than it would have been if
this investment technique were not used.
Zero Coupons. Zero coupon obligations are fixed income securities that do
not make regular interest payments. Instead, zero coupon obligations are sold at
substantial discounts from their face value. The difference between a zero
coupon obligation's issue or purchase price and its face value represents the
imputed interest an investor will earn if the obligation is held until maturity.
Zero coupon obligations may offer investors the opportunity to earn higher
yields than those available on ordinary interest-paying obligations of similar
credit quality and maturity. However, zero coupon obligation prices may also
exhibit greater price volatility than ordinary fixed-income securities because
of the manner in which their principal and interest are returned to the
investor.
Other Investment Policies. 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 for the purpose of increasing
its net investment income. A Fund must receive 100% collateral in the form of
cash or liquid securities or a letter of credit. This collateral will be valued
daily by the Adviser or the appropriate 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 in 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. A
Fund will not enter into securities loans transactions exceeding, in the
aggregate, 33 1/3% of the market value of such Fund's total assets.
Each 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. A 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(s) 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. Delivery of and payment for these securities may take as long as a month
or more after the date of the purchase commitment. 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 at least equal to the
amount of the commitment in a separate
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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, a 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.
Each of the Value Fund, the Fixed Income Fund, the Tennessee Fund and the
Growth Fund may also invest in the securities of other investment companies,
including Shares of the Money Market Fund, in accordance with the limitations of
the 1940 Act and any exemptions therefrom. Each such 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/or 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. In order to avoid the imposition of additional fees as a result of
investing in shares of the Money Market Fund, the Adviser, the appropriate Sub-
Adviser, the Administrator and their affiliates will reduce their fees charged
to a Fund by an amount equal to the fees charged by such service providers based
on a percentage of that Fund's assets attributable to such Fund's investment in
the Money Market Fund. Additional restrictions on the Funds' investments in the
securities of other mutual funds are contained 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. The Adviser and the Sub-Adviser manage
their respective Funds generally without regard to restrictions on portfolio
turnover, except those imposed by provisions of the federal tax laws regarding
short-term trading. 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. Portfolio
turnover information is set forth above under "FINANCIAL HIGHLIGHTS."
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 Money Market Fund, the Value Fund, the Fixed Income Fund and
the Growth 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
value of such Fund's total assets would be invested in such issuer, or such
Fund would hold more than 10% of the outstanding voting securities of such
issuer, except that 25% or less of the value of such Fund's total assets
may be invested without regard to such 5% limitation. 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
value 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
obligations of the U.S. Government, its agencies or instrumentalities; (b)
with
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respect to the Money Market Fund only, there is no limitation with respect
domestic bank certificates of deposit or bankers' acceptances and
repurchase agreement secured by bank instruments; (c) 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; (d) financial services companies will be classified according to
the end users of their services, for example, automobile finance, bank
finance and diversified finance will each be considered a separate
industry; (e) asset-backed securities will be classified according to the
underlying assets securing such securities; and (f) 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 that each Fund may
enter into reverse repurchase agreements and may otherwise borrow money or
issue senior securities as and to the extent permitted by the 1940 Act or
any rule, order or interpretation thereunder. The Money Market Fund will
not purchase securities while its borrowings (including reverse repurchase
agreements) exceed 5% of its total assets.
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
may enter into repurchase agreements.
The Tennessee 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 value of the Fund's total assets (taken at current value) would be
invested in such issuer (except that up to 50% of the value 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 nongovernmental user.
2. Purchase any securities which would cause more than 25% of the
value of the Fund's total assets (taken at current value) to be invested in
industrial development revenue bonds which are based, directly or
indirectly, on the credit of private issuers in any one industry.
3. Borrow money or issue senior securities, except that the Fund may
borrow from banks or enter into reverse repurchase agreements for temporary
purposes in amounts up to 10% of the value of its total assets at the time
of such borrowing. The Fund will not purchase securities while its
borrowings (including reverse repurchase agreements) exceed 5% of its total
assets.
4. Make loans, except that the Fund may purchase or hold debt
instruments and lend portfolio securities in accordance with its investment
objectives and policies, and may enter into repurchase agreements.
The following additional investment restrictions, as to a particular Fund,
may be changed by the Group's Board of Trustees without the vote of a majority
of the outstanding Shares of such Fund.
1. The Money Market 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.
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.
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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 for the
Money Market Fund, 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. 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 Day. 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, Martin Luther King, Jr. 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 or Sub-Adviser, as the case
may be, 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) 874-8376.
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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 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 First Market Funds, Department
L-1406, Columbus, Ohio 43260-1406. 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 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) 874-8376 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.
In the case of orders for the purchase of Shares 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 day.
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<PAGE> 36
MINIMUM INVESTMENT
Except as otherwise discussed below under "Auto Invest Plan," the minimum
investment is $1,000 for the initial purchase of Shares of a Fund by an investor
and $50 for subsequent purchases of Shares of that Fund. The subsequent purchase
minimum may be waived if purchases are made in connection with an Individual
Retirement Account ("IRA") and both the initial and subsequent minimum
investments may be waived if purchases are made in connection with a payroll
deduction plan.
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 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.
FIRST MARKET INDIVIDUAL RETIREMENT ACCOUNT ("IRA")
A First Market IRA enables individuals, even if they participate in an
employer-sponsored retirement plan, to establish their own retirement program.
First Market 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 First Market IRA distribution requests must be made in writing to the
Distributor. Any deposits to a First Market IRA must distinguish the type and
year of the contributions.
For more information on the First Market IRAs call the Group at (800)
874-8376. Investment in shares of a tax-exempt fund, including the Tennessee
Fund, would not be appropriate for a First Market IRA. Shareholders are advised
to consult a tax adviser on First Market IRA contribution and withdrawal
requirements and restrictions and whether an investment in the Tennessee Fund
would be appropriate.
AUTO INVEST PLAN
The First Market Funds Auto Invest Plan enables Shareholders to make
regular 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) from the Shareholder's bank
account which will automatically be invested in Shares of the designated 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 $100;
the minimum amount for subsequent investments is $50. 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) 874-8376. 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.
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<PAGE> 37
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 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.
VALUE AND GROWTH FUNDS
<TABLE>
<CAPTION>
DEALER
DISCOUNTS AND
BROKERAGE
SALES CHARGE AS SALES CHARGE AS COMMISSIONS AS
AMOUNT OF TRANSACTION AT % OF NET AMOUNT % OF PUBLIC % OF PUBLIC
PUBLIC OFFERING 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 but less than
$2,000,000......................... 0.50 0.50 0.45
$2,000,000 or more................... 0 0 0*
</TABLE>
FIXED INCOME AND TENNESSEE FUNDS
<TABLE>
<CAPTION>
DEALER
DISCOUNTS AND
BROKERAGE
SALES CHARGE AS SALES CHARGE AS COMMISSIONS AS
AMOUNT OF TRANSACTION AT % OF NET AMOUNT % OF PUBLIC % OF PUBLIC
PUBLIC OFFERING PRICE INVESTED OFFERING PRICE OFFERING PRICE
- ------------------------------------- ---------------- ---------------- ---------------
<S> <C> <C> <C>
Less than $100,000................... 3.09% 3.00% 2.70%
$100,000 but less than $250,000...... 2.56 2.50 2.25
$250,000 but less than $500,000...... 2.04 2.00 1.80
$500,000 but less than $1,000,000.... 1.01 1.00 0.90
$1,000,000 but less than
$2,000,000......................... 0.50 0.50 0.45
$2,000,000 or more................... 0 0 0*
</TABLE>
- ------------------------------
* Brokers or dealers will be paid a fee of 0.25% on purchases of $2 million or
more if the assets on which the 0.25% is paid remain in the Funds, other than
the Money Market Fund, for one year. Such fee, however, will not be paid on
purchases that otherwise are entitled to a sales charge waiver as described
below. If all of the assets on which the 0.25% fee is paid do not remain in
one of the Funds, other than the Money Market Fund, for a period of one
uninterrupted year, the broker or dealer will be required to refund this fee
to the Distributor.
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 any 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 vacation resorts, (2) tickets for
entertainment
34
<PAGE> 38
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) purchasers for whom NCBC, the Adviser, banks, trust
companies, savings and loan associations and credit unions or one of their
affiliates acts in a fiduciary, advisory, agency, custodial (other than
individual retirement accounts), or similar capacity, (2) employees and retired
employees (including spouses, children and parents of employees and retired
employees) of NCBC, the Adviser, BISYS and any affiliates thereof, (3)
purchasers pursuant to the terms of a payroll deduction plan, (4) Trustees of
the Group, (5) directors of NCBC, the Adviser and any affiliates thereof, (6)
brokers, dealers and agents who have a sales agreement with the Distributor, and
their employees (and their spouses and children under the age of 21), and (7)
orders placed on behalf of other investment companies distributed by The BISYS
Group, Inc. or its affiliated companies. 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 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 of the Group sold with a sales charge and advised by the Adviser
("First Market Load Funds"). For example, if a shareholder concurrently
purchases Shares in the Value Fund at the total public offering price of $50,000
and Shares in the Tennessee Fund at the total public offering price of $50,000,
the sales charge on the Shares of the Value Fund would be that applicable to a
$100,000 purchase as shown in the appropriate 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 a
Fund at a designated total public offering price within a designated 13-month
period. Each purchase of Shares under a Letter of Intent will be made at the net
asset value plus the sales charge applicable at the time of such purchase to a
single transaction of the total dollar amount indicated in the Letter of Intent.
A Letter of Intent may include purchases of Shares made not more than 90 days
prior to the date such investor signs a Letter of Intent; however, the 13-month
period during which the Letter of Intent is in effect will begin on the date of
the earliest purchase to be included. This program may be modified or eliminated
at any time or from time to time by the Group without notice. For further
information about letters of intent, interested investors should contact the
Group at (800) 874-8376.
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
35
<PAGE> 39
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 Fund at the public offering price applicable to the total of (a) the
total public offering price of the Shares of the First Market 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 First Market 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
For investors who were Shareholders of the Funds prior to November 1, 1994,
Shares of a First Market Load Fund may be exchanged without payment of any fees
or sales charge for Shares of any of the other First Market Load Funds at
respective net asset values. For investors who become Shareholders of the Funds
on or after November 1, 1994, Shares of a First Market Load Fund may be
exchanged for Shares of any of the other First Market 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 First
Market Load Fund and the sales charge previously paid on the Fund Shares to be
exchanged. Provided further, that with respect to every exchange, the amount to
be exchanged must meet the applicable minimum investment requirements and the
exchange is made in states where it is legally authorized. When Shares of the
Money Market Fund are exchanged for Shares of a First Market Load Fund, the
applicable sales load will be assessed, unless such Shares to be exchanged were
acquired through a previous exchange for Shares on which a sales charge was
paid. Under such circumstances, the Shareholder must notify the Group that a
sales charge was originally paid and provide the Group with sufficient
information to permit confirmation of the Shareholder's right not to pay a sales
charge.
An exchange is considered a sale of Shares for federal income tax purposes.
However, a Shareholder may not include any sales charge on Shares of a 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.
This exchange privilege is not intended to afford Shareholders a way to
speculate on short-term movements in the market. Accordingly, in order to
prevent excessive use of the exchange privilege that may potentially disrupt the
management of the Funds and increase transaction costs, the Group has
established a policy of limiting the number of exchanges by a Shareholder to
four during any one calendar year. 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) 874-8376 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,
36
<PAGE> 40
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. A Shareholder may also have such payment
mailed directly to the Shareholder at the Shareholder's address as recorded by
the Transfer Agent; however, this option may be suspended for a period of 10
days following a telephonic address change. Under most circumstances, such
payments will be transmitted on the next Business Day following receipt of a
valid request for redemption. Such wire redemption requests may be made by the
Shareholder by telephone to the Transfer Agent. The Group may reduce the amount
of a wire redemption payment by the then-current wire redemption charge of the
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) 874-8376.
Neither 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 $100 quarterly. To participate in the Auto
Withdrawal Plan, Shareholders should call (800) 874-8376 for more information.
Purchases of additional Shares, including use of the Auto Invest Plan,
concurrent with
37
<PAGE> 41
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.
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
with less than $1,000 using the Auto Invest Plan or pursuant to a payroll
deduction 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 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 such
dividends are generally paid monthly. For the Money Market Fund, dividends are
paid periodically in cash, generally on the first Business Day of the month, but
may be paid on the last Business Day of the preceding month.
A dividend for each of the other Funds is declared monthly at the close of
business on the day of declaration consisting of an amount of accumulated
undistributed net income of that Fund as determined necessary or appropriate by
the appropriate officers of the Group. Such dividend is generally paid monthly.
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<PAGE> 42
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.
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, as amended (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 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 and the Fixed
Income Fund's net investment income is expected to be derived from earned
interest and 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 mid-term
or 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 mid-term or net long-term
capital gain over net short-term capital loss is taxable to Shareholders as
mid-term or long-term capital gain, respectively, 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 of Shares prior to the record
date will have the effect of
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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 -- 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 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 Tennessee Fund. The Tennessee 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 Tennessee 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 Tennessee 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
Tennessee Fund anticipates that substantially all of its dividends will be
excluded from gross income for federal income tax purposes. The Tennessee 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 Tennessee Fund is not deductible for federal income taxes
assuming the Tennessee Fund distributes exempt-interest dividends during the
Shareholder's taxable year. It is anticipated that distributions from the
Tennessee Fund will not be eligible for the dividends received deduction for
corporations.
STATE TAXES -- THE TENNESSEE FUND
Tennessee imposes a limited income tax, known as the "Hall Income Tax," on
certain interest and dividend income. The Hall Income Tax statutes, amended
effective for dividends received after January 1, 1992, provide that, as set
forth below, no tax will be levied on dividends from a regulated investment
company qualified as such under the Code, provided a part of such investment
company's portfolio is invested in bonds or securities of the United States
government or any agency or instrumentality thereof or in bonds of the State of
Tennessee or any county, municipality or political subdivision thereof
(including any agency, board, authority or commission of any of the foregoing).
In the opinion of Messrs. Burch, Porter & Johnson PLLC, Tennessee tax counsel to
the Tennessee Fund, so long as the Tennessee Fund qualifies as a "regulated
investment company" under the Code, dividends, whether paid as distributions of
cash, other property or additional Shares, by the Tennessee Fund to a resident
of Tennessee, will be exempt from the Hall Income
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<PAGE> 44
Tax, as amended, in proportion to the income received by the Tennessee Fund
attributable to interest on Tennessee Exempt Securities. The balance of the
dividends, including any dividends attributable to capital gains, will be
subject to the Hall Income Tax.
In addition, in a letter dated August 14, 1992, from the Commissioner of
the Tennessee Department of Revenue, the Commissioner stated his position that
mutual fund distributions attributable to fund investments in Puerto Rican bonds
are exempt from the Hall Income Tax.
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, or BISYS Fund Services Ohio, Inc. 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 Ohio, Inc.
receives fees from each of the Funds for acting as Transfer Agent and BISYS Fund
Services, Inc. receives fees from each of the Funds for providing certain fund
accounting services.
INVESTMENT ADVISER
National Bank of Commerce, One Commerce Square, Memphis, Tennessee 38150,
is the investment adviser of each Fund and has served as such since each Fund's
inception. The Adviser is a wholly owned subsidiary of National Commerce
Bancorporation ("NCB"). The Adviser and its affiliates also administer, on
behalf of their clients, assets which as of September 30, 1997, totalled $4.6
billion, and of which approximately $1.6 billion are managed in a variety of
balanced, equity and fixed income portfolios. The Adviser has over 120 years of
banking experience and as of September 30, 1997, had over $3.2 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 Tennessee Fund, and, through
the Sub-Advisers, each of the other Funds. The Adviser maintains each Fund's
records relating to such purchases and sales.
Since October 31, 1997, Russell M. Niemie and Gary L. Lazarini have been
primarily responsible for the day-to-day management of the Tennessee Fund's
portfolio. Mr. Niemie has served as the Group Head of Trust and Asset Management
for the Adviser since August, 1997. Prior thereto, Mr. Niemie served as the
Chief Investment Officer of the Texas Employees Retirement System. He has over
18 years of investment management experience working with banks, pension plans
and investment banking firms.
Mr. Lazarini has held various positions with the Adviser since 1966 and is
currently Executive Vice President of the Adviser and Chairman of NBC Capital
Markets Group, Inc., a wholly owned subsidiary of the Adviser and a registered
broker-dealer (the "Capital Markets Group").
For the services provided and expenses assumed pursuant to its investment
advisory agreements with the Group, the Adviser receives a fee from each of the
Funds, computed daily and paid monthly, at the following
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rates: with respect to the Money Market Fund, the annual rate of thirty-five
one-hundredths of one percent (.35%) of such Fund's average daily net assets;
with respect to the Value Fund and the Growth Fund, the annual rate equal to one
percent (1.00%) of the first $250 million of such Fund's average daily net
assets and seventy-five one-hundredths of one percent (0.75%) of such Fund's
remaining average daily net assets and with respect to each of the Fixed Income
Fund and the Tennessee Fund, an annual rate equal to sixty-five one-hundredths
of one percent (0.65%) of such Fund's average daily net assets.
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 at a later date. 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.
The Group may, from time to time, engage the Capital Markets Group and
certain affiliated broker-dealers of the Sub-Advisers ("affiliated brokers") to
effect portfolio transactions on behalf of certain of the Funds on an agency
basis. The Capital Markets Group and such affiliated brokers will receive
compensation for such services in the form of brokerage commissions. The Group,
the Adviser, the Sub-Advisers the Capital Markets Group and such affiliated
brokers will comply with the requirements of Rule 17e-1 under the 1940 Act in
connection with such brokerage transactions.
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, and MSAM, 1221 Avenue of the Americas, New York, New York 10036. Pursuant
to the terms of such Sub-Investment Advisory Agreements, the Adviser has
returned Miller Anderson and MSAM to manage the day-to-day investment and
reinvestment of the assets of the Value Fund and the Fixed Income Fund, and the
Money Market Fund and the Growth Fund, respectively, subject to the direction
and control of the Group's Board of Trustees. The Adviser is responsible for
selecting and monitoring each Sub-Adviser and reporting the activities of each
Sub-Adviser to the Group's Board of Trustees.
Miller Anderson is wholly owned by Morgan Stanley, Dean Witter, Discover &
Co. ("Morgan Stanley"). Miller Anderson provides advice primarily to
institutions, including other investment companies, and had approximately $53.3
billion in assets under management as of September 30, 1997. As of January 1,
1998, Robert J. Marcin, CFA, Richard M. Behler and Nicholas J. Kovich are
primarily responsible for the day-to-day management of the Value Fund's
portfolio. Mr. Marcin is a Managing Director of Morgan Stanley, has been a
Partner with Miller Anderson since 1994, and has had more than 14 years of
investment experience. Mr. Behler is a principal of Miller Anderson and joined
the firm in 1995. He served as a Portfolio Manager from 1992 through 1995 for
Moore Capital Management. Mr. Kovich is a Managing Director of Morgan Stanley
and joined Miller Anderson in 1988.
As of January 1, 1998, Thomas L. Bennett, Kenneth B. Dunn and Richard B.
Worley are responsible for the day-to-day management of the Fixed Income Fund.
Messrs. Bennett, Dunn and Worley are each a Managing Director of Morgan Stanley
and joined Miller Anderson in 1990, 1987 and 1978, respectively.
MSAM is also a wholly owned subsidiary of Morgan Stanley. MSAM conducts a
worldwide portfolio management business and provides a broad range of portfolio
management services to customers in the United States and abroad. At September
30, 1997, MSAM, together with its affiliated asset management companies
(including Miller Anderson), had approximately $200.8 billion in assets under
management. As of January 1, 1998, Kurt Feuerman and Margaret K. Johnson are
primarily responsible for the day-to-day management of the Growth Fund. Mr.
Feuerman joined MSAM in July 1993 as a Managing Director in the Institutional
Equity Group. Previously, Mr. Feuerman was a Managing Director of Morgan Stanley
& Co., Incorporated's Research Department, where he was responsible for emerging
growth stocks, gaming and restaurants. Ms. Johnson became an equity analyst in
1986 and a portfolio manager in 1989 with MSAM.
For its services provided and expenses assumed pursuant to its
Sub-Investment Advisory Agreement with the Adviser, Miller Anderson receives
from the Adviser a fee (computed daily and paid monthly as a
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<PAGE> 46
percentage of that portion of the applicable Fund's average daily net assets) at
the following annual rates: for the Value Fund, 0.625% of the average daily net
assets of such Fund up to $20 million, 0.50% of the average daily net assets of
such Fund from $20 million up to $30 million, and 0.375% of the average daily
net assets of such Fund from $30 million to $35 million -- if the average daily
net assets of such Fund equal or exceed $35 million, the annual rate of 0.56% of
the average daily net assets of such Fund; and for the Income Fund, 0.50% of the
average daily net assets of such Fund up to $25 million and 0.25% of the average
daily net assets of such Fund from $25 million to $75 million -- if the average
daily net assets of such Fund equal or exceed $75 million, the annual rate of
0.33% of the average daily net assets of such Fund. For it services provided and
expenses assumed pursuant to its Sub-Investment Advisory Agreement with the
Adviser, MSAM receives from the Adviser a fee (computed daily and paid monthly
as a percentage of that portion of the applicable Fund's average daily net
assets) at the following annual rates: for the Money Market Fund, 0.25% of the
average daily net assets of such Fund; and for the Growth Fund, 0.625% of the
average daily net assets of such Fund up to $20 million, 0.50% of the average
daily net assets of such Fund from $20 million up to $30 million, and 0.375% of
the average daily net assets of such Fund from $30 million to $35 million -- if
the average daily net assets of such Fund equal or exceed $35 million, the
annual rate of 0.56% of the average daily net assets of such Fund.
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 requires). BISYS and its affiliated companies, including BISYS
Fund Services Ohio, Inc. and 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 by the
Administrator pursuant to an administration agreement and by BISYS Fund
Services, Inc. for fund accounting services, the Administrator and BISYS Fund
Services, Inc. receive an aggregate fee from each Fund, 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. The Administrator and
BISYS Fund Services, Inc. may periodically voluntarily reduce all or a portion
of such fee with respect to a Fund to increase the net income of such Fund
available for distribution as dividends. The Administrator and BISYS Fund
Services, Inc. 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 a fee
reduction.
While the combined fees of the Adviser, the Administrator and BISYS Fund
Services, Inc. with respect to the Value, Fixed Income, Tennessee and Growth
Funds are higher than similar fees paid by most mutual funds, the Board of
Trustees believes such fees to be fair and reasonable and to be comparable to
the fees paid by many funds having similar investment objectives and policies.
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, the Sub-Advisers and the Administrator each bear all expenses
in connection with the performance of their services as investment adviser,
sub-investment adviser and administrator, respectively, other than the cost of
securities (including brokerage commissions, if any) purchased for a Fund.
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<PAGE> 47
DISTRIBUTION 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 or reimburse BISYS, as Distributor, a periodic amount
calculated at an annual rate not to exceed twenty-five one-hundredths of one
percent (0.25%) of the average daily net asset value of that Fund. Such amount
may be used by BISYS to pay banks (including the Adviser), broker-dealers, and
other institutions (a "Participating Organization") for distribution and/or
shareholder service assistance pursuant to an agreement between BISYS and the
Participating Organization. Under the Plan, a Participating Organization may
include BISYS, its subsidiaries, and its affiliates.
As authorized by the Plan, BISYS has entered into Rule 12b-1 Agreements
with the Capital Markets Group to provide certain distribution and shareholder
services in connection with the distribution of the Shares of each of the Funds
including, but not limited to, maintaining Shareholder relations, answering
questions about the Funds and distributing prospectuses to persons other than
Shareholders of the Funds. In consideration of such services BISYS has agreed to
pay the Capital Markets Group a monthly fee, computed at the annual rate of
0.25% of the average aggregate net asset value of Shares held during the period
in accounts for which the Capital Markets Group provided services under such
Agreement. BISYS will be compensated by each Fund in an amount equal to its
payments to the Capital Markets Group under the Rule 12b-1 Agreement with
respect to that Fund. Such fee may exceed the actual costs incurred by the
Capital Markets Group in providing such services.
The Group has also entered into Rule 12b-1 Agreements with BISYS pursuant
to which BISYS has agreed to provide certain distribution and shareholder
support services to the Funds and their Shareholders, including, but not limited
to, maintaining Shareholder relations, advertising and marketing the Shares of
the Funds, answering questions about the Funds, distributing prospectuses to
persons other than Shareholders of the Funds, and providing such other services
as a Fund may reasonably request. In consideration of such services, the Group
has agreed to pay BISYS a monthly fee, computed at the annual rate of 0.25% of
the average aggregate net asset value of Shares held during the period in client
accounts for which BISYS has provided services under these Rule 12b-1
Agreements. Such fee may exceed the actual costs incurred by BISYS in providing
such services.
In addition, 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 0.25% 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.
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As authorized by the Services Plan, the Group has entered into Servicing
Agreements with the Adviser pursuant to which the Adviser has agreed to provide
certain administrative support services in connection with Shares of the Funds
owned of record or beneficially by its customers. Such administrative support
services may include, but are not limited to, (i) processing dividend and
distribution payments from a Fund on behalf of customers; (ii) providing
periodic statements to its customers showing their positions in the Shares;
(iii) arranging for bank wires; (iv) responding to routine customer inquiries
relating to services performed by the Adviser; (v) providing sub-accounting with
respect to the Shares beneficially owned by the Adviser's customers or the
information necessary for sub-accounting; (vi) if required by law, forwarding
shareholder communications from a Fund (such as proxies, shareholder reports,
annual and semi-annual financial statements and dividend, distribution and tax
notices) to its customers; (vii) aggregating and processing purchase, exchange,
and redemption requests from customers and placing net purchase, exchange, and
redemption orders for customers; and (viii) providing customers with a service
that invests the assets of their account in the Shares pursuant to specific or
pre-authorized instructions. In consideration of such services, the Group, on
behalf of each Fund, has agreed to pay the Adviser a monthly fee, computed at
the annual rate of twenty-five one-hundredths of one percent (0.25%) of the
average aggregate net asset value of Shares of that Fund held during the period
by customers for whom the Adviser has provided services under the Servicing
Agreement.
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 and administrative support services
contemplated by the servicing agreements 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 and its servicing
agreements with the Group. The Capital Markets Group believes that it possesses
the legal authority to perform its distribution services as set forth in the
Rule 12b-1 Agreements with BISYS, as described above, without violation of
applicable banking laws and regulations, and has so represented in such Rule
12b-1 Agreements. 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 and the Capital Markets Group could
continue to perform such services for the Funds. See "MANAGEMENT AND SERVICE
PROVIDERS OF THE GROUP -- Glass-Steagall Act" in the Statement of Additional
Information for further discussion of applicable law and regulations.
GENERAL INFORMATION
DESCRIPTION OF THE GROUP AND ITS SHARES
The Group was organized as an Ohio business trust on April 25, 1988. The
Group consists of sixteen funds, each having its own class of shares. Each share
represents an equal proportionate interest in a fund with other shares of the
same fund, and is entitled to such dividends and distributions out of the income
earned on the assets belonging to that fund as are declared at the discretion of
the Trustees (see "Miscellaneous" below). The other funds of the Group are The
KeyPremier Prime Money Market Fund, The KeyPremier Pennsylvania Municipal Bond
Fund, The KeyPremier Established Growth Fund, The KeyPremier Intermediate Term
Income Fund, The KeyPremier Aggressive Growth Fund, The KeyPremier U.S. Treasury
Obligations Money Market Fund, The KeyPremier Limited Duration Government
Securities 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.
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 that Fund's
investment advisory agreement 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" above. Individual Trustees are elected by the
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<PAGE> 49
shareholders of the Group and may be removed by the Board of Trustees or
shareholders in accordance with the provisions of the Declaration of Trust and
By-Laws of the Group and Ohio law. See "ADDITIONAL INFORMATION -- Miscellaneous"
in the Statement of Additional Information for further information.
An annual or special meeting of shareholders to conduct necessary business
is not required by the Declaration of Trust, the 1940 Act or other authority
except, under certain circumstances, to elect Trustees, amend the Declaration of
Trust, the investment advisory agreement, 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 October 16, 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 each of the Funds and therefore may be presumed to control
each of the Funds within the meaning of the 1940 Act.
CUSTODIAN
National City Bank serves as the custodian for each of the Funds.
TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
BISYS Fund Services Ohio, Inc., 3435 Stelzer Road, Columbus, Ohio 43219,
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.
provides certain accounting services for each Fund pursuant to a Fund Accounting
Agreement and receives a fee for such services as described above under
"Administration and Distribution." See "MANAGEMENT AND SERVICE PROVIDERS OF THE
GROUP -- Transfer Agency and Fund Accounting Services" in the Statement of
Additional Information for further information.
While each of BISYS Fund Services Ohio, Inc. and BISYS Fund Services, Inc.
is a distinct legal entity from BISYS (the Group's administrator and
distributor), BISYS Fund Services Ohio, Inc. are each considered to be an
affiliated person of BISYS under the 1940 Act due to, among other things, the
fact that BISYS Fund Services Ohio, Inc. is owned by the same entity that owns
BISYS.
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 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)
874-8376.
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INVESTMENT ADVISER
National Bank of Commerce
One Commerce Square
Memphis, Tennessee 38150
ADMINISTRATIVE AND DISTRIBUTOR
BISYS Fund Services United 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
<PAGE> 51
First Market Money Market Fund
First Market Value Equity Fund
First Market Fixed Income Fund
First Market Tennessee Municipal Obligations Fund
First Market Growth Fund
Each an Investment Portfolio of
THE SESSIONS GROUP
Statement of Additional Information
January 2, 1998
This Statement of Additional Information is not a prospectus, but should be read
in conjunction with the prospectus (the "Prospectus") of First Market Money
Market Fund (the "Money Market Fund"), First Market Value Equity Fund (the
"Value Fund"), First Market Fixed Income Fund (the "Fixed Income Fund"), First
Market Tennessee Municipal Obligations Fund (the "Tennessee Fund") and First
Market Growth Fund (the "Growth Fund") (the Money Market Fund, the Value Fund,
the Fixed Income Fund, the Tennessee Fund and the Growth Fund are hereinafter
collectively referred to as the "Funds" and individually as a "Fund"), dated the
date hereof. The Funds are five funds of The Sessions Group (the "Group").
Effective January 2, 1998, each of the Fund's names changed from "Riverside
Capital" to "First Market" (i.e., Riverside Capital Money Market Fund became
First Market Money Market Fund). 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) 874-8376.
<PAGE> 52
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-13
Portfolio Turnover............................................B-16
NET ASSET VALUE....................................................... B-17
Valuation of the Money Market Fund........................... B-17
Valuation of the Other Funds................................. B-18
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION........................ B-18
MANAGEMENT AND SERVICE PROVIDERS OF THE GROUP......................... B-19
Trustees and Officers........................................ B-19
Investment Adviser........................................... B-22
Sub-Investment Advisers...................................... B-24
Portfolio Transactions....................................... B-24
Glass-Steagall Act........................................... B-27
Administrator................................................ B-28
Distributor.................................................. B-30
Administrative Services Plan................................. B-33
Custodian.................................................... B-34
Transfer Agency and Fund Accounting Services................. B-34
Auditors .................................................... B-36
Legal Counsel................................................ B-36
ADDITIONAL INFORMATION................................................ B-36
Description of Shares........................................ B-36
Vote of a Majority of the Outstanding Shares................. B-38
Additional Tax Information................................... B-38
Seven-Day Yield of the Money Market Fund..................... B-44
Yields of the Other Funds.................................... B-45
Calculation of Total Return.................................. B-47
Distribution Rates........................................... B-48
Performance Comparisons...................................... B-48
Miscellaneous................................................ B-49
FINANCIAL STATEMENTS.................................................. B-51
APPENDIX .............................................................. A-1
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STATEMENT OF ADDITIONAL INFORMATION
THE SESSIONS GROUP
The Sessions Group (the "Group") is an open-end management investment
company which currently offers sixteen separate investment portfolios, five of
which are described in this Statement of Additional Information. Four of the
portfolios described herein are diversified portfolios and the one other is a
non-diversified portfolio. The four diversified portfolios are First Market
Money Market Fund f/k/a Riverside Capital Money Market Fund (the "Money Market
Fund"), First Market Value Equity Fund f/k/a Riverside Capital Value Equity Fund
(the "Value Fund"), First Market Fixed Income Fund f/k/a Riverside Capital Fixed
Income Fund (the "Fixed Income Fund") and First Market Growth Fund f/k/a
Riverside Capital Growth Fund (the "Growth Fund"), and the one non-diversified
portfolio is First Market Tennessee Municipal Obligations fund f/k/a Riverside
Capital Tennessee Municipal Obligations Fund (the "Tennessee Fund") (the Money
Market Fund, the Value Fund, the Fixed Income Fund, the Growth Fund and the
Tennessee 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 objective and policies
of each Fund as set forth in the Prospectus.
BANK OBLIGATIONS. Each of the Funds may invest in bank obligations such
as bankers' acceptances, certificates of deposit (including marketable variable
rate certificates of deposit), and demand and time deposits issued by a
commercial bank or savings and loan association.
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
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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. Variable rate
certificates of deposit are certificates of deposit on which the interest rate
is periodically readjusted prior to their stated maturity based upon a specified
market rate. Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a state interest rate. Bank
obligations 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.
The Money Market Fund, the Value Fund, the Fixed Income Fund and the
Growth Fund may invest in obligations of U.S. banks, foreign branches of U.S.
banks (Eurodollars), and U.S. branches of foreign banks (Yankee dollars).
Eurodollar and Yankee dollar investments involve some of the same risks of
investing in foreign securities that are discussed in the Prospectus under the
heading "INVESTMENT OBJECTIVES AND POLICIES--Risk Factors and Investment
Techniques--Foreign Investments" and below under "FOREIGN
INVESTMENT."
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.
Each 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 Rating
Services ("S&P") and Moody's Investors Service, Inc. "Moody's")) 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 or appropriate Subadviser, as the case may be, under guidelines
established by the Group's Board of Trustees, to be of comparable quality to
instruments that are rated high quality 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 commercial paper
issued by a foreign corporation if the issuer is
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a direct subsidiary of a U.S. corporation, the obligation is U.S. dollar
denominated and is not subject to a foreign withholding tax.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand
notes, in which the Money Market 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 the Money
market Fund and the issuer, they are not normally traded. Although there is no
secondary market in the notes, the Money Market 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, variable amount master demand
notes (the issuers of which are normally manufacturing, retail, financial and
other business concerns) must be determined by the Sub-Adviser to be of
comparable quality to commercial paper in which such Fund may invest. The
Subadviser 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 earlier 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.
DURATION. Duration is a measure of the expected life of a fixed income
security that was developed as a more precise alternative to the concept of the
"term of maturity." Duration incorporates a bond's yield, coupon interest
payments, final maturity and call features into one measure.
Most debt obligations provide interest ("coupon") payments in addition
to a final ("par") payment at maturity. Some obligations also have call
provisions. Depending on the relative magnitude of these payments, the market
values of debt obligations may respond differently to changes in the level and
structure of interest rates.
Traditionally, a debt security's "term to maturity" hsa been used as a
proxy for the sensitivity of the security's price to changes in iterest rates
(which is the "interest rate risk" or "volatility" of the security). However,
"term to maturity" measures only the time until a debt security provides its
final payment, taking no account of the pattern of the security's payments prior
to maturity. Duration is a measure of the expected life of a fixed income
security on a present value basis. Duration takes the length of the time
intervals between the present time and the time that the interest and principal
payments are scheduled or, in the case of a callable bond, expected to be
received, and
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<PAGE> 56
weights them by the present values of the cash to be received at each future
point in time. For any fixed income security with interest payments occurring
prior to the payment of principal, duration is always less than maturity. In
general, all other things being the same, the lower the stated or coupon rate of
interest of a fixed income security, the longer the duration of the security;
conversely, the higher the stated or coupon rate of interest of a fixed income
security, the shorter the duration of the security.
There are some situations where even the standard duration calculation
does not properly reflect the interest rate exposure of a security. For example,
floating and variable rate securities often have final maturities of ten or more
years; however, their interest rate exposure is not properly captured by
duration in the case of mortgage pass-through securities. The stated final
maturity of such securities is generally 30 years, but current prepayment rates
are more critical in determining the securities' interest rate exposure. In
these and other similar situations, the Adviser will use more sophisticated
analytical techniques that incorporate the economic life of a security into the
determination of its interest rate exposure.
FOREIGN INVESTMENT. Investors should recognize that investing in
foreign securities involves certain special considerations which are not
typically associated with investing in domestic securities. Since the securities
of foreign issuers are frequently denominated in foreign currencies, and since
the Funds may temporarily hold uninvested reserves in bank deposits in foreign
currencies, the Funds will be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations, and may incur costs in
connection with conversions between various currencies. The investment policies
of the Funds (except for the Money Market Fund and the Tennessee Fund) permit
them to enter into forward foreign currency exchange contracts in order to hedge
their respective holdings and commitments against changes in the level of future
currency rates. Such contracts involve an obligation to purchase or sell a
specific currency at a future date at a price set at the time of the contract.
As non-U.S. companies are not generally subject to uniform accounting,
auditing and financial reporting standards and practices comparable to those
applicable to domestic issuers, there may be less publicly available information
about certain foreign securities than about domestic securities. Securities of
some foreign issuers are generally less liquid and more volatile than securities
of comparable domestic companies. There is generally less government supervision
and regulation of stock exchanges, brokers and listed issuers than in the U.S.
In addition, with respect to certain foreign countries, there is the possibility
of expropriation or confiscatory taxation, political or social
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<PAGE> 57
instability, or diplomatic developments which could affect U.S.
investments in those countries.
Although the Funds will endeavor to achieve most favorable execution
costs in its portfolio transactions, fixed commissions on many foreign stock
exchanges are generally higher than negotiated commissions on U.S. exchanges. In
addition, it is expected that the expenses for custodian arrangements of the
Fund's foreign securities will be somewhat greater than the expenses for the
custodian arrangements for handling the U.S. securities of equal value.
Certain foreign governments levy withholding taxes against dividend and
interest income. Although in some countries a portion of these taxes are
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income received from investments in such countries. However, these
foreign withholding taxes are not expected to have a significant impact on those
Funds for which the investment objective is to seek long-term capital
appreciation and any income should be considered incidental.
In addition, the Growth and Value Funds may invest in Global
Depository Receipts ("GDRs") and European Depositary Receipts ("EDRs:) to the
extent that they come available. GDRs and EDRs are typically issued by foreign
depositaries, and evidence ownership interests in a security or pool of
securities issued by either a foreign or a U.S. corporation.
Holders of unsponsored GDRs and EDRs generally bear all the costs
associated with establishing the unsponsored GDRs and EDRs. The Depositary of
unsponsored GDRs and EDRs is under no obligation to distribute shareholder
communications received from the underlying issuer or to pass through to the
holders of the unsponsored GDRs and EDRs voting rights with respect to the
deposited securities or pool of securities. GDRs and EDRs are not necessarily
denominated in the same currency as the underlying securities to which they may
be connected. Generally, GDRs or EDRs in registered form are designed for use in
the U.S. securities market and GDRs or EDRs in bearer form are designated for
use in securities markets outside the United States. Such funds may invest in
sponsored and unsponsored GDRs and EDRs. The purposes of the Funds' investment
policies, a Fund's investments in GDRs or EDRs will be deemed to be investments
in the underlying securities.
Foreign Currency Exchange Related Securities
- --------------------------------------------
Foreign currency warrants--Foreign currency warrants are warrants which
entitle the holder to receive from their issuer an amount of cash (generally,
for warrants issued in the United States, in U.S. dollars) which is calculated
pursuant to a predetermined formula and based on the exchange rate between a
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<PAGE> 58
specified foreign currency and the U.S. dollar as of the exercise date of the
warrant. Foreign currency warrants generally are exercisable upon their issuance
and expire as of a specified date and time. Foreign currency warrants have been
issued in connection with the U.S. dollar-denominated debt offerings by major
corporate issuers in an attempt to reduce the foreign currency exchange risk
which, from the point of view of prospective purchasers of the securities, is
inherent in the international fixed-income marketplace. Foreign currency
warrants may attempt to reduce the foreign exchange risk assumed by purchasers
of a security by, for example, providing for a supplemental payment in the event
that the U.S. dollar depreciates against the value of a major foreign currency
such as the Japanese Yen or German Deutschmark. The formula used to determine
the amount payable upon exercise of a foreign currency warrant may make the
warrant worthless unless the applicable foreign currency exchange rate moves in
a particular direction (e.g., unless the U.S. dollar appreciates or depreciates
against the particular foreign currency to which the warrant is linked or
indexed). Foreign currency warrants are severable from the debt obligations with
which they may be offered, and may be listed on exchanges. Foreign currency
warrants may be exercisable only in certain minimum amounts, and an investor
wishing to exercise warrants who possesses less than the minimum number required
for exercise may be required either to sell the warrants or to purchase
additional warrants, thereby incurring additional transaction costs. In the case
of any exercise of warrants, there may be a time delay between the time a holder
of warrants gives instructions to exercise and the time the exchange rate
relating to exercise is determined, during which time the exchange rate could
change significantly, thereby affecting both the market and cash settlement
values of the warrants being exercised. The expiration date of the warrants may
be accelerated if the warrants should be delisted from an exchange or if their
trading should be suspended permanently, which would result in the loss of any
remaining "time value" of the warrants (i.e., the difference between the current
market value and the exercise value of the warrants), and, in the case where the
warrants were "out-of-the-money," in a total loss of the purchase price of the
warrants. Warrants are generally unsecured obligations of their issuers and are
not standardized foreign currency options issued by the OCC. Unlike foreign
currency options issued by the Options Clearing Corporation (the "OCC"), the
terms of foreign exchange warrants generally will not be amended in the event of
governmental or regulatory actions affecting exchange rates or in the event of
the imposition of other regulatory controls affecting the international currency
markets. The initial public offering price of foreign currency warrants is
generally considerably in excess of the price that a commercial user of foreign
currencies might pay in the interbank market for a comparable option involving
significantly larger amounts of foreign currencies. Foreign currency warrants
are subject to complex political or economic factors.
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Principal exchange rate linked securities--Principal exchange rate
linked securities are debt obligations the principal on which is payable at
maturity in an amount that may vary based on the exchange rate between the U.S.
dollar and a particular foreign currency at or about that time. The return on
"standard" principal exchange rate linked securities is enhanced if the foreign
currency to which the security is linked appreciates against the U.S. dollar,
and is adversely affected by increases in the foreign exchange value of the U.S.
dollar; "reverse" principal exchange rate linked securities are like the
"standard" securities, except that their return is enhanced by increases in the
value of the U.S. dollar and adversely impacted by increases in the value of
foreign currency. Interest payments on the securities are generally made in U.S.
dollars at rates that reflect the degree of foreign currency risk assumed or
given up by the purchaser of the notes (i.e., at relatively higher interest
rates if the purchaser has assumed some of the foreign exchange risk, or
relatively lower interest rates if the issuer has assumed some of the foreign
exchange risk, based of the expectations of the current market). Principal
exchange rate linked securities may in limited cases be subject to acceleration
of maturity (generally, not without the consent of the holders of the
securities), which may have an adverse impact on the value of the principal
payment to be made at maturity.
Performance indexed paper--Performance indexed paper is U.S.
dollar-denominated commercial paper the yield of which is linked to certain
foreign exchange rate movements. The yield to the investor on performance
indexed paper is between the U.S. dollar and a designated currency as of or
about that time (generally, the index maturity two days prior to maturity). The
yield to the investor will be within a range stipulated at the time of purchase
of the obligation, generally with a guaranteed minimum rate of return that is
below, and a potential maximum rate of return that is above, market yields on
U.S. dollar-denominated commercial paper, with both the minimum and maximum
rates of return on the investment corresponding to the minimum and maximum
values of the spot exchange rate two business days prior to maturity.
EURODOLLAR AND YANKEE OBLIGATIONS. Eurodollar bank
obligations are dollar-denominated certificates of deposit and time
deposits issued outside the U.S. capital markets by foreign
branches of U.S. banks and by foreign banks. Yankee bank
obligations are dollar-denominated obligations issued in the U.S.
capital markets by foreign banks.
Eurodollar and Yankee bank obligations are subject to the same risks
that pertain to domestic issues, notably credit risk, market risk and liquidity
risk. Additionally, Eurodollar (and to a limited extent, Yankee) bank
obligations are subject to certain sovereign risks. One such risk is the
possibility that a sovereign
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country might prevent capital, in the form of dollars, from flowing across their
borders. Other risks include: adverse political and economic developments; the
extent and quality of government regulation of financial markets and
institutions; the imposition of foreign withholding taxes, and the expropriation
or nationalization of foreign issuers. However, Eurodollar and Yankee bank
obligations held in the Money Market Fund will undergo the same credit analysis
as domestic issues in which the Money Market Fund invests, and will have at
least the same financial strength as the domestic issuers approved for the Money
Market Fund.
BRADY BONDS. A portion of Fixed Income Fund's investments may be
invested in certain debt obligations customarily referred to as "Brady Bonds",
which are created through the exchange of existing commercial bank loans to
foreign entities for new obligations in connection with debt restructuring under
a plan introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady
(the "Brady Plan").
Brady Bonds have been issued only recently, and, accordingly, do not
have a long payment history. They may be collateralized or uncollateralized and
issued in various currencies (although most are dollar-denominated) and they are
actively traded in the over-the-counter secondary market.
Dollar-denominated, collateralized Brady Bonds, which may be fixed rate
par bonds or floating rate discount bonds, are generally collateralized in full
as to principal due at maturity by U.S. Treasury zero coupon obligations which
have the same maturity as the Brady Bonds. Interest payments on these Brady
Bonds generally are collateralized by cash or securities in an amount that, in
the case of fixed rate bonds, is equal to at least one year of rolling interest
payments or, in the case of floating rate bonds, initially is equal to at least
one year's rolling interest payments based on the applicable interest rate at
that time and is adjusted at regular intervals thereafter. Certain Brady Bonds
are entitled to "value recovery payments" in certain circumstances, which in
effect constitute supplemental interest payments but generally are not
collateralized. Brady Bonds are often viewed as having three or four valuation
components: (i) the collateralized repayment of principal at final maturity;
(ii) the collateralized interest payments; (iii) the uncollateralized interest
payments; and (iv) any uncollateralized repayment of principal at maturity
(these uncollateralized amounts constitute the "residual risk"). In the event of
a default with respect to Collateralized Brady Bonds as a result of which the
payment obligations of the issuer are accelerated, the U.S. Treasury zero coupon
obligations held as collateral for the payment of principal will not be
distributed to investors, nor will such obligations be sold and the proceeds
distributed. The collateral will be held by the collateral agent to the
scheduled maturity of the defaulted Brady Bonds, which will
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continue to be outstanding, at which time the face amount of the collateral will
equal the principal payments which would have then been due on the Brady Bonds
in the normal course. In addition, in light of the residual risk of the Brady
Bonds and, among other factors, the history of default with respect to
commercial bank loans by public and private entities of countries issuing Brady
Bonds, investments in Brady Bonds are to be viewed as speculative.
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
Tennessee Fund will be primarily invested in Exempt Securities. Under normal
market conditions, at least 80% of the net assets of the Tennessee Fund will be
invested in Exempt Securities and 65% of such Fund's total assets will be
invested in Tennessee Exempt Securities. To the extent that suitable Exempt
Securities may not be available and the Tennessee Fund is unable to comply with
such 80% test, for temporary purposes the Tennessee Fund may invest in municipal
securities from other states that are otherwise eligible for investment by the
Tennessee Fund. Such other municipal securities therefore will be comparable to
Exempt Securities except that the interest thereon will not be exempt from
Tennessee state income taxes.
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
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issued by or on behalf of public authorities to finance various
privately-operated facilities are included within the term Exempt Securities if
the interest paid thereon is exempt from both Tennessee 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 Tennessee 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 Tennessee 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, the two principal classifications of
Exempt Securities consist of "general obligation" and "revenue" issues. The
Tennessee 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 Tennessee Fund should continue
to hold the obligation.
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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 SECURITIES. The Money Market Fund, the
Tennessee Fund and the Fixed Income Fund may acquire variable and floating rate
securities, subject to such Fund's investment objectives, policies and
restrictions. A variable rate security 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 cost, as the case may be. A floating rate security 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 part value or its amortized cost, as the
case may be. Such securities are frequently not rated by credit rating agencies;
however, unrated variable and floating rate securities purchased by such Funds
will be determined by the Adviser or appropriate Subadviser 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 or appropriate Sub-Adviser will consider the earning power, cash flow
and other liquidity ratios of the issuers of such securities and will
continuously monitor their financial condition. Although there may be no active
secondary market with respect to a particular variable or floating rate security
purchased by a Fund, the Fund may attempt to resell the security 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 security in the
event the issuer of the security 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
security and a Fund is not entitled to receive the principal amount of a note
within seven days, such a security 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 securities may be secured by bank letters of credit.
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Variable or floating rate securities 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 as to principal or
interest by the United States Government or any instrumentality thereof which
has a variable rate of interest readjusted no less frequently than every 762
days will be 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 security, the principal amount of which is scheduled
in accordance with the terms of the instrument to be paid unconditionally in 397
calendar days or less, will be deemed by the Money Market Fund to have a
maturity equal to the period remaining until the next readjustment of the
interest rate.
3. A variable rate security that is subject to a demand feature will be
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 security that is subject to a demand feature will be
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.
RESTRICTED SECURITIES. Securities in which the Funds may invest include
securities which are restricted as to disposition and/or 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. Any such restricted securities
will be considered to be illiquid for purposes of such a Fund's limitations on
investments in illiquid securities unless, pursuant to procedures adopted by the
Board of Trustees of the Group, the Adviser or the appropriate
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Sub-Adviser has determined such securities to be liquid because such securities
are readily saleable.
FUTURES CONTRACTS. Each Fund, except the Money Market Fund and the
Tennessee Fund, may enter into futures contracts, options, and options on
futures contracts. Futures contracts provide for the future sale by one party
and purchase by another party of a specified amount of a specific security at a
specified future time and at a specified price. Futures contracts which are
standardized as to maturity date and underlying financial instrument are traded
on national futures exchanges. Futures exchanges and trading are regulated under
the Commodity Exchange Act by the Commodity Futures Trading Commission ("CFTC"),
a U.S. Government agency.
Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out an open futures position is done by taking an opposite position ("buying" a
contract which has previously been "sold" or "selling" a contract previously
"purchased") in an identical contract to terminate the position. Brokerage
commissions are incurred when a futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in
cash or acceptable securities with a broker or custodian to initiate and
maintain open positions in futures contracts. A margin deposit is intended to
assure completion of the contract (delivery or acceptance of the underlying
securities) if it is not terminated prior to the specified delivery date.
Minimal initial margin requirements are established by the futures exchange and
may be changed. Brokers may establish deposit requirements which are higher than
the exchange minimums. Futures contracts are customarily purchased and sold on
the basis of margin deposits that may range upward from less than 5% of the
value of the contract being traded. A Fund's margin deposits will be placed in a
segregated account maintained by the Fund's Custodian or with a Futures
Commission Merchant as approved by the Group's Board.
After a futures contract position is opened, the value of the contract
is marked to market daily. If the futures contract price changes to the extent
that the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required. Conversely, a change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. A Fund expects
to earn interest income on its margin deposits.
Traders in futures contracts may be broadly classified as either
"hedgers" or "speculators." Hedgers use the futures markets
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primarily to offset unfavorable changes in the value of securities otherwise
held for investment purposes or expected to be acquired by them. Speculators are
less inclined to own the securities underlying the futures contracts which they
trade, and use futures contracts with the expectation of realizing profits from
fluctuations in the value of the underlying securities. Regulations of the CFTC
applicable to the Funds require that the aggregate initial margins and premiums
required to establish non-hedging positions not exceed 5% of the liquidation
value of a Fund.
Although techniques other than the sale and purchase of futures
contracts could be used to control a Fund's exposure to market fluctuations, the
use of futures contracts may be a more effective means of hedging this exposure.
While such Funds will incur commission expenses in both opening and closing out
futures positions, these costs are lower than transaction costs incurred in the
purchase and sale of the underlying securities.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS. A Fund will not enter
into futures contracts to the extent that its outstanding obligations to
purchase securities under these contracts in combination with its outstanding
obligations with respect to options transactions would exceed 50% of its total
assets, and will maintain assets sufficient to meet its obligations under such
contracts in a segregated account with the custodian bank or will otherwise
comply with the Commission's position on asset coverage.
RISK FACTORS IN FUTURES TRANSACTIONS. Positions in futures contracts
may be closed out only on an exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, a Fund would continue to be required to make daily cash payments to
maintain its required margin. In such situations, if the Fund has insufficient
cash, it may have to sell portfolio securities to meet daily margin requirements
at a time when it may be disadvantageous to do so. In addition, the Fund may be
required to make delivery of the instruments underlying interest rate futures
contracts it holds. The inability to close options and futures positions also
could have an adverse impact on a Fund's ability to effectively hedge. A Fund
will minimize the risk that it will be unable to close out a futures contract by
only entering into futures which are traded on national futures exchanges and
for which there appears to be a liquid secondary market.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required and the extremely high
degree of leverage involved in futures pricing. As a result, a relatively small
price movement in a futures contract may result in immediate and substantial
loss (as
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well as gain) to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as margin, a subsequent 10%
decrease in the value of the futures contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit if the contract were closed out. Thus, a
purchase or sale of a futures contract may result in losses in excess of the
amount invested in the contract. A Fund would presumably have sustained
comparable losses if, instead of the futures contract, it had invested in the
underlying financial instrument and sold it after the decline.
Utilization of futures transactions by a Fund does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the portfolio securities being hedged. It is also
possible that a Fund could both lose money on futures contracts and also
experience a decline in value of its portfolio securities. There is also the
risk of loss by a Fund of margin deposits in the event of bankruptcy of a broker
with whom the Fund has an open position in a futures contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses, because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and subjecting some futures
traders to substantial losses.
OPTIONS. Investments in options involve some of the same considerations
that are involved in connection with investments in futures contracts (e.g., the
existence of a liquid secondary market). In addition, the purchase of an option
also entails the risk that changes in the value of the underlying security or
contract will not be fully reflected in the value of the option purchased.
Depending on the pricing of the option compared to either the futures contract
or securities, an option may or may not be less risky than ownership of the
futures contract or actual securities. In general, the market prices of options
can be expected to be more volatile than the market prices on the underlying
futures contract or securities.
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Options which are traded in the over-the-counter market ("OTC Options")
are purchased from or sold to securities dealers, financial institutions or
other parties ("Counterparties") through direct bilateral agreement with the
Counterparty. In contrast to exchange listed options, which generally have
standardized terms and performance mechanics, all the terms of an OTC Option,
including such terms as method of settlement, term, exercise price, premium,
guarantees and security, are set by negotiation of the parties. The Funds expect
generally to enter into OTC Options that have cash settlement provisions,
although it is not required to do so.
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC Option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC Option it has entered into with a Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, the Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Adviser must assess the creditworthiness of each
such Counterparty or any guarantor of credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC Option will be
satisfied. The staff of the SEC currently takes the position that OTC Options
purchased by the Funds or sold by them (the cost of the sell-back plus the
in-the-money amount, if any) are illiquid, and are subject to the Fund's
limitation on investing in illiquid securities.
The Funds may also write covered-call options on foreign currencies for
cross-hedging purposes. A call option on a foreign currency is for cross-hedging
purposes if it is designed to protect against a decline in the U.S. dollar value
of a currency due to the changes of exchange rates vis-a-vis the U.S. dollar and
the option is written for a currency other than the currency in which the
security is denominated. In such circumstances, the Funds will follow the
coverage requirements as described in the preceding paragraph.
OPTIONS ON FOREIGN CURRENCIES. All Funds, except the Money Market Fund
and the Tennessee Fund, may purchase and write options on foreign currencies in
a manner similar to that in which futures contracts on foreign currencies, or
forward contracts, will be utilized. For example, a decline in the dollar value
of a foreign currency in which portfolio securities are denominated will reduce
the dollar value of such securities, even if their value in the foreign currency
remains constant. In order to protect against such diminution in the value of
portfolio securities, a Fund may purchase put options on the foreign currency.
If the value of the currency does decline, a Fund will have the right to sell
such currency for a fixed amount in dollars and will thereby offset, in whole or
in part, the adverse effect on its portfolio which otherwise would have
resulted.
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Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, a Fund may purchase call options thereon. The purchase
of such options could offset, at least partially, the effects of the adverse
movements in exchange rates. As in the case of other types of options, however,
the benefit of a Fund derived from purchases of foreign currency options will be
reduced by the amount of the premium and related transaction costs. In addition,
where currency exchange rates do not move in the direction or to the extent
anticipated, the Funds could sustain losses on transactions in foreign currency
options which would require them to forego a portion or all of the benefits of
advantageous changes in such rates.
The Funds may write options on foreign currencies for the same
purposes. For example, where a Fund anticipates a decline in the dollar value of
foreign currency denominated securities due to adverse fluctuations in exchange
rates it could, instead of purchasing a put option, write a call option on the
relevant currency. If the anticipated decline occurs, the option will most
likely not be exercised, and the diminution in value of portfolio securities
will be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, a Fund
could write a put option on the relevant currency which, if rates move in the
manner projected, will expire unexercised and allow the Funds to hedge such
increased cost up to the amount of the premium. As in the case of other types of
options, however, the writing of a foreign currency option will constitute only
a partial hedge up to the amount of the premium and only if rates move in the
expected direction. If this does not occur, the option may be exercised and the
Funds would be required to purchase or sell the underlying currency at a loss
which may not be offset by the amount of the premium. Through the writing of
options on foreign currencies, a Fund also may be required to forego all or a
portion of the benefits which might otherwise have been obtained from favorable
movements in exchange rates.
The Funds may only write covered call options on foreign currencies. A
call option written on a foreign currency by a Fund is "covered" if the Fund
owns the underlying foreign currency covered by the call, an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated account
by the custodian) or upon conversion or exchange of other foreign currency held
in its portfolio. A written call option is also covered if a Fund has a call on
the same foreign currency and in the same principal amount as the call written
where the exercise price of the call held (a) is equal to or less than the
exercise price of the call written or (b) is greater than the exercise price of
the
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call written if the difference is maintained by the Fund in cash, U.S.
Government securities or other high grade liquid debt securities in a segregated
account with the custodian, or (c) maintains in a segregated account cash, U.S.
Government securities or other high-grade liquid debt securities in an amount
not less than the value of the underlying foreign currency in U.S. dollars,
marked-to-market daily.
The Funds may also write call options on foreign currencies for
cross-hedging purposes. A call option on a foreign currency is for cross-hedging
purposes if it is designed to provide a hedge against a decline in the U.S.
dollar value of a security which a Fund owns or has the right to acquire due to
an adverse change in the exchange rate and which is denominated in the currency
underlying the option. In such circumstances, the Fund will either "cover" the
transaction as described above or collateralize the option by maintaining in a
segregated account with the custodian, cash or liquid securities in an amount
not less than the value of the underlying foreign currency in U.S. dollars
marked-to-market daily.
COMBINED TRANSACTIONS. Such Funds may enter into multiple transactions,
including multiple options transactions, multiple futures transactions, multiple
foreign currency transactions (including forward foreign currency exchange
contracts) and any combination of futures, options and foreign currency
transactions, instead of a single transaction, as part of a single hedging
strategy when, in the opinion of the Subadviser, it is in the best interest of
the Fund to do so. A combined transaction, while part of a single strategy, may
contain elements of risk that are present in each of its component transactions
and will be structured in accordance with applicable regulations and Commission
staff guidelines.
RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND OPTIONS ON
FOREIGN CURRENCIES. Options on foreign currencies and forward contracts are not
traded on contract markets regulated by the CFTC or (with the exception of
certain foreign currency options) by the SEC. To the contrary, such instruments
are traded through financial institutions acting as market-makers, although
foreign currency options are also traded on certain national securities
exchanges, such as the Philadelphia Stock Exchange and the Chicago Board Options
Exchange, subject to SEC regulation. Similarly, options on currencies may be
traded over-the-counter. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchase of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option
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writer and a trader of forward contracts could lose amounts substantially in
excess of their initial investments, due to the margin and collateral
requirements associated with such positions.
Options on foreign currencies traded on national securities exchanges
are within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default. Furthermore, a liquid
secondary market in options traded on a national securities exchange may be more
readily available than in the over-the-counter market, potentially permitting a
Fund to liquidate open positions at a profit prior to exercise or expiration, or
to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effect of other
political and economic events. In addition, exchange-traded options of foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions, on exercise.
In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by (i) other complex foreign
political and economic factors, (ii) lesser availability than in the United
States of data on which to make trading decision, (iii) delays in the Fund's
ability to act upon economic events occurring in foreign markets during non
business hours in the United States, (iv) the imposition of different exercise
and settlement terms and procedures and margin requirements than in the United
States, and (v) lesser trading volume.
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PUTS. The Tennessee 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 Tennessee 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 Tennessee Fund upon its exercise of a "put"
is normally (i) the Tennessee Fund's acquisition cost of the Exempt Securities
(excluding any accrued interest which the Tennessee Fund paid on the
acquisition), less any amortized market premium or plus any amortized market or
original issue discount during the period the Tennessee 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 Tennessee Fund to facilitate the liquidity
of its portfolio assets. Puts may also be used to facilitate the reinvestment of
the Tennessee 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 Tennessee 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 Tennessee 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 Tennessee Fund intends to enter into puts only with dealers, banks,
and broker-dealers which, in the Adviser's opinion, present minimal credit
risks.
SWAP CONTRACTS. All Funds, except the Money Market Fund and the
Tennessee Fund, may enter into swap contracts. A swap contract is an agreement
to exchange the return generated by one instrument for the return generated by
another instrument. The payment streams are calculated by reference to a
specified index and agreed upon notional amount. The term "specified index"
includes currencies, fixed interest rates, prices, total return on interest rate
indices, fixed income indices, stock indices and commodity indices (as well as
amounts derived from arithmetic operations on these indices). For example, such
a Fund may agree to swap the return generated by a fixed-income index for the
return generated by a second fixed-income index. The currency swaps in which
such Funds
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may enter will generally involve an agreement to pay interest streams in one
currency based on a specified index in exchange for receiving interest streams
denominated in another currency. Such swaps may involve initial and final
exchanges that correspond to the agreed upon notional amount.
The swaps in which such Funds may engage also include rate caps, floors
and collars under which one party pays a single or periodic fixed amount(s) (or
premium), and the other party pays periodic amounts based on the movement of a
specified index. Swaps do not involve the delivery of securities, other
underlying assets, or principal. Accordingly, the risk of loss with respect to
swaps is limited to the net amount of payments that a Fund is contractually
obligated to make. If the other party to a swap defaults, a Fund's risk of loss
consists of the net amount of payments that a Fund is contractually entitled to
receive. Currency swaps usually involve the delivery of the entire principal
value of one designated currency in exchange for the other designated currency.
Therefore, the entire principal value of a currency swap is subject to the risk
that the other party to the swap will default on its contractual delivery
obligations. If there is a default by the counterparty, the Fund may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors, and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
The Funds will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with a Fund receiving or paying, as the case may
be, only the net amount of the two payments. A Fund's obligations under a swap
agreement will be accrued daily (offset against any amounts owing to the Fund)
and any accrued but unpaid net amounts owed to a swap counterparty will be
covered by the maintenance of a segregated account consisting of cash, U.S.
Government securities, or other liquid securities, to avoid any potential
leveraging of the Fund. To the extent that these swaps, caps, floors, and
collars are entered into for hedging purposes, the Subadvisers believe such
obligations do not constitute "senior securities" under the 1940 Act and,
accordingly, will not treat them as being subject to a Fund's borrowing
restrictions. All of the Funds except the Money Market Fund and the Tennessee
Fund may enter into derivatives transactions effected in the over-the-counter
market (swaps, caps, floors, puts, etc., but excluding foreign exchange
contracts) with counterparties that are approved by the appropriate Sub-Adviser
in accordance with guidelines established by the Board of Trustees. These
guidelines provide for a minimum credit rating
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for each counterparty and various credit enhancement techniques (for example,
collateralization of amounts due from counterparties) to limit exposure to
counterparties with ratings below AA.
The use of swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If a Subadviser is incorrect in its forecasts
of market values, interest rates, and currency exchange rates, the investment
performance of such a Fund would be less favorable than it would have been if
this investment technique were not used.
WHEN-ISSUED SECURITIES. As discussed in the Prospectus, each of the
Funds may purchase securities on a "when-issued" basis (I.E., for delivery
beyond the normal settlement date at a stated price and yield). When such a 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, 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 the Fund's commitment. It may be expected that the 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 the value
of its total assets. Under normal market conditions, however, a Fund's
commitment to purchase "when-issued" or "delayed-delivery" securities will not
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. Such Funds will engage in "when-issued" or
"delayed delivery" transactions only for the purpose of acquiring portfolio
securities consistent with the Funds' investment objectives and policies and not
for investment leverage. If the Tennessee Fund sells a "when- issued" or
"delayed-delivery" security before delivery, any gain would not be tax-exempt.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities represent an
ownership interest in a pool of residential mortgage loans. These securities are
designed to provide monthly payments of interest and principal to the investor.
The mortgagor's monthly
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payments to his/her lending institution are "passed-through" to investors. The
Money Market Fund and the Fixed Income Fund may invest in mortgage-backed
securities. Most issuers or poolers provide guarantees of payments, regardless
of whether or not the mortgagor actually makes the payment. The guarantees made
by issuers or poolers are individual loan, title, pool and hazard insurance
purchased by the issuer. There can be no assurance that the private issuers can
meet their obligations under the policies. Mortgage-backed securities issued by
private issuers, whether or not such securities are subject to guarantees, may
entail greater risk. If there is no guarantee provided by the issuer,
mortgage-backed securities purchased by the Portfolios will be rated investment
grade by Moody's or S&P, or, if unrated, deemed by the Subadviser to be of
investment grade quality.
Underlying Mortgages. Pools consist of whole mortgage loans or
participation in loans. The majority of these loans are made to purchasers of
1-4 family homes. The terms and characteristics of the mortgage instruments are
generally uniform within a pool but may vary among pools. For example, in
addition to fixed-rate fixed-term mortgages, such Funds may purchase pools of
adjustable rate mortgages ("ARM"), growing equity mortgages ("GEM"), graduated
payment mortgage ("GPM") and other types where the principal and interest
payment procedures vary. ARM's are mortgages which reset the mortgage's interest
rate with changes in open market interest rates. Such Funds' interest income
will vary with changes in the applicable interest rate on pools of ARM's. GPM
and GEM pools maintain constant interest rates, with varying levels of principal
repayment over the life of the mortgage. These different interest and principal
payment procedures should not impact the Funds' net asset values since the
prices at which these securities are valued each day will reflect the payment
procedures.
All poolers apply standards for qualifications to local lending
institutions which originate mortgages for the pools. Poolers also establish
credit standards and underwriting criteria for individual mortgages included in
the pools. In addition, many mortgages included in pools are insured through
private mortgage insurance companies.
Average Life. The average life of pass-through pools varies with the
maturities, coupon rates, and type of the underlying mortgage instruments. In
addition, a pool's term may be shortened by unscheduled or early payments of
principal and interest on the underlying mortgages. The occurrence of mortgage
prepayments is affected by factors including the level of interest rates,
general economic conditions, the location and age of the mortgage and other
social and demographic conditions.
Returns of Mortgage-Backed Securities. Yields on mortgage-
backed pass-through securities are typically quoted based on a
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prepayment assumption derived from the coupon and maturity of the underlying
instruments. Actual pre-payment experience may cause the realized return to
differ from the assumed yield. Reinvestment of pre-payments may occur at higher
or lower interest rates than the original investment, thus affecting the
realized returns of the Funds. The compounding effect from reinvestment of
monthly payments received by each Fund will increase its return to shareholders,
compared to bonds that pay interest semi-annually.
Interests in pools of mortgage-backed securities differ from other
forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified call
dates. Instead, these securities provide a monthly payment which consists of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
residential mortgage loans, net of any fees paid to the issuer or guarantor of
such securities. Additional payments are caused by repayments resulting from the
sale of the underlying residential property, refinancing or foreclosure net of
fees or costs which may be incurred. Some mortgage-backed securities are
described as "modified pass-through." These securities entitle the holders to
receive all interest and principal payments owed on the mortgages in the pool,
net of certain fees, regardless of whether or not the mortgagors actually make
payments.
Residential mortgage loans are pooled by the Federal Home Loan Mortgage
Corporation ("FHLMC"). FHLMC is a corporate instrumentality of the U.S.
Government and was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. FHLMC issues
Participation Certificates ("PC's") which represent interests in mortgages from
FHLMC's national portfolio. FHLMC guarantees the timely payment of interest and
ultimate collection of principal.
The Federal National Mortgage Association ("FNMA") is a
Government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases residential mortgages from a list of approved seller/services
which include state and federally-chartered savings and loan associations,
mutual savings, banks, commercial banks and credit unions and mortgage bankers.
Pass-through securities issued by FNMA are guaranteed as a timely payment of
principal and interest by FNMA.
The principal Government guarantor of mortgage-backed securities is the
Government National Mortgage Association ("GNMA"). GNMA is a wholly owned U.S.
Government corporation within the Department of Housing and Urban Development.
GNMA is authorized to guarantee, with the full faith and credit of the U.S.
Government, the timely payment of principal and interest on securities issued
B-24
<PAGE> 77
by approved institutions and backed by pools of FHA-insured or VA-
guaranteed mortgages.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional residential mortgage loans. Pools
created by such non-governmental issuers generally offer a higher rate of
interest than U.S. Government and U.S. Government-related pools because there
are no direct or indirect U.S. Government guarantees of payments in the former
pools. However, timely payment of interest and principal of these pools is
supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance purchased by the issuer. The insurance
and guarantees are issued by Governmental entities, private insurers and the
mortgage poolers. There can be no assurance that the private insurers can meet
their obligations under the policies. Mortgage-backed securities purchased for
the Funds will, however, be rated of investment grade quality by Moody's and/or
S&P or, if unrated, deemed by the Sub-Adviser to be of investment grade quality.
It is expected that governmental or private entities may create
mortgage loan pools offering pass-through investments in addition to those
described above. The mortgages underlying these securities may be alternative
mortgage instruments, that is, mortgage instruments whose principal or interest
payment may vary or whose terms to maturity may be shorter than previously
customary. As new types of mortgage-backed securities are developed and offered
to investors, the Portfolios will, consistent with their investment objective
and policies, consider making investments in such new types of securities.
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
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 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 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. Fannie Maes are guaranteed as to timely payment of
B-25
<PAGE> 78
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"). The FHLMC is
a corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. The FHLMC guarantees either ultimate collection or
timely payment of all principal payments on the underlying mortgage loans. When
the 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.
STRIPPED MORTGAGE-BACKED SECURITIES. Stripped mortgage-backed
securities ("SMBS") are derivative multiclass mortgage securities. SMBS may be
issued by agencies or instrumentalities of the U.S. Government or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, mortgage banks, commercial banks, investment banks and special
purpose entities of the foregoing. SMBS are usually structured with two classes
that receive different proportions of the interest and principal distributions
on a pool of mortgage assets. A common type of SMBS will have one class
receiving some of the interest and most of the principal from the mortgage
assets, while the other class will receive most of the interest and the
remainder of the principal. In the most extreme case, one class will receive all
of the interest (the interest-only or "IO" class), while the other class will
receive all of the principal (the principal-only or "PO" class). The yield to
maturity on an IO class is extremely sensitive to the rate of principal payments
(including prepayments) on the related underlying mortgage assets, and a rapid
rate of principal payments may have a material adverse effect on a Fund's yield
to maturity from these securities. If the underlying mortgage assets experience
greater than anticipated prepayments of principal, a Fund may fail to fully
recoup its initial investment in these securities even if the security is in one
of the highest rating categories.
Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these securities
were only recently developed. As a result, established trading markets have not
yet developed and, accordingly, certain of these securities may be deemed
"illiquid" and subject to a Fund's limitations on investment in illiquid
securities.
B-26
<PAGE> 79
ZERO COUPON BONDS. Zero Coupon bonds are notes and bonds which have
been stripped of their unmatured interest coupons, or the coupons themselves,
and also receipts or certificates representing interest in such stripped debt
obligations and coupons. The timely payment of coupon interest and principal on
these instruments remains guaranteed by the "full faith and credit" of the
United States Government.
A zero coupon bond does not pay interest. Instead, it is issued at a
substantial discount to its "face value"--what it will be worth at maturity. The
difference between a security's issue or purchase price and its face value
represents the imputed interest an investor will earn if the security is held
until maturity. For tax purposes, a portion of this imputed interest is deemed
as income received by zero coupon bondholders each year. Each Fund, which
expects to qualify as a regulated investment company, intends to pass along such
interest as a component of that Fund's distributions of net investment income.
Zero coupon bonds may offer investors the opportunity to earn higher
yields than those available on U.S. Treasury bonds of similar maturity. However,
zero coupon bond prices may also exhibit greater price volatility than ordinary
debt securities because of the manner in which their principal and interest is
returned to the investor.
Zero Coupon Treasury Bonds are sold under a variety of different names,
such as: Certificate of Accrual on Treasury Securities (CATS), Treasury Receipts
(Trs), Separate Trading of Registered Interest and Principal of Securities
(STRIPS) and Treasury Investment Growth Receipts (TIGERS).
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 appropriate Sub-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 or appropriate Sub-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
B-27
<PAGE> 80
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 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 for temporary purposes 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
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 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 LENDING. Each Fund may lend its investment securities to
qualified institutional investors who need to borrow securities in order to
complete certain transactions, such as covering short sales, avoiding failures
to deliver securities or completing arbitrage operations. By lending its
investment securities, a Fund attempts to increase its income through the
receipt of interest on the loan. Any gain or loss in the market price of the
securities loaned that might occur during the term of the loan would be for the
account of the Fund. Each Fund may lend its investment securities to qualified
brokers, dealers, domestic and foreign banks or other financial institutions, so
long as the terms, the structure and the aggregate amount of such loans are not
inconsistent with the 1940 Act or the rules and regulations or interpretations
of the Commission thereunder, which currently
B-28
<PAGE> 81
require that (a) the borrower pledge and maintain with the Fund collateral
consisting of cash, an irrevocable letter of credit issued by a domestic U.S.
bank, or securities issued or guaranteed by the United States Government having
a value at all times not less than 100% of the value of the securities loaned,
(b) the borrower add to such collateral whenever the price of the securities
loaned rises (i.e., the borrower "marks to the market" on a daily basis), (c)
the loan be made subject to termination by the Fund at any time, and (d) the
Fund receive reasonable interest on the loan (which may include the Fund
investing any cash collateral in interest bearing short-term investments), any
distribution on the loaned securities and any increase in their market value.
All relevant facts and circumstances, including the creditworthiness of the
broker, dealer or institution, will be considered in making decisions with
respect to the lending of securities, subject to review by the Trustees.
At the present time, the Staff of the Commission does not object if an
investment company pays reasonable negotiated fees in connection with loaned
securities, so long as such fees are set forth in a written contract and
approved by the investment company's Trustees. In addition, voting rights may
pass with the loaned securities, but if a material event were to occur affecting
an investment on loan, the loan must be called and the securities voted.
INVESTMENT RESTRICTIONS
Each Fund's investment objective is a fundamental policy and may not be
changed without a vote of the holders of a majority of such Fund's outstanding
Shares. In addition, 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,
the Tennessee Fund may not:
1. Purchase securities on margin, except for use of short-
term credit necessary for clearance of purchases of portfolio
securities;
2. Engage in any short sales;
3. Underwrite the securities issued by other persons, except to the
extent that a Fund may be deemed to be an underwriter under certain securities
laws in the disposition of "restricted securities" acquired in accordance with
such Fund's investment objectives and policies;
B-29
<PAGE> 82
4. Purchase or sell real estate (although investments in marketable
securities of companies engaged in such activities are not prohibited by this
restriction); and
5. Purchase or sell commodities or commodities contracts, except to the
extent disclosed in the current Prospectus of such Fund.
Each of the Funds, other than the Tennessee Fund may not:
1. Underwrite the securities issued by other persons, except to the
extent that a Fund may be deemed to be an underwriter under certain securities
laws in the disposition of "restricted securities";
2. Purchase or sell commodities or commodity contracts, except to the
extent disclosed in the current Prospectus of the Fund; and
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).
The following additional investment restrictions may be changed by the
Group's Board of Trustees without the vote of a majority of the outstanding
Shares of a Fund.
No Fund may 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.
Finally, each of the Funds, other than the Tennessee Fund, may not:
1. Engage in any short sales or 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, including options, futures and options
on futures; and
2. Mortgage or hypothecate the Fund's assets in excess of 50% of the
Fund's total assets; provided that each Fund may also segregate assets without
limit in order to comply with the requirements of ss.18(f) of the 1940 Act and
applicable interpretations thereof published from time to time by the Commission
and its staff.
B-30
<PAGE> 83
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 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
other Funds for the fiscal years ended June 30, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
JUNE 30, 1997 JUNE 30, 1996
------------- -------------
<S> <C> <C>
Value Fund 11.47% 27.89%
Fixed Income Fund 196.97 363.84
Tennessee Fund 38.66 60.76
Growth Fund 24.07 31.22
</TABLE>
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.
The portfolio turnover rate for the Fixed Income Fund decreased during
the fiscal year ended June 30, 1997, from the
B-31
<PAGE> 84
prior fiscal year due to steady interest rates, which decreased the Fixed Income
Fund's need to find competitive securities compared to going interests rates.
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, Martin Luther King, Jr. 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.
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
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<PAGE> 85
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 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
B-33
<PAGE> 86
practical, or (ii) it is not reasonably practical for the Group to
determine the fair value of its net assets.
MANAGEMENT AND SERVICE PROVIDERS 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,
ages, and principal occupations during the past five years are as follows:
<TABLE>
<CAPTION>
NAME AND ADDRESS Position(s) Held Principal Occupation
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
Age: 52 Partnership.
Nancy E. Converse* Trustee and Since July, 1990, employee
3435 Stelzer Road Assistant of BISYS Fund Services
Columbus, Ohio 43219 Secretary Limited Partnership.
Age: 48
Maurice G. Stark Trustee Consultant with Battelle
505 King Avenue Memorial Institute; from
Columbus, Ohio 43201 1979 to December, 1994, Vice
Age: 62 President-Finance and Chief
Financial
Officer,
Battelle
Memorial
Institute
(scientific
research and
development
service
corporation).
James H. Woodward, Ph.D. Trustee Since July 1989, Chancellor
The University of North of The University of North
Carolina at Charlotte Carolina at Charlotte.
Charlotte, NC 28223
Age: 57
Chalmers P. Wylie Trustee From April, 1993 to present,
754 Stonewood Court of Counsel with Kegler,
Columbus, Ohio 43235 Brown, Hill & Ritter (law
Age: 76 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.
</TABLE>
B-34
<PAGE> 87
<TABLE>
<S> <C> <C>
J. David Huber Vice President Since January, 1996,
3435 Stelzer Road President of BISYS Fund
Columbus, Ohio 43219 Services Limited
Age: 51 Partnership; from June,
1987 to
December,
1995,
employee
of BISYS
Fund
Services
Limited
Partnership.
William J. Tomko Vice President From April, 1987 to present,
3435 Stelzer Road employee of BISYS Fund
Columbus, Ohio 43219 Services Limited
Age: 39 Partnership.
Thresa B. Dewar Treasurer From March, 1997 to present,
3435 Stelzer Road employee of BISYS Fund
Columbus, Ohio 43219 Services Limited Partnership;
Age: 43 prior thereto, Vice President
and Controller of Federated
Administrative Services, Inc.
(investment management firm).
George L. Stevens Secretary From September, 1996
3435 Stelzer Road to present, employee of
Columbus, Ohio 43219 BISYS Fund Services Limited
Age: 46 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
Age: 30 Partnership; prior to June,
1995, supervisor of Blue Sky
Compliance 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, BISYS Fund Services Ohio,
Inc. 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
B-35
<PAGE> 88
Distribution and Shareholder Service Plan described below, may
receive fees pursuant to the Administrative Services Plan described
below, and may retain all or a portion of any sales charge imposed
upon the purchase of Shares of the Riverside Load Funds. BISYS
Fund Services Ohio, Inc. receives fees from the Funds for acting as
transfer agent. BISYS Fund Services, Inc. receives fees from the
Funds for providing certain fund accounting services. Messrs.
Grimm, Huber, Tomko and Stevens, Ms. Converse, Ms. Dewar 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, 1997. 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
Chairman, President
and Trustee
Nancy E. Converse $0 $0
Trustee and Assistant
Secretary
Maurice G. Stark $14,473 $14,473
Trustee
James H. Woodward, Ph.D. $16,162 $16,162
Trustee
Chalmers P. Wylie $14,973 $14,973
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.
INVESTMENT ADVISER
Investment advisory services are provided to the Funds of the Group by
National Bank of Commerce (the "Adviser"), pursuant to an Investment Advisory
Agreement dated as of January 1, 1998 (with respect to each of the Funds other
than the Tennessee Fund) (the "New Investment Advisory Agreement") and an
Investment Advisory Agreement dated as of October 27, 1992 (with respect to the
Tennessee Fund) (the "Tennessee Advisory Agreement) (the New
B-36
<PAGE> 89
Investment Advisory Agreement and the Tennessee Advisory Agreement are hereafter
sometimes collectively referred to as the "Investment Advisory Agreement").
Under the Investment Advisory Agreement, the Adviser has agreed to
provide investment advisory services, either directly or through a
sub-investment adviser, as described in the Prospectus of the Funds. For the
services provided and expenses assumed pursuant to the Investment Advisory
Agreement, (1) the Money Market Fund pays the Adviser a fee computed daily and
paid monthly, at the annual rate of thirty-five one-hundredths of one percent
(.35%) of the average daily net assets of the Money Market Fund; (2) the Value
Fund and the Growth Fund each pay the Adviser a fee computed daily and paid
monthly, at an annual rate of one percent (1.00%) of the first $250 million of
such Fund's average daily net assets and seventy-five one-hundredths of one
percent (.75%) of such Fund's remaining average daily net assets; (3) the
Tennessee Fund pays the Adviser a fee equal to the lesser of (a) a fee computed
daily and paid monthly, at an annual rate, calculated as a percentage of the
average daily net-assets of the Tennessee Fund of sixty-five one-hundredths of
one percent (.65%) or (b) such other fee as may be agreed upon in writing by the
Adviser and the Group; and (4) the Fixed Income Fund pays the Adviser a fee,
computed daily and paid monthly, at the annual rate of sixty-five one-hundredths
of one percent (.65%) of the average daily net assets of the Fixed Income Fund.
The Adviser has in the past and may in the future 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.
For the fiscal years ended June 30, 1997, 1996 and 1995, the Adviser
earned and voluntarily waived the amounts indicated below with respect to its
investment advisory services to the indicated Funds:
Fiscal Years Ended June 30,
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
Fees Fees Fees Fees Fees Fees
Earned Waived Earned Waived Earned Waived
------ ------ ------ ------ ------ ------
<S> <C> <C> <C>
Money Market Fund $480,718 -- $524,476 -- $549,669 --
Value Fund 694,259 -- 747,594 -- 719,870 --
Fixed Income
Fund 156,128 -- 223,976 -- 268,630 --
Tennessee Fund 122,007 $112,622 129,939 $127,577 127,967 $127,967
Growth Fund 332,857 216,357 284,790 188,588 118,392 118,392
</TABLE>
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<PAGE> 90
Unless sooner terminated, (1) the New Investment Advisory Agreement
continues in effect until January 1, 2000, and from year to year, for successive
annual periods ending on December 31, and (2) the Tennessee Advisory Agreement
continues in effect from year to year, for successive annual periods ending on
March 31st, 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 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 at least 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.
To offset capital losses incurred by the Money Market Fund during the
fiscal year ended June 30, 1995, during the fiscal year ended June 30, 1997, the
Adviser voluntarily contributed $134,389 of its investment advisory fees to the
Money Market Fund. In addition, during the fiscal years ended June 30, 1996 and
1995, the Adviser contributed $134,389 and $628,737, respectively, to the Money
Market Fund. Such contribution for the fiscal year ended June 30, 1995,
consisted of $97,370 of investment advisory fees and $531,367 representing the
difference between the carrying value and the market value of certain securities
purchased by the Adviser's parent, National Commerce Bancorporation from the
Money Market Fund.
To offset, in part, capital losses incurred by the Fixed Income Fund
during the fiscal year ended June 30, 1997, the Adviser or its parent
voluntarily contributed $150,000 to the Fixed Income Fund. In addition, the
Adviser or its parent voluntarily established an Irrevocable Letter of Credit
("LOC") with The Bank of New York on June 4, 1997, with the Fixed Income Fund as
the beneficiary of the LOC, in order to support the value of two defaulted fixed
income securities issued by Voyager Lines Private
B-38
<PAGE> 91
Placement and Ray & Ross Transport. Prior to receipt of the LOC, NBC
unconditionally and irrevocably committed to support the value of these fixed
income securities. These fixed income securities were holdings of the Fixed
Income Fund as of June 30, 1997.
The stated amount of the LOC exceeded the fair value of the two
defaulted securities by $2,725,000 on the date the LOC was established. This
amount, including accrued interest and contributed capital for the realized
capital loss described above is accounted for as a capital contribution to the
Fixed Income Fund. For further information regarding the Adviser's capital
contribution and the LOC, see the notes to the financial statements which are a
part of this Statement of Additional Information.
The Adviser has licensed the name "First Market" 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 "First Market" 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 "First Market."
SUB-ADVISERS
Pursuant to the terms of the New Investment Advisory Agreement, the
Adviser has entered into two separate Sub-Investment Advisory Agreements each
dated as of January 1, 1998 (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 Morgan Stanley Asset Management, Inc.,
1221 Avenue of the Americas, New York, New York 10036 ("MSAM"). Pursuant to the
terms of such Sub-Investment Advisory Agreements, Miller Anderson and MSAM have
been retained by the Adviser to manage the investment and reinvestment of the
assets of the Value Fund and the Fixed Income Fund, and the Money Market Fund
and the Growth Fund, respectively, 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 their respective Funds' assets, investment performance,
policies and guidelines, and maintaining certain books and records, and the
Adviser is responsible for selecting and monitoring the performance of each of
the Sub- Advisers, and for reporting the activities of the Sub-Advisers in
managing those Funds to the Group's Board of Trustees.
For its services provided and expenses assumed pursuant to its
Sub-Investment Advisory Agreement with the Adviser, MSAM receives from the
Adviser a fee (computed daily and paid monthly as a percentage) based on the
annual rates as follows: (1) for the Money Market Fund, 0.25% of the average
daily net assets of such
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<PAGE> 92
Fund; and (2) for the Growth Fund, 0.625% of the average daily net assets of
such Fund up to $20 million, 0.50% of the average daily net assets of such Fund
from $20 million up to $30 million, and 0.375% of the average daily net assets
of such Fund from $30 million to $35 million -- if the average daily net assets
of such Fund equal or exceed $35 million, the annual rate of 0.56% of the
average daily net assets of such Fund. For its services provided and expenses
assumed pursuant to its Sub-Investment Advisory Agreement with the Adviser,
Miller Anderson receives from the Adviser a fee (computed daily and paid monthly
as a percentage) based on the annual rates as follows: (1) for the Value Fund,
0.625% of the average daily net assets of such Fund up to $20 million, 0.50% of
the average daily net assets of such Fund from $20 million up to $30 million,
and 0.375% of the average daily net assets of such Fund from $30 million to $35
million -- if the average daily net assets of such Fund equal or exceed $35
million, the annual rate of 0.56% of the average daily net assets of such Fund;
and (2) for the Fixed Income Fund, 0.50% of the average daily net assets of such
Fund up to $25 million and 0.25% of the average daily net assets of such Fund
from $25 million to $75 million -- if the average daily net assets of such Fund
equal or exceed $75 million, the annual rate of 0.33% of the average daily net
assets of such Fund.
PORTFOLIO TRANSACTIONS
Pursuant to the Investment Advisory Agreement, the Adviser and
Sub-Advisers determine, subject to the general supervision of the Board of
Trustees of the Group and in accordance with each 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.
Purchases and sales of portfolio securities with respect to the Money Market
Fund, the Fixed Income Fund and the Tennessee 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 appropriate Sub-Adviser,
as the case may be, in its best judgment
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<PAGE> 93
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 Sub-Adviser may receive
orders for transactions on behalf of the Funds. Information so received is in
addition to and not in lieu of services required to be performed by the Adviser
or Sub-Adviser and does not reduce the advisory fees payable to the Adviser or
Sub-Adviser by the Funds. Such information may be useful to the Adviser in
serving both the Funds and other clients and, conversely, supplemental
information obtained by the placement of business of other clients may be useful
to the Adviser or Sub- Adviser in carrying out its obligations to the Funds.
Under the New 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 affected Funds.
While the Adviser and Sub-Advisers generally seek competitive
commissions, the Group may not necessarily pay the lowest commission available
on each brokerage transaction, for reasons discussed above. For the fiscal years
ended June 30, 1997, 1996 and 1995, the Group paid the following brokerage
commissions on behalf of the Value Fund, the Growth Fund and the Fixed Income
Fund.
Fiscal Years Ended June 30,
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Value Fund $66,887 $133,509 $171,045
Growth Fund 31,092 43,315 32,075
Fixed Income Fund 6,250 -0- 2,500
</TABLE>
During the past three fiscal years, no brokerage commissions were paid
by the Group on behalf of the Money Market Fund or the Tennessee Fund. The
Adviser, on behalf of the Value Fund and/or Growth Fund, may direct brokerage
transactions to (1) Interstate Johnson Lane in return for the provision of
portfolio management software and various news service subscriptions, including
Barron's, Bloomburg, Morningstar, Baseline Financial Services and Value Line
Institutional; and (2) Frank Russell in return for chart and graph services. For
the fiscal year ended June 30, 1997, the amount of such transactions and related
commissions on behalf of the Value Fund were $10,023,901 and $25,408,
respectively, and on behalf of the Growth Fund were $7,518,418 and $20,037,
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<PAGE> 94
respectively. Such brokerage transactions are subject to the
requirements as to price and execution as described 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, 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.
It is expected that some of the Funds may execute brokerage
transactions through NBC Capital Markets Group, Inc., which is a registered
broker/dealer and a wholly owned subsidiary of the Adviser (the "Capital Markets
Group"), or an affiliated broker of the Sub-Advisers, for a commission in
conformity with the 1940 Act, the Securities Exchange Act of 1934 and rules
promulgated by the Commission.
Under these provisions, the Capital Markets Group and such affiliated
brokers are permitted to receive and retain compensation for effecting portfolio
transactions for a Fund on an exchange if written procedures approved by the
Trust's Board of Trustees are in effect expressly permitting the Capital Markets
Group and such affiliated brokers to receive and retain such compensation. The
rules of the Commission and such procedures further require that commissions
paid to the Capital Markets Group or such an affiliated broker by a Fund for
exchange transactions not exceed "usual and customary" brokerage commissions.
"Usual and customary" commissions are defined to include amounts which are
"reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time." In addition, a Fund may
direct commission business to the Capital Markets Group or an affiliated broker
of the Sub-Advisers for portfolio transactions other than on an exchange so long
as the commissions charged are (1) not more than 2% of the sales price for sales
effected in connection with a secondary distribution of securities or (2) not
more than 1% of the purchase or sale price of such securities if the sale is
otherwise effected. The Trustees, including those who are not "interested
persons" of the Trust, have adopted procedures for evaluating the reasonableness
of commissions paid to the Capital Markets Group and such affiliated brokers and
will review these procedures periodically.
Investment decisions for each Fund are made independently from those
for the other funds of the Group or any other investment
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<PAGE> 95
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 the Funds. 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(s) and such other 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 or 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, 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 consideration whether securities of such customers are held
by the Funds or any other fund of the Group.
During the fiscal year ended June 30, 1997, the Money Market Fund held
securities of its regular brokers or dealers, as defined in Rule 10b-1 under the
1940 Act, or their parent companies. As of June 30, 1997, the Money Market Fund
held $1,488,000 of commercial paper of Zion Securities.
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-
B-43
<PAGE> 96
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 Prospectus, this Statement of
Additional Information, the Investment Advisory Agreement and the Servicing
Agreement without violation of applicable statutes and regulations. The Capital
Markets Group believes that it possesses the legal authority to perform the
services for the Funds as set forth in the Rule 12b-1 Agreement with BISYS, as
described below, 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 or the Capital Markets Group
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 or the Capital Markets Group,
the Board of Trustees of the Group would review the Group's relationship with
the Adviser or the Capital Markets Group, as the case may be, 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, the Capital Markets Group
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 an Administration Agreement dated as of November 1, 1997 (the
"Administration Agreement"). The Administrator assists in supervising all
operations of each Fund (other than
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<PAGE> 97
those performed by the Adviser under the Investment Advisory Agreement, by
National City Bank under the Custodial Services Agreement and by BISYS Fund
Services Ohio, Inc. or BISYS Fund Services, Inc. (hereinafter jointly referred
to as "BISYS Services") 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, and
certain bookkeeping services; prepare the periodic reports to the Commission on
Form N-SAR or any replacement forms therefor; compile data for, coordinate and
supervise the preparation and filing all of the Funds' federal and state tax
returns and required tax filings; prepare compliance filings pursuant to state
securities laws; assist 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; and generally assist in all aspects of the Funds'
operations other than those performed by the Adviser under the Investment
Advisory Agreement, by National City Bank under the Custodial Services Agreement
and by BISYS Services under the Transfer Agency Agreement and Fund Accounting
Agreement. 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 for the fund accounting services described below, plus certain
out-of-pocket expenses, equal a fee calculated daily and paid periodically, at
the annual rate equal to twenty one-hundredths of one percent (0.20%) of that
Fund's average daily net assets.
For the fiscal years ended June 30, 1997, 1996 and 1995, the
Administrator earned and voluntarily waived the amounts indicated below with
respect to its administrative services to the indicated Funds:
<TABLE>
<CAPTION>
Fiscal Years Ended June 30,
1997 1996 1995
---- ---- ----
Fees Fees Fees Fees Fees Fees
Earned Waived Earned Waived Earned Waived
------ ------ ------ ------ ------ ------
<S> <C> <C> <C>
Money Market Fund $274,696 -- $299,701 -- $314,096 --
Value Fund 151,803 -- 166,025 -- 158,632 --
</TABLE>
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<PAGE> 98
<TABLE>
<S> <C> <C> <C>
Fixed Income
Fund 48,039 -- 68,916 -- 82,655 --
Tennessee Fund 37,541 -- 39,991 -- 39,375 --
Growth Fund 66,572 16,643 56,958 14,290 23,678 7,277
</TABLE>
Unless sooner terminated as provided therein, the Administration
Agreement has an initial term expiring on October 31, 2003. 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 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 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 October 1, 1993, as amended as
of June 3, 1994 (the "Distribution Agreement"). Unless otherwise terminated, the
Distribution Agreement remains in effect from year to year for successive annual
periods ending March 31 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 Group,
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
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<PAGE> 99
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, other than the Money Market Fund. For the three fiscal years
ended June 30, 1997, 1996 and 1995, commissions paid to BISYS under the
Distribution Agreement with respect to the sale of Shares of such Funds, after
discounts to dealers, were $2,240, $5,030 and $27,404, respectively. For such
years $246, $4,090 and $10,212, respectively, were reallowed by BISYS to the
Capital Markets Group.
As described in the Prospectus, the Group has adopted a Distribution
and Shareholder Service Plan (the "Plan") pursuant to Rule 12b-1 under the 1940
Act under which each Fund is authorized to pay BISYS for payments it makes to
banks, including the Adviser, other institutions and broker-dealers, and for
expenses BISYS and any of its affiliates or subsidiaries incur (with all of the
foregoing organizations being referred to as "Participating Organizations") for
providing distribution or shareholder service assistance. Payments to such
Participating Organizations may be made pursuant to agreements entered into with
BISYS. The Plan authorizes each Fund to make payments to BISYS in an amount not
in excess, on an annual basis, of 0.25% of the average daily net asset value of
that Fund. As required by Rule 12b-1, the Plan was approved by the Shareholders
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 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
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<PAGE> 100
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.
As authorized by the Plan, BISYS has entered into Rule 12b-1 Agreements
with the Capital Markets Group to provide certain distribution and shareholder
services in connection with the distribution of the Shares of each of the Funds
including, but not limited to, maintaining Shareholder relations, answering
questions about the Funds and distributing prospectuses to persons other than
Shareholders of the Funds. In consideration of such services BISYS has agreed to
pay the Capital Markets Group a monthly fee, computed at the annual rate of up
to 0.25% of the average aggregate net asset value of Shares held during the
period in accounts for which the Capital Markets Group provided services under
such agreement. BISYS will be compensated by each Fund in an amount equal to its
payments to the Capital Markets Group under the Rule 12b-1 Agreement with
respect to that Fund.
The Group has also entered into Rule 12b-1 Agreements with BISYS
pursuant to which BISYS has agreed to provide certain distribution and
shareholder support services to each of the Funds and their Shareholders,
including, but not limited to, advertising and marketing the Shares of the
Funds, maintaining Shareholder relations, answering questions about the Funds,
distributing prospectuses to persons other than Shareholders of the Funds, and
providing such other services as a Fund may reasonably request. In consideration
of such services, the Group has agreed to pay BISYS a monthly fee, computed at
the annual rate of 0.25% of the average aggregate net asset value of Shares held
during the period in client accounts for which BISYS has provided services under
this Rule 12b-1 Agreement. Such fee may exceed the actual costs incurred by
BISYS in providing such services.
In addition, BISYS has entered into and 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 including, but not limited to, those discussed above.
For the fiscal year ended June 30, 1997, the Group, on behalf of the
Funds, incurred the following amounts pursuant to the Plan for payments made by
the Group to BISYS and for payments made by BISYS to the Capital Markets Group
for certain administrative and shareholder support services as more fully
described above:
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<PAGE> 101
<TABLE>
<CAPTION>
PAYMENTS MADE
PAYMENTS MADE TO THE CAPITAL
FUND TO BISYS MARKETS GROUP
---- -------- -------------
<S> <C> <C>
Money Market Fund $203,634 $ 43
Value Fund 71,767 4,111
Fixed Income Fund 12,914 394
Tennessee Fund 28,126 168
Growth Fund 26,795 984
</TABLE>
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 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.
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<PAGE> 102
As authorized by the Services Plan, the Group has entered into a
Servicing Agreement with the Adviser pursuant to which the Adviser has agreed to
provide certain administrative support services in connection with Shares of the
Funds owned of record or beneficially by its customers. Such administrative
support services may include, but are not limited to, (i) processing dividend
and distribution payments from a Fund on behalf of customers; (ii) providing
periodic statements to its customers showing their positions in the Shares;
(iii) arranging for bank wires; (iv) responding to routine customer inquiries
relating to services performed by the Adviser; (v) providing sub-accounting with
respect to the Shares beneficially owned by the Adviser's customers or the
information necessary for sub-accounting; (vi) if required by law, forwarding
shareholder communications from a Fund (such as proxies, shareholder reports,
annual and semi-annual financial statements and dividend, distribution and tax
notices) to its customers; (vii) aggregating and processing purchase, exchange,
and redemption requests from customers and placing net purchase, exchange, and
redemption orders for customers; and (viii) providing customers with a service
that invests the assets of their account in the Shares pursuant to specific or
pre-authorized instructions. In consideration of such services, the Group, on
behalf of each Fund, has agreed to pay the Adviser a monthly fee, computed at
the annual rate of .25% of the average aggregate net asset value of Shares of
that Fund held during the period by customers for whom the Adviser has provided
services under the Servicing Agreement.
For the fiscal year ended June 30, 1997, the Group incurred the
following amounts on behalf of the designated Fund for payments made to the
Adviser pursuant to the Services Plan: the Money Market Fund -- $194,676; the
Value Fund -- $148,346; the Fixed Income Fund -- $56,742; the Tennessee Fund --
$26,308; and the Growth Fund -- $69,733. Such fees reflect the voluntary fee
reductions made by the Adviser with respect to each of the Funds.
CUSTODIAN
National City Bank, 1900 East 9th Street, Cleveland, Ohio 44114 serves
as custodian (the "Custodian") to the Funds pursuant to the Custodial Services
Agreement dated as of March 1, 1995. 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 Services serves as transfer agent and dividend disbursing agent
(the "Transfer Agent") for all of the Funds pursuant to the Transfer Agency
Agreement dated September 1, 1992,
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as amended as of May 1, 1994. 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 Group's shareholders of record; processing shareholder purchase and
redemption orders; processing transfers and exchanges of shares of the Group 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 three fiscal years ended
June 30, 1997, 1996 and 1995, the Transfer Agent received the following fees
from the Group for services as transfer agent for the Funds:
Fiscal Years Ended June 30,
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
Fees Fees Fees
Received Received Received
-------- -------- --------
<S> <C> <C> <C>
Money Market Fund $28,413 $30,704 $24,708
Value Fund 44,781 39,661 36,068
Fixed Income
Fund 22,665 23,980 23,115
Tennessee Fund 23,580 21,959 21,103
Growth Fund 27,836 23,662 20,339
</TABLE>
In addition, BISYS Services provides certain fund accounting services
to the Funds pursuant to a Fund Accounting Agreement dated as of November 1,
1997. BISYS Services receives a fee from each Fund for such services as
described above under "Administrator." Under such Agreement, BISYS Services
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
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<PAGE> 104
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.
For the fiscal years ended June 30, 1997, 1996 and 1995, BISYS Services
received the fees indicated below with respect to its fund accounting services
to the indicated Funds:
<TABLE>
<CAPTION>
Fiscal Years Ended June 30,
FUND 1997 1996 1995
- ---- ---- ---- ----
<S> <C> <C> <C>
Money Market Fund $42,510 $45,640 $47,114
Value Fund 31,306 31,181 30,902
Fixed Income
Fund 31,777 34,256 35,829
Tennessee Fund 47,917 49,248 48,522
Growth Fund 31,709 31,461 30,695
</TABLE>
AUDITORS
The financial statements of each of the Funds as of June 30, 1997, and
for periods indicated therein, appearing in this Statement of Additional
Information have been audited by KPMG Peat Marwick LLP, Two Nationwide Plaza,
Columbus, Ohio 43215, as set forth in their report appearing elsewhere herein,
and are included in reliance upon such report and on the authority of such firm
as experts in auditing and accounting.
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 unlimited number of shares, which are shares of
beneficial interest, without par value. The Group presently has sixteen series
of shares, one of which represents interests in the Money Market Fund, one of
which represents interests in the Value Fund, one of which represents interests
in the Fixed Income Fund, one of which represents interests in the Tennessee
Fund and one of which
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represents interests in the Growth Fund. The other eleven series are The
KeyPremier Prime Obligations Money Market Fund, The KeyPremier Pennsylvania
Municipal Bond Fund, The KeyPremier Established Growth Fund, The KeyPremier
Intermediate Term Income Fund, The KeyPremier Aggressive Growth Fund, The
KeyPremier U.S. Treasury Obligations Money Market Fund, The KeyPremier Limited
Duration Government Securities 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. 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 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 election of Trustees may be effectively acted upon by
shareholders of the Group voting without regard to series.
As of October 16, 1997, the Adviser, either directly or through the
Capital Markets Group, owned of record and beneficially 60.05% and 47.02%,
respectively, of the outstanding Shares of the Money Market Fund; 90.88% and
90.88%, respectively, of the outstanding Shares of the Value Fund; 92.14% and
92.14%,
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<PAGE> 106
respectively, of the outstanding Shares of the Fixed Income Fund; 80.10% and
80.10%, respectively, of the outstanding Shares of the Tennessee Fund; and
94.12% and 94.12%, respectively, of the outstanding Shares of the Growth Fund.
Therefore, as of such date the Adviser may be presumed to control each of the
Funds, and as a result of such control, the Adviser may have the power to
approve the Investment Advisory Agreement for each of the Funds and to control
any other matters submitted to the Shareholders of the Funds.
As of October 16, 1997, Northern Trust Company, FBO Metropolitan
Employee Benefit Board, P.O. Box 92956, Chicago, Illinois 60675, owned
beneficially 34.89% of the outstanding Shares of the Money Market Fund; Mary
Walker, 2724 Lombardy, Memphis, Tennessee 38111, owned beneficially 6.32% of the
outstanding Shares of the Tennessee Fund; and National Financial Services Corp.
For the Benefit of Our Clients, Church Street Station, P.O. Box 3908, New York,
New York 10008-3908, owned of record 9.42% of the Tennessee Fund. To the
knowledge of the Group, there are no other beneficial owners of 5% or more of
the outstanding Shares of any of the Funds as of such date.
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:
diversify its investments within certain prescribed limits; 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; and, in taxable years
beginning on or before August 5, 1997, derive less than 30% of its gross income
from the sale or other disposition of stock, securities, options,
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<PAGE> 107
future contracts or foreign currencies held less than three months. 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 mid-term or 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 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 mid-term or long-term
capital gain over net short-term capital loss is taxable to Shareholders as
mid-term or long-term capital gain, respectively, 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.
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<PAGE> 108
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.
Long-term capital gains of individuals are subject to a maximum tax
rate of 20% (or 10% for individuals in the 15% ordinary income tax bracket).
Mid-term capital gains of individuals are subject to tax at the same rates
applicable to ordinary income; however, the tax rate on mid-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. The holding period for mid-term capital gains is
more than one year but not more than eighteen months; the holding period for
long-term capital gains is more than eighteen months.
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. 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.
Foreign taxes may be imposed on a Fund by foreign countries with
respect to its income from foreign securities. 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
B-56
<PAGE> 109
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.
TAX CONSIDERATIONS RELATIVE TO CERTAIN DERIVATIVES.It is anticipated
that any net gain realized from the closing out of futures contracts will be
considered gain from the sale of securities and therefore be qualifying income
for purposes of the 90% requirement. In order to avoid realizing excessive gains
on securities held less than three months, the Fund may be required to defer the
closing out of futures contracts beyond the time when it would otherwise be
advantageous to do so. It is anticipated that unrealized gains on futures
contracts, which have been open for less than three months as of the end of the
Fund's fiscal year and which are recognized for tax purposes, will not be
considered gains on securities held less than three months for the purpose of
the 30% test.
The 30% limit on gains from the disposition of certain options,
futures, forward contracts, and swap contracts held less than three months, and
the qualifying income and diversification requirements applicable to a Fund's
assets, may limit the extent to which a Fund will be able to engage in these
transactions.
Some of the options, futures contracts, forward contracts, and swap
contracts entered into by the Funds may be "Section 1256 contracts." Section
1256 contracts held by a Fund at the end of its taxable year (and, for purposes
of the 4% excise tax, on certain other dates as prescribed under the Code) are
"marked to market" with unrealized gains or losses treated as though they were
realized. Any gains or losses, including "marked to market" gains or losses, on
Section 1256 contracts other than forward contracts are generally 60% long-term
and 40% short-term capital gains or losses ("60/40") although all foreign
currency gains and losses from such contracts may be treated as ordinary in
character absent a special election.
Generally, hedging transactions and certain other transactions in
options, futures, forward contracts and swap contracts undertaken by a Fund, may
result in "straddles" for U.S. federal income tax purposes. The straddle rules
may affect the character of gain or loss realized by a Fund. In addition, losses
realized by a Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which such losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences of transactions in options, futures, forward
contracts, and swap agreements to a Fund are not entirely clear. The
transactions may increase the amount of short-term capital gain realized by a
Fund.
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<PAGE> 110
Short-term capital gain is taxed as ordinary income when distributed to
shareholders.
A Fund may make one or more of the elections available under the Code
which are applicable to straddles. If a Fund makes any of the elections, the
amount, character, and timing of the recognition of gains or losses from the
affected positions will be determined under rules that vary according to the
elections made. The rules applicable under certain of the elections operate to
accelerate the recognition of gains or losses from the affected straddle
positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a Fund that did not engage in such hedging transactions.
THE TENNESSEE FUND. The Tennessee 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 Tennessee 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 Tennessee Fund's
dividends being tax-exempt and such dividends would be ultimately taxable to the
beneficiaries when distributed to them. In addition, the Tennessee 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 Tennessee 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 Tennessee Fund that is derived from
interest received by the Tennessee 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 Tennessee Fund's
taxable year. The percentage of the total dividends paid by the
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<PAGE> 111
Tennessee Fund during any taxable year that qualifies as exempt- interest
dividends will be the same for all Shareholders of the Tennessee Fund receiving
dividends during such year. Exempt- interest dividends shall be treated by the
Tennessee 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 Tennessee 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 Tennessee Fund distributes exempt-interest dividends during the
Shareholder's taxable year. A Shareholder of the Tennessee Fund that is a
financial institution may not deduct interest expense attributable to
indebtedness incurred or continued to purchase or carry Shares of the Tennessee
Fund if the Tennessee 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 Tennessee 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 Tennessee Fund.
In the event the Tennessee Fund realizes mid-term or long-term capital
gains, such Fund intends to distribute any realized net mid-term or long-term
capital gains annually. If the Tennessee 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 mid-term or long-term capital gains,
respectively, 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 Tennessee Fund to the Shareholders not later than
sixty days after the close of the Tennessee Fund's taxable year. It should be
noted, however, that long-term capital gains of individuals are subject to a
maximum tax rate of 20% (10% for individuals in the 15% ordinary income tax
bracket) and mid-term capital gains of individuals are taxed like ordinary
income except that net mid-term capital gains of individuals are subject to a
maximum federal income tax rate of
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<PAGE> 112
28%. 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.
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. It is likely that
exempt-interest dividends received by Shareholders from the Tennessee Fund will
also be treated as tax preference items in computing the alternative minimum tax
to the extent that distributions by the Tennessee 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 Tennessee
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 Tennessee 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 Tennessee 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 Tennessee 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 Tennessee Fund during the preceding year. Shareholders
are advised to consult their tax advisers concerning the application of state
and local taxes.
As indicated in the Prospectus, the Tennessee Fund may acquire
rights regarding specified portfolio securities under puts. See
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<PAGE> 113
"INVESTMENT OBJECTIVES AND POLICIES -- Additional Information on Portfolio
Instruments - Puts" in this Statement of Additional Information. The policy of
the Tennessee 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 Tennessee Fund could acquire under the 1940 Act.
Therefore, although the Tennessee 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.
Although the Tennessee Fund expects to qualify as a "regulated
investment company" and to be relieved of all or substantially all Federal
income taxes, depending upon the extent of its activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located, or in which it is otherwise deemed to be
conducting business, the Tennessee Fund may be subject to the tax laws of such
states or localities. In addition, if for any taxable year the Tennessee 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.
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. 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 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 Prospectus and this Statement of
Additional Information which relates to Federal taxation is only a summary of
some of the important Federal tax considerations
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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
For the seven-day period ended June 30, 1997, the Money Market Fund's
seven-day yield and seven-day effective yield were 4.28% and 4.37%,
respectively. For the 30-day period ended June 30, 1997, the yield and effective
yield for the Money Market Fund were 4.27% and 4.35%, respectively. 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-62
<PAGE> 115
YIELDS OF THE OTHER FUNDS
As summarized in the Prospectus under the heading "PERFORMANCE
INFORMATION," yields of the Funds 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 of each of
these Funds 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 Tennessee 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.
For the 30-day period ended June 30, 1997, the yields for the Fixed
Income Fund and the Tennessee Fund were 5.95% and 4.76%, respectively, assuming
the imposition of the maximum sales charge, and 6.14% and 4.91%, respectively,
excluding the effect of a sales charge. If the fee waivers and/or expense
reimbursements described above and in the Prospectus had not been in place, the
yields for the Fixed Income Fund and the Tennessee Fund, assuming the imposition
of the maximum sales charge, would have been 5.74% and 3.97%, respectively, and
5.92% and 4.10%, respectively, excluding the effect of a sales charge. For the
same period, the tax equivalent yields for the Tennessee Fund, assuming a 39.6%
federal tax rate, were 7.88%, assuming the imposition of the maximum sales
charge, and 8.13%, excluding the effect of a sales charge, and without the fee
waivers and/or expense reimbursements, such tax equivalent yields would have
been 6.57% and 6.77%, respectively.
B-63
<PAGE> 116
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 (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. 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 and five year periods ended June 30, 1997, and the
respective periods from commencement of operations to June 30, 1997, the average
annual returns with the maximum sales charge and without the maximum sales
charges for the Funds were as follows:
<TABLE>
<CAPTION>
WITH MAXIMUM WITHOUT MAXIMUM
SALES CHARGE SALES CHARGE
SINCE SINCE
FUND 1 YEAR 5 YEAR INCEPTION 1 YEAR 5 YEAR INCEPTION
---- ------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Money Market Fund(1) 4.44% 3.89% 5.44% 4.44% 3.89% 5.44%
Value Fund(2) 18.05% 13.77% 14.32% 23.66% 14.82% 15.25%
Fixed Income Fund(2) 2.39% 3.06% 3.85% 5.55% 3.69% 4.41%
Tennessee Fund(3) 4.17% -- 4.43% 7.38% -- 6.12%
Growth Fund(4) 23.97% -- 20.52% 29.81% -- 22.25%
<FN>
- ----------------------------
(1) Commenced operations July 25, 1988.
(2) Commenced operations October 31, 1991.
(3) Commenced operations November 4, 1992.
(4) Commenced operations April 15, 1994.
</TABLE>
B-64
<PAGE> 117
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. For the fiscal year ended June 30,
1997, the distribution rates, including the maximum sales load and capital
gains; the distribution rates, excluding the effect of capital gains but
including a sales load; and the distribution rates, excluding the effect of both
capital gains and a sales load, for the Value Fund, the Fixed Income Fund, the
Tennessee Fund, and the Growth Fund, respectively, were as follows:
<TABLE>
<CAPTION>
EXCLUDING CAPITAL
INCLUDING MAXIMUM GAINS BUT EXCLUDING BOTH
SALES LOAD AND INCLUDING MAXIMUM CAPITAL GAINS AND
FUND CAPITAL GAINS SALES LOAD MAXIMUM SALES LOAD
<S> <C> <C> <C>
Value Fund 13.28% 0.59% 0.61%
Fixed Income Fund 6.29% 6.29% 6.49%
Tennessee Fund 4.99% 4.99% 5.14%
Growth Fund 3.18% 0.88% 0.92%
</TABLE>
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 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
B-65
<PAGE> 118
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 Tennessee 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 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.
B-66
<PAGE> 119
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-67
<PAGE> 120
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Effective January 2, 1998, the names of the Riverside Capital Money
Market Fund, the Riverside Capital Value Equity Fund, the Riverside Capital
Fixed Income Fund, the Riverside Capital Tennessee Municipal Obligations Fund
and the Riverside Capital Growth Fund changed to the First Market Money Market
Fund, the First Market Value Equity Fund, the First Market Fixed Income Fund,
the First Market Tennessee Municipal Obligations Fund and the First Market
Growth Fund, respectively. Effective November __, 1997, the Riverside Capital
Low Duration Government Securities Fund's operations and affairs were wound
down, and such Fund was liquidated.
B-68
<PAGE> 121
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Trustees
The Sessions Group--
The Riverside Capital Funds:
We have audited the accompanying statements of assets and liabilities of The
Sessions Group--The Riverside Capital Funds (comprised of the Riverside
Capital Money Market Fund, Riverside Capital Value Equity Fund, Riverside
Capital Growth Fund, Riverside Capital Fixed Income Fund, Riverside Capital
Low Duration Government Securities Fund and Riverside Capital Tennessee
Municipal Obligations Fund, collectively the Funds), including the schedules
of portfolio investments as of June 30, 1997, and the related statements of
operations, statements of changes in net assets and the financial highlights
for each of the periods indicated herein. These financial statements and the
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included verification of securities
owned as of June 30, 1997 by confirmation with the custodian and other
appropriate audit procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the aforementioned funds comprising The Sessions Group--The Riverside
Capital Funds at June 30, 1997, and the results of their operations, the
changes in their net assets and the financial highlights for each of the
periods indicated herein, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Columbus, Ohio
August 22, 1997
B-69
<PAGE> 122
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1997
<TABLE>
<CAPTION>
MONEY VALUE
MARKET EQUITY GROWTH
FUND FUND FUND
------------ ----------- -----------
<S> <C> <C> <C>
ASSETS:
Investments, at value (cost
$137,756,527; $57,793,710; and
$24,543,367, respectively).......... $137,756,527 $78,030,312 $37,369,819
Repurchase agreements (cost
$1,488,296; $1,456,177; and $0, re-
spectively)......................... 1,488,296 1,456,177 --
------------ ----------- -----------
Total investments.................... 139,244,823 79,486,489 37,369,819
Cash................................. 611 1,900 320
Interest and dividends receivable.... 1,513,902 150,604 70,344
Prepaid expenses..................... 3,117 30 801
------------ ----------- -----------
Total Assets....................... 140,762,453 79,639,023 37,441,284
------------ ----------- -----------
LIABILITIES:
Dividends payable.................... 491,130 -- --
Accrued expenses and other payables:
Investment advisory fees........... 4,035 5,942 1,075
Administration fees................ 3,065 1,745 614
Administrative services fees....... 19,505 7,557 4,318
12b-1 fees......................... 13,823 11,178 4,520
Custodian fees..................... 3,013 2,737 2,653
Accounting fees.................... 616 380 373
Trustees' fees..................... -- 1,270 --
Legal fees......................... 7,606 10,308 5,528
Audit fees......................... 26,722 16,257 6,912
Printing fees...................... 15,785 7,027 3,058
Transfer agent fees................ -- 7,321 2,946
Registration and filing fees....... 2,789 1,104 --
Other.............................. 16 1,815 3,873
------------ ----------- -----------
Total Liabilities.................. 588,105 74,641 35,870
------------ ----------- -----------
NET ASSETS:
Capital.............................. 140,217,042 53,750,542 23,198,904
Undistributed net investment income.. 1,035 68,203 9,950
Net unrealized appreciation on in-
vestments........................... -- 20,236,602 12,826,452
Accumulated undistributed net
realized gains (losses) on
investment transactions............. (43,729) 5,509,035 1,370,108
------------ ----------- -----------
Net Assets......................... $140,174,348 $79,564,382 $37,405,414
============ =========== ===========
Outstanding units of beneficial in-
terest (shares)..................... 140,207,056 5,123,020 2,136,152
============ =========== ===========
Net asset value--redemption price per
share............................... $ 1.00 $ 15.53 $ 17.51
============ =========== ===========
Maximum Sales Charge................. 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) $ 16.26 $ 18.34
============ =========== ===========
</TABLE>
- ------
(a) Offering price and redemption price are the same for the Money Market Fund.
See notes to financial statements.
B-70
<PAGE> 123
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1997
<TABLE>
<CAPTION>
LOW DURATION TENNESSEE
GOVERNMENT MUNICIPAL
FIXED INCOME SECURITIES OBLIGATIONS
FUND FUND FUND
------------ ------------ -----------
<S> <C> <C> <C>
ASSETS:
Investments, at value (cost $18,051,043;
$6,814,208; and $16,930,150, respec-
tively)................................ $18,148,196 $6,860,099 $17,403,966
Interest and dividends receivable....... 295,217 111,784 403,412
Receivable from brokers for investments
sold................................... -- -- 563,640
Unamortized organization costs.......... -- -- 3,133
Prepaid expenses........................ 3,609 193 959
----------- ---------- -----------
Total Assets.......................... 18,447,022 6,972,076 18,375,110
----------- ---------- -----------
LIABILITIES:
Cash overdraft.......................... 199,161 -- --
Payable for capital shares redeemed..... 252 -- --
Accrued expenses and other payables:
Investment advisory fees.............. 976 -- 75
Administration fees................... 400 114 402
Administrative services fees.......... 3,375 1,391 1,266
12b-1 fees............................ 1,034 266 3,165
Custodian fees........................ 329 8,618 438
Accounting fees....................... 697 474 1,429
Legal fees............................ 1,770 7,201 6,533
Audit fees............................ 5,477 2,783 3,829
Transfer agent fees................... 1,937 1,461 3,067
Printing fees......................... 2,771 1,809 2,034
Registration and filing fees.......... 1,281 861 90
Other................................. 783 2,106 422
----------- ---------- -----------
Total Liabilities..................... 220,243 27,084 22,750
----------- ---------- -----------
NET ASSETS:
Capital................................. 24,704,152 6,933,266 18,944,032
Undistributed net investment income..... 35,281 14,939 41,771
Net unrealized appreciation on invest-
ments.................................. 97,153 45,891 473,816
Accumulated undistributed net realized
losses on investment transactions...... (6,609,807) (49,104) (1,107,259)
----------- ---------- -----------
Net Assets............................ $18,226,779 $6,944,992 $18,352,360
=========== ========== ===========
Outstanding units of beneficial interest
(shares)............................... 2,099,019 694,680 1,843,918
=========== ========== ===========
Net asset value--redemption price per
share.................................. $ 8.68 $ 10.00 $ 9.95
=========== ========== ===========
Maximum Sales Charge.................... 3.00% 2.00% 3.00%
=========== ========== ===========
Maximum Offering Price (100%/(100%--Max-
imum Sales Charge) of net asset value
adjusted to nearest cent) per share.... $ 8.95 $ 10.20 $ 10.26
=========== ========== ===========
</TABLE>
See notes to financial statements.
B-71
<PAGE> 124
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
MONEY VALUE
MARKET EQUITY GROWTH
FUND FUND FUND
---------- ----------- ----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income......................... $7,473,132 $ 25,268 $ 5,539
Dividend income......................... -- 1,671,207 707,799
---------- ----------- ----------
Total Income............................ 7,473,132 1,696,475 713,338
---------- ----------- ----------
EXPENSES:
Investment advisory fees................ 480,718 694,259 332,857
Administration fees..................... 274,696 151,803 66,572
Administrative services fees............ 343,051 189,753 83,214
12b-1 fees.............................. 343,051 189,753 83,214
Custodian fees.......................... 35,910 15,139 6,767
Accounting fees......................... 42,510 31,306 31,709
Legal fees.............................. 91,131 14,387 4,367
Audit fees.............................. 30,377 18,414 7,505
Trustees' fees and expenses............. 16,040 9,064 3,265
Transfer agent fees..................... 28,413 44,781 27,836
Interest expense........................ 34,819 -- --
Registration and filing fees............ 7,229 7,066 1,989
Printing costs.......................... 33,841 15,612 8,078
Other................................... 17,458 8,787 5,871
---------- ----------- ----------
Total Expenses.......................... 1,779,244 1,390,124 663,244
Less: Fee waivers....................... (287,792) (159,393) (302,900)
---------- ----------- ----------
Net Expenses............................ 1,491,452 1,230,731 360,344
---------- ----------- ----------
Net Investment Income................... 5,981,680 465,744 352,994
---------- ----------- ----------
REALIZED/UNREALIZED GAINS (LOSSES) ON
INVESTMENTS:
Net realized gains (losses) on
investment transactions............ (4,905) 8,840,538 1,370,108
Change in unrealized appreciation on
investments........................ -- 6,722,105 7,020,864
---------- ----------- ----------
Net realized/unrealized gains (losses)
on investments.......................... (4,905) 15,562,643 8,390,972
---------- ----------- ----------
Change in net assets resulting from
operations.............................. $5,976,775 $16,028,387 $8,743,966
========== =========== ==========
</TABLE>
See notes to financial statements.
B-72
<PAGE> 125
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
LOW DURATION TENNESSEE
FIXED GOVERNMENT MUNICIPAL
INCOME SECURITIES OBLIGATIONS
FUND FUND FUND
----------- ------------ -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income........................ $ 1,877,178 $472,604 $1,195,725
Dividend income........................ 27,571 8,356 9,855
----------- -------- ----------
Total Income........................... 1,904,749 480,960 1,205,580
----------- -------- ----------
EXPENSES:
Investment advisory fees............... 156,128 35,860 122,007
Administration fees.................... 48,039 14,344 37,541
Administrative services fees........... 60,049 17,930 46,926
12b-1 fees............................. 60,049 17,930 46,926
Custodian fees......................... 8,157 2,030 10,067
Accounting fees........................ 31,777 31,418 47,917
Legal fees............................. 1,833 812 928
Audit fees............................. 6,273 3,281 4,374
Organization costs..................... -- -- 8,819
Trustees' fees and expenses............ 2,061 559 1,634
Transfer agent fees.................... 22,665 20,566 23,580
Registration and filing fees........... 3,110 1,540 1,627
Printing costs......................... 4,544 542 3,622
Other.................................. 3,377 1,961 1,882
----------- -------- ----------
Total Expenses......................... 408,062 148,773 357,850
Less: Fee waivers...................... (50,442) (54,508) (152,040)
----------- -------- ----------
Net Expenses........................... 357,620 94,265 205,810
----------- -------- ----------
Net Investment Income.................. 1,547,129 386,695 999,770
----------- -------- ----------
REALIZED/UNREALIZED GAINS (LOSSES) ON
INVESTMENTS:
Net realized gains (losses) on
investment transactions................ (434,866) (12,845) 101,371
Change in unrealized
appreciation/depreciation on
investments....................... (2,855,544) 54,148 231,707
----------- -------- ----------
Net realized/unrealized gains (losses)
on investments......................... (3,290,410) 41,303 333,078
----------- -------- ----------
Change in net assets resulting from
operations............................. $(1,743,281) $427,998 $1,332,848
=========== ======== ==========
</TABLE>
See notes to financial statements.
B-73
<PAGE> 126
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MONEY MARKET FUND VALUE EQUITY FUND GROWTH FUND
---------------------------- -------------------------- ------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1996 1997 1996 1997 1996
------------- ------------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES:
OPERATIONS:
Net investment income... $ 5,981,680 $ 6,961,437 $ 465,744 $ 837,145 $ 352,994 $ 389,143
Net realized gains
(losses) on
investments
transactions.......... (4,905) 141,785 8,840,538 9,340,011 1,370,108 1,167,209
Net change in unrealized
appreciation/depreciation
on investments........ -- -- 6,722,105 5,384,702 7,020,864 3,513,955
------------- ------------- ------------ ------------ ----------- -----------
Change in net assets
resulting from
operations............ 5,976,775 7,103,222 16,028,387 15,561,858 8,743,966 5,070,307
------------- ------------- ------------ ------------ ----------- -----------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income................ (5,981,680) (6,961,437) (504,356) (827,973) (354,568) (389,143)
In excess of net
investment income..... -- -- -- -- -- (19,825)
From net realized gains
on investments........ -- -- (10,634,101) (2,982,043) (934,819) (505,659)
In excess of net
realized gains on
investments........... -- -- -- -- -- --
------------- ------------- ------------ ------------ ----------- -----------
Change in net assets
from shareholder
distributions......... (5,981,680) (6,961,437) (11,138,457) (3,810,016) (1,289,387) (914,627)
------------- ------------- ------------ ------------ ----------- -----------
CAPITAL TRANSACTIONS:
Proceeds from shares
issued................ 364,918,577 426,124,612 4,195,632 5,108,660 2,745,588 10,696,082
Dividends reinvested.... 336,522 512,232 5,098,769 1,808,516 568,918 383,839
Cost of shares redeemed. (359,396,813) (450,674,926) (15,675,083) (17,877,680) (7,131,040) (2,953,582)
------------- ------------- ------------ ------------ ----------- -----------
Change in net assets
from
capital transactions.. 5,858,286 (24,038,082) (6,380,682) (10,960,504) (3,816,534) (8,126,339)
------------- ------------- ------------ ------------ ----------- -----------
Capital contributions... 175,344 138,311 -- -- -- --
------------- ------------- ------------ ------------ ----------- -----------
Change in net assets.... 6,028,725 (23,757,986) (1,490,752) 791,338 3,638,045 12,282,019
NET ASSETS:
Beginning of period..... 134,145,623 157,903,609 81,055,134 80,263,796 33,767,369 21,485,350
------------- ------------- ------------ ------------ ----------- -----------
End of period........... $ 140,174,348 $ 134,145,623 $ 79,564,382 $ 81,055,134 $37,405,414 $33,767,369
============= ============= ============ ============ =========== ===========
SHARE TRANSACTIONS:
Issued.................. 364,918,578 426,124,613 290,948 373,123 182,434 832,694
Reinvested.............. 336,522 512,232 370,120 133,595 38,111 29,644
Redeemed................ (359,396,813) (450,674,926) (1,111,533) (1,209,025) (493,776) (222,427)
------------- ------------- ------------ ------------ ----------- -----------
Change in shares........ 5,858,287 (24,038,081) (450,465) (783,307) (273,231) 639,911
============= ============= ============ ============ =========== ===========
</TABLE>
See notes to financial statements.
B-74
<PAGE> 127
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
LOW DURATION
GOVERNMENT TENNESSEE MUNICIPAL
FIXED INCOME FUND SECURITIES FUND OBLIGATIONS FUND
-------------------------- ----------------------- ------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1996 1997 1996 1997 1996
------------ ------------ ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES:
OPERATIONS:
Net investment income... $ 1,547,129 $ 2,177,545 $ 386,695 $ 399,991 $ 999,770 $ 1,080,311
Net realized gains
(losses) on
investments
transactions.......... (434,866) (1,646,585) (12,845) (1,813) 101,371 (37,429)
Net change in unrealized
appreciation/depreciation
on investments........ (2,855,544) 29,430 54,148 (149,458) 231,707 (106,825)
------------ ------------ ---------- ----------- ----------- -----------
Change in net assets
resulting from
operations............ (1,743,281) 560,390 427,998 248,720 1,332,848 936,057
------------ ------------ ---------- ----------- ----------- -----------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income................ (1,546,955) (2,163,561) (389,508) (399,991) (974,115) (1,077,559)
In excess of net
investment income..... -- -- -- (3,182) -- --
In excess of net
realized gains on
investments........... -- (104,990) -- (2,537) -- (906)
------------ ------------ ---------- ----------- ----------- -----------
Change in net assets
from shareholder
distributions......... (1,546,955) (2,268,551) (389,508) (405,710) (974,115) (1,078,465)
------------ ------------ ---------- ----------- ----------- -----------
CAPITAL TRANSACTIONS:
Proceeds from shares
issued................ 789,954 2,751,575 110,306 688,187 893,164 3,937,416
Dividends reinvested.... 725,558 971,603 313,527 339,394 298,374 294,830
Cost of shares redeemed. (11,930,394) (12,664,268) (978,322) (1,062,808) (2,234,999) (5,879,537)
------------ ------------ ---------- ----------- ----------- -----------
Change in net assets
from
capital transactions.. (10,414,882) (8,941,090) (554,489) (35,227) (1,043,461) (1,647,291)
------------ ------------ ---------- ----------- ----------- -----------
Capital contribution.... 3,084,688 -- -- -- -- --
------------ ------------ ---------- ----------- ----------- -----------
Change in net assets.... (10,620,430) (10,649,251) (515,999) (192,217) (684,728) (1,789,699)
NET ASSETS:
Beginning of period..... 28,847,209 39,496,460 7,460,991 7,653,208 19,037,088 20,826,787
------------ ------------ ---------- ----------- ----------- -----------
End of period........... $ 18,226,779 $ 28,847,209 $6,944,992 $ 7,460,991 $18,352,360 $19,037,088
============ ============ ========== =========== =========== ===========
SHARE TRANSACTIONS:
Issued.................. 90,153 300,179 11,000 67,717 90,725 402,934
Reinvested.............. 82,987 106,183 31,418 33,512 30,318 30,243
Redeemed................ (1,364,087) (1,377,873) (97,847) (105,303) (226,674) (600,866)
------------ ------------ ---------- ----------- ----------- -----------
Change in shares........ (1,190,947) (971,511) (55,429) (4,074) (105,631) (167,689)
============ ============ ========== =========== =========== ===========
</TABLE>
See notes to financial statements.
B-75
<PAGE> 128
THE SESSIONS GROUP
RIVERSIDE CAPITAL MONEY MARKET FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
----------- ---------------------------------------------------- ------------
<C> <S> <C>
U.S. GOVERNMENT AGENCIES (98.3%):
Federal Farm Credit Bank (11.1%):
$15,500,000 5.46%, 9/1/98*...................................... $ 15,500,000
------------
Federal Home Loan Bank (12.1%):
3,000,000 5.25%, 8/14/97*..................................... 2,999,737
5,000,000 5.77%, 11/5/97...................................... 5,000,000
2,000,000 5.88%, 2/26/98...................................... 2,000,000
2,000,000 5.70%, 3/4/98....................................... 2,000,000
5,000,000 5.89%, 3/30/98...................................... 5,000,000
------------
16,999,737
------------
Federal National Mortgage Assoc. (14.6%):
3,000,000 5.25%, 7/28/97**.................................... 2,999,327
5,000,000 5.44%, 9/2/97**..................................... 4,999,267
10,000,000 5.53%, 12/3/97*..................................... 9,997,898
2,500,000 5.25%, 7/14/99*..................................... 2,492,002
------------
20,488,494
------------
Student Loan Marketing Assoc. (60.5%):
10,000,000 5.24%, 10/14/97**................................... 9,997,925
500,000 5.42%, 10/30/97**................................... 500,151
4,830,000 5.24%, 11/24/97*.................................... 4,827,330
5,000,000 5.65%, 3/17/98...................................... 5,000,000
8,000,000 5.26%, 8/20/98**.................................... 7,994,641
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
----------- --------------------------------------------------- ------------
<C> <S> <C>
U.S. GOVERNMENT AGENCIES, CONTINUED:
Student Loan Marketing Assoc., continued:
$ 2,000,000 5.26%, 9/28/98**................................... $ 1,998,532
5,000,000 5.31%, 11/6/98*.................................... 5,000,000
20,000,000 5.26%, 11/10/98**.................................. 19,987,702
5,000,000 5.28%, 2/8/99**.................................... 4,992,537
7,000,000 5.27%, 2/22/99*.................................... 6,990,017
3,500,000 5.25%, 7/12/99*.................................... 3,489,730
14,000,000 5.29%, 8/2/99*..................................... 13,989,731
------------
84,768,296
------------
Total U.S. Government Agencies 137,756,527
------------
REPURCHASE AGREEMENTS (1.1%):
1,488,296 Zions Securities, 5.75%, 7/1/97, (Collateralized by
$1,510,000 U.S. Treasury Notes, 6.25%, 5/31/99,
Market Value = $1,513,775)........................ 1,488,296
------------
Total Repurchase Agreements 1,488,296
------------
Total (Amortized Cost--
$139,244,823)(a) $139,244,823
============
</TABLE>
- ------
Percentages indicated are based on net assets of $140,174,348.
(a)Cost for federal income tax and financial reporting purposes are the same.
* Floating Rate Certificates are securities with interest rates that change
whenever a specific interest rate changes. The interest rate is based on an
index of market interest rates or other index. The rate reflected on the
Schedule of Portfolio Investments is the rate in effect on June 30, 1997.
** Variable Rate Certificates are securities with interest rates that change
periodically and are payable on different dates ranging from daily, weekly,
monthly, quarterly, or semi-annually. The rate reflected on the Schedule of
Portfolio Investments is the rate in effect on June 30, 1997.
See notes to financial statements.
B-76
<PAGE> 129
THE SESSIONS GROUP
RIVERSIDE CAPITAL VALUE EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
------- --------------------------------------------------------- -----------
<C> <S> <C>
COMMON STOCKS (96.9%):
Automotive Parts (3.5%):
76,650 Echlin, Inc.............................................. $ 2,759,400
-----------
Computers & Peripherals (5.6%):
188,650 Amdahl Corp. (b)......................................... 1,650,688
30,900 International Business
Machines Corp........................................... 2,786,793
-----------
4,437,481
-----------
Containers--Metal, Glass, Paper, Plastic (3.5%):
94,050 Rubbermaid, Inc.......................................... 2,797,988
-----------
Electrical Equipment (3.4%):
51,835 Thomas & Betts Corp...................................... 2,724,577
-----------
Entertainment (3.6%):
100,000 Hasbro, Inc.............................................. 2,837,500
-----------
Financial Services (2.0%):
33,200 SunAmerica, Inc.......................................... 1,618,500
-----------
Food Processing & Packaging (6.1%):
144,100 J&J Snack Foods Corp. (b)................................ 2,215,538
105,800 McCormick & Company, Inc................................. 2,671,450
-----------
4,886,988
-----------
Insurance (13.6%):
100,652 PXRE Corp................................................ 3,095,049
66,133 Travelers Group, Inc..................................... 4,170,511
83,200 UNUM Corp................................................ 3,494,400
-----------
10,759,960
-----------
Manufactured Housing (1.3%):
42,600 Skyline Corp............................................. 1,049,025
-----------
Medical Services (3.4%):
133,700 Value Health, Inc. (b)................................... 2,707,425
-----------
Metal & Mineral Production (2.3%):
44,900 Cleveland Cliffs, Inc.................................... 1,829,675
-----------
Oil & Gas (8.3%):
121,000 Pride International Inc. (b)............................. 2,904,000
101,180 Valero Energy Corp....................................... 3,667,775
-----------
6,571,775
-----------
</TABLE>
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
------- --------------------------------------------------------- -----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Oilfield Equipment & Services (2.7%):
40,750 BJ Services Co.(b)....................................... $ 2,185,219
-----------
Pollution Control Services & Equipment (3.2%):
148,700 Safety-Kleen Corp........................................ 2,509,313
-----------
Real Estate Investment Trusts (8.5%):
177,500 Equity Inns, Inc......................................... 2,374,063
67,700 Mid-America Apartment Communities, Inc................... 1,899,831
65,710 Storage USA, Inc......................................... 2,513,407
-----------
6,787,301
-----------
Restaurants (2.8%):
241,750 Darden Restaurants, Inc.................................. 2,190,859
-----------
Retail (4.5%):
259,100 Hancock Fabrics, Inc..................................... 3,562,625
-----------
Savings & Loan Companies (3.0%):
55,350 H. F. Ahmanson & Co...................................... 2,380,050
-----------
Steel (3.1%):
160,000 Birmingham Steel Corp.................................... 2,480,000
-----------
Technology (3.3%):
130,000 Global Industries Technology, Inc. (b)................... 2,665,000
-----------
Telecommunications (3.3%):
77,000 Century Telephone Enterprise............................. 2,593,938
-----------
Tobacco & Tobacco Products (2.2%):
64,500 UST, Inc................................................. 1,789,875
-----------
Trucking (3.7%):
150,650 Werner Enterprises, Inc.................................. 2,918,844
-----------
Total Common Stocks 77,043,318
-----------
INVESTMENT COMPANIES (1.2%):
1 Dreyfus Treasury Prime Fund.............................. 1
986,993 Riverside Capital Money Market Fund...................... 986,993
-----------
Total Investment Companies 986,994
-----------
</TABLE>
Continued
B-77
<PAGE> 130
THE SESSIONS GROUP
RIVERSIDE CAPITAL VALUE EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JUNE 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- ---------------------------------------------------- -----------
<C> <S> <C>
REPURCHASE AGREEMENTS (1.8%):
$1,456,177 Zions Securities, 5.75%, 7/1/97, (Collateralized by
$1,480,000 U.S. Treasury Notes, 6.25%, 5/31/99,
Market Value = $1,483,700)......................... $ 1,456,177
-----------
Total Repurchase Agreements 1,456,177
-----------
Total (Cost--$59,249,887)(a) $79,486,489
===========
</TABLE>
- ------
Percentages indicated are based on net assets of $79,564,382.
(a) Represents cost for federal income tax and financial reporting purposes and
differs from value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation...................................... $22,299,584
Unrealized depreciation...................................... (2,062,982)
-----------
Net unrealized appreciation.................................. $20,236,602
===========
</TABLE>
(b)Represents non-income producing securities.
See notes to financial statements.
B-78
<PAGE> 131
THE SESSIONS GROUP
RIVERSIDE CAPITAL GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
--------- -------------------------------------------------------- -----------
<C> <S> <C>
COMMON STOCKS (94.7%):
Amusement & Recreation (2.1%):
18,000 Cedar Fair L.P.......................................... $ 787,500
-----------
Automotive Parts (1.9%):
30,000 AutoZone Inc. (b)....................................... 706,875
-----------
Banking (7.1%):
19,000 NationsBank Corp........................................ 1,225,500
34,200 SouthTrust Corp......................................... 1,415,024
-----------
2,640,524
-----------
Beverages (3.5%):
18,800 Coca-Cola Co............................................ 1,311,300
-----------
Computers (1.0%):
40,000 Checkmate Electronics,
Inc. (b)............................................... 360,000
-----------
Computers & Peripherals (2.2%):
15,000 Hewlett Packard Co...................................... 840,000
-----------
Construction (2.7%):
69,695 Clayton Homes, Inc...................................... 993,154
-----------
Electrical Component (3.3%):
60,000 World Access, Inc. (b).................................. 1,230,000
-----------
Electrical Equipment (4.2%):
24,000 General Electric Co..................................... 1,569,000
-----------
Electronic & Electrical (2.3%):
21,000 AMP, Inc................................................ 876,750
-----------
Food Processing & Packaging (5.1%):
25,000 Nabisco Holdings Corp................................... 996,875
22,000 Sara Lee Corp........................................... 915,750
-----------
1,912,625
-----------
Furniture (2.2%):
41,500 Heilig Myers Co......................................... 814,438
-----------
Household Products/Wares (2.6%):
7,000 Procter & Gamble Co..................................... 988,750
-----------
Insurance (3.8%):
9,500 American International Group, Inc....................... 1,419,063
-----------
Measuring & Controlling Devices (1.8%):
20,100 Thermo Electron Corp. (b)............................... 683,400
-----------
Motels & Hotels (1.5%):
37,100 Winston Hotels, Inc..................................... 558,819
-----------
</TABLE>
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
--------- -------------------------------------------------------- -----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Office Equipment & Supplies (1.6%):
8,400 Pitney Bowes, Inc....................................... $ 598,500
-----------
Oil--Integrated Companies (5.3%):
14,800 Atlantic Richfield Co................................... 1,043,400
8,500 Texaco, Inc. ........................................... 924,375
-----------
1,967,775
-----------
Pharmaceuticals (6.5%):
17,500 Abbott Laboratories..................................... 1,168,125
26,200 Schering-Plough Corp.................................... 1,254,325
-----------
2,422,450
-----------
Real Estate Investment Trusts (5.3%):
44,000 Merry Land & Investment Co., Inc........................ 954,250
27,300 Storage USA, Inc........................................ 1,044,225
-----------
1,998,475
-----------
Restaurants (2.6%):
37,000 Cracker Barrel Old Country
Store, Inc............................................. 980,500
-----------
Retail (8.1%):
31,200 Claire's Stores, Inc.................................... 546,000
21,700 Home Depot, Inc......................................... 1,495,943
29,000 Wal-Mart Stores, Inc.................................... 980,562
-----------
3,022,505
-----------
Semiconductors (3.6%):
9,400 Intel Corp.............................................. 1,333,038
-----------
Telecommunications (3.1%):
15,500 Motorola, Inc........................................... 1,178,000
-----------
Tobacco (4.7%):
39,600 Philip Morris Cos., Inc................................. 1,757,250
-----------
Toys & Bicycles--Manufacturing (3.2%):
35,675 Mattel, Inc............................................. 1,208,491
-----------
Utilities--Telecommunications (3.4%):
33,000 MCI Telecommunications Corp............................. 1,263,281
-----------
Total Common Stocks 35,422,463
-----------
</TABLE>
Continued
B-79
<PAGE> 132
THE SESSIONS GROUP
RIVERSIDE CAPITAL GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JUNE 30, 1997
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
--------- -------------------------------------------------------- -----------
<C> <S> <C>
INVESTMENT COMPANIES (5.2%):
1,103,675 Dreyfus Treasury Prime Fund............................. $ 1,103,675
843,681 Riverside Capital Money
Market Fund............................................ 843,681
-----------
Total Investment Companies 1,947,356
-----------
Total (Cost--$24,543,367)(a) $37,369,819
===========
</TABLE>
- ------
Percentages indicated are based on net assets of $37,405,414.
(a) Represents cost for federal income tax and financial reporting purposes and
differs from value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation...................................... $13,092,101
Unrealized depreciation...................................... (265,649)
-----------
Net unrealized appreciation.................................. $12,826,452
===========
</TABLE>
(b) Represents non-income producing securities.
See notes to financial statements.
B-80
<PAGE> 133
THE SESSION GROUP
RIVERSIDE CAPITAL FIXED INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------- ----------
<C> <S> <C>
CORPORATE BONDS (15.0%):
Industrial Goods & Services (8.8%):
1,600,000 Voyager Lines Private Placement, 9.50%, 11/1/99 (b),
secured by Bank of New York letter of credit,
see note 5 (c)........................................ $1,600,000
Transportation & Shipping (6.2%):
1,125,000 Ray & Ross Transport, Inc., 10.00%, 2/1/06 secured by
Bank of New York letter of credit, see note 5 (c)..... 1,125,000
----------
Total Corporate Bonds 2,725,000
----------
TAXABLE MUNICIPAL BONDS (24.0%):
Arkansas (7.0%):
1,300,000 Union County Arkansas Revenue, Hillsboro Manor Project,
9.50%, 9/1/17......................................... 1,269,125
----------
Illinois (0.6%):
111,718 Belleville, St. Clair County, CMO, 7.35%, 11/15/09..... 114,667
----------
Oklahoma (5.6%):
1,000,000 Oklahoma County Financial Authority, 8.05%, 10/1/09.... 1,023,870
----------
Tennessee (4.1%):
745,000 Hamilton County, Tennessee Industrial Development
Board, Multifamily Housing Revenue, Waterford
Apartments, Project A, 8.50%, 8/1/10.................. 740,560
----------
West Virginia (6.7%):
260,000 Summers County, West Virginia First Mortgage Gross
Revenue Refunding, Limited Partnership, 8.00%,
10/1/03............................................... 255,954
</TABLE>
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------ -----------
<C> <S> <C>
TAXABLE MUNICIPAL BONDS, CONTINUED:
West Virginia, continued:
980,000 West Virginia State Hospital Financial Authority,
Hospital Revenue, Nellas Income Project, 9.50%,
8/1/15............................................... $ 970,269
-----------
1,226,223
-----------
Total Taxable Municipal Bonds 4,374,445
-----------
U.S. TREASURY BONDS (0.3%):
49,000 9.13%, 5/15/09........................................ 55,708
-----------
Total U.S. Treasury Bonds 55,708
-----------
U.S. TREASURY NOTES (16.5%):
3,000,000 6.38%, 4/30/99........................................ 3,015,720
-----------
Total U.S. Treasury Notes 3,015,720
-----------
U.S. GOVERNMENT AGENCIES (43.8%):
Federal Home Loan Bank (12.4%):
2,230,000 7.25%, 5/14/04........................................ 2,260,908
-----------
Federal Home Loan Mortgage Corp. (14.6%):
2,580,000 8.06%, 8/9/11, Callable 8/9/99 @ 100.................. 2,667,694
-----------
Federal National Mortgage Assoc. (16.8%):
1,000,000 7.30%, 5/13/04, Callable 5/13/99 @ 100................ 1,001,590
2,000,000 8.08%, 7/14/06, Callable 7/17/98 @ 100................ 2,046,120
-----------
3,047,710
-----------
Total U.S. Government Agencies 7,976,312
-----------
</TABLE>
Continued
B-81
<PAGE> 134
THE SESSION GROUP
RIVERSIDE CAPITAL FIXED INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------- -----------
<C> <S> <C>
INVESTMENT COMPANIES (0.0%):
1 Dreyfus Treasury Prime Fund............................ $ 1
1,010 Riverside Capital Money Market Fund.................... 1,010
-----------
Total Investment Companies 1,011
-----------
Total (Cost--$18,051,043)(a) $18,148,196
===========
</TABLE>
- ------
Percentages indicated are based on net assets of $18,226,779.
(a) Represents cost for federal income tax and financial reporting purposes
and differs from value by net unrealized appreciation of securities as
follows:
<TABLE>
<S> <C>
Unrealized appreciation......................................... $115,978
Unrealized depreciation......................................... (18,825)
--------
Net unrealized appreciation..................................... $ 97,153
========
</TABLE>
(b) Represents a restricted security, purchased under Rule 144A, which is
exempt from registration under the Securities Act of 1933, as amended.
(c) Absent the letter of credit the management of the Fund has deemed these
fixed income securities to have no value based on the Fund's established
securities valuation procedures.
CMO--Collateralized Mortgage Obligations
See notes to financial statements.
B-82
<PAGE> 135
THE SESSION GROUP
RIVERSIDE CAPITAL LOW DURATION GOVERNMENT SECURITIES FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- ------------------------------------------------------- ----------
<C> <S> <C>
U.S. GOVERNMENT AGENCIES (94.6%):
Federal Home Loan Bank (20.1%):
$ 700,000 3.83%, 7/15/98*........................................ $ 682,465
700,000 7.38%, 4/17/02......................................... 710,843
----------
1,393,308
----------
Federal Home Loan Mortgage Corp. (8.6%):
600,000 6.75%, 11/27/01........................................ 599,910
----------
Federal National Mortgage Assoc. (28.6%):
1,000,000 7.00%, 2/6/02.......................................... 1,000,360
1,000,000 6.83%, 3/10/06......................................... 985,090
----------
1,985,450
----------
Shipco 668 Series A-Title XI (3.9%):
273,000 8.50%, 5/11/02**....................................... 269,479
----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- ------------------------------------------------------- ----------
<C> <S> <C>
U.S. Treasury Notes (33.4%):
$2,300,000 6.63%, 3/31/02......................................... $2,320,562
----------
Total U.S. Government Agencies 6,568,709
----------
INVESTMENT COMPANIES (4.2%):
8 Dreyfus Treasury Prime Fund............................ 8
291,382 Riverside Capital Money Market Fund.................... 291,382
----------
Total Investment Companies 291,390
----------
Total (Cost--$6,814,208)(a) $6,860,099
==========
</TABLE>
- ------
Percentages indicated are based on net assets of $6,944,992.
(a) Represents cost for federal income tax and financial reporting purposes
and differs from value by net unrealized appreciation of securities as
follows:
<TABLE>
<S> <C>
Unrealized appreciation.......................................... $54,872
Unrealized depreciation.......................................... (8,981)
-------
Net unrealized appreciation...................................... $45,891
=======
</TABLE>
* Variable Rate Certificates are securities with interest rates that change
periodically and are payable on different dates ranging from daily, weekly,
monthly, quarterly, or semi-annually. The rate reflected on the Schedule of
Portfolio Investments is the rate in effect on June 30, 1997.
** This security is guaranteed by U.S. Government Agency collateral.
See notes to financial statements.
B-83
<PAGE> 136
THE SESSIONS GROUP
RIVERSIDE CAPITAL TENNESSEE MUNICIPAL OBLIGATIONS FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- ----------------------------------------------------- -----------
<C> <S> <C>
MUNICIPAL BONDS (75.0%):
Georgia (2.3%):
$ 400,000 Atlanta, Georgia Housing Development Corp., Mortgage
Revenue, 7.00%, 12/1/20, Callable 12/1/05 @ 102..... $ 427,432
-----------
Kentucky (0.6%):
100,000 Pike County Public Corp., 6.00%, 9/1/18, Callable
3/1/07 @ 102........................................ 102,653
-----------
Louisianna (4.5%):
750,000 New Orleans, Louisiana Audubon Park Revenue, 8.00%,
4/1/12.............................................. 822,615
-----------
Pennsylvania (1.4%):
250,000 Schuylkill County, Pennsylvania Industrial
Development Authority Revenue, Beverly Enterprises
Project, 6.63%, 5/1/03.............................. 253,998
-----------
Puerto Rico (1.4%):
250,000 Puerto Rico CommonWealth GO, 6.00%, 7/1/14........... 259,460
-----------
Tennessee (64.1%):
5,000 Blount County, Tennessee Health & Educational
Facilities Board Revenue, Multifamily Mortgage,
Maryville Towers Project, 6.20%, 7/20/28, GNMA...... 5,111
100,000 Bruceton, Tennessee Water & Sewer Development, GO,
6.70%, 3/1/13....................................... 105,276
105,000 Bruceton, Tennessee Water & Sewer Development, GO,
6.70%, 3/1/14....................................... 110,361
115,000 Bruceton, Tennessee Water & Sewer Development, GO,
6.75%, 3/1/15....................................... 121,057
125,000 Bruceton, Tennessee Water & Sewer Development, GO,
6.75%, 3/1/16....................................... 131,301
500,000 Hamilton County, Tennessee Industrial Development
Board Revenue, Multifamily Housing, Park at 58
Project, 6.70%, 3/1/21, Callable 3/1/06 @ 101....... 516,090
250,000 Hamilton County, Tennessee Industrial Development
Board Revenue, Multifamily Housing, Patten Towers,
6.38%, 8/1/26, Callable 8/1/05 @ 102................ 253,415
890,000 Hamilton County, Tennessee Industrial Development
Board Revenue, Multifamily Housing, Waterford Place
Apartments Project, Series B, 6.60%, 2/1/24, FGIC... 895,580
850,000 Hardeman County Correctional Facility, 7.00%, 8/1/04. 874,735
300,000 Jackson, Tennessee Health, Educational & Housing,
Posthouse Apartments, 7.00%, 5/1/17................. 316,182
350,000 Knoxville, Tennessee Community Development Corp.,
Clinton Towers Housing Revenue, Multifamily, 6.60%,
10/15/07............................................ 365,362
250,000 Knoxville, Tennessee Community Development Corp.,
Clinton Towers Housing Revenue, Multifamily, 6.65%,
10/15/10............................................ 259,603
115,000 Manchester, Tennessee Water & Sewer Revenue, Series
1992, GO, 6.00%, 7/1/06, AMBAC...................... 119,155
900,000 Maury County Industrial Development Board, PCR,
6.50%, 9/1/24, Callable 9/1/04 @ 102................ 959,913
245,000 Memphis, Tennessee Health, Educational, & Housing
Facilities Board, Mortgage Revenue, Edgewater
Terrace Project, 7.38%, 1/20/27, FHA, LOC: First
Alabama Birmingham.................................. 261,322
</TABLE>
Continued
B-84
<PAGE> 137
THE SESSIONS GROUP
RIVERSIDE CAPITAL TENNESSEE MUNICIPAL OBLIGATIONS FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- ----------------------------------------------------- -----------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Tennessee, continued:
$ 250,000 Memphis, Tennessee Health, Educational, & Housing
Facilities Board, Multifamily Refunding, River Trace
II, 6.45%, 4/1/26................................... $ 260,210
340,000 Memphis, Tennessee Referendum GO, 5.60%, 8/1/10...... 348,551
250,000 Metropolitan Government, Nashville & Davidson County,
Tennessee Health & Educational Facilities Board
Revenue, 1st Mortgage, Blakeford Project, 7.50%,
7/1/99.............................................. 252,525
45,000 Metropolitan Government, Nashville & Davidson County,
Tennessee Water & Sewer Revenue, 7.00%, 1/1/14...... 45,561
150,000 Morristown, Tennessee Housing Development Corp.,
Multifamily Revenue, 6.25%, 5/1/18.................. 155,561
130,000 Poplar Grove, Tennesse Utility District, Waterworks
Revenue Refunding & Improvement, 6.05%, 4/1/05...... 138,724
250,000 Shelby County, Tennessee Health, Educational &
Housing Facilities Board Revenue, Beverly
Enterprises Project, 6.50%, 3/1/09.................. 253,470
725,000 Shelby County, Tennessee Health, Educational &
Housing Facilities Board Revenue, Heritage Place
Project, 7.13%, 7/1/25, MBIA, FHA................... 807,940
125,000 Shelby County, Tennessee Health, Educational &
Housing Facilities Board Revenue, Industrial
Development, 1st Healthcare Project, 6.50%, 4/1/02.. 125,850
1,150,000 Shelby County, Tennessee Health, Educational &
Housing Facilities Board Revenue, Multifamily
Housing, Windsor Apartments, 6.75%, 10/1/17......... 1,201,358
500,000 Shelby County, Tennessee Health, Educational &
Housing Facilities Board Revenue, Trezevant Manor
Project, 6.00%, 8/1/16.............................. 491,885
500,000 Shelby County, Tennessee, 6.00%, 4/15/24............. 501,595
300,000 Shelby County, Tennessee, 6.63%, 7/1/17, Callable
12/1/06 @ 102....................................... 307,344
500,000 Shelby County, Tennessee, 6.75%, 1/1/28, Callable
12/1/06 @ 102....................................... 513,580
500,000 South Fulton, Tennessee Industrial Development
Revenue, 6.35%, 10/1/15, Callable 10/1/05 @102...... 518,745
310,000 South Fulton, Tennessee Industrial Revenue Authority,
6.00%, 10/1/10, Callable 10/1/05 @102............... 319,542
235,000 Tennessee Housing Development, 5.90%, 7/1/18......... 236,936
-----------
11,773,840
-----------
West Virginia (0.7%):
125,000 Summers County, West Virginia, First Mortgage Gross
Revenue Refunding, 7.25%, 10/1/09................... 128,885
-----------
Total Municipal Bonds 13,768,883
-----------
INVESTMENT COMPANIES (2.0%):
372,984 Dreyfus Municipal Cash Management Plus............... 372,984
-----------
Total Investment Companies 372,984
-----------
</TABLE>
Continued
B-85
<PAGE> 138
THE SESSIONS GROUP
RIVERSIDE CAPITAL TENNESSEE MUNICIPAL OBLIGATIONS FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JUNE 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- ----------------------------------------------------- -----------
<C> <S> <C>
ALTERNATIVE MINIMUM TAX PAPER (17.8%):
Oklahoma (1.7%):
$ 300,000 Oklahoma Development Finance Authority Revenue, First
Mortgage, Bake Rite Income Project, 8.38%, 8/1/11... $ 306,384
-----------
Tennessee (16.1%):
920,000 Loudon County, Tennessee Industrial Development
Board, Solid Waste Disposal Revenue, Kimberly-Clark
Corp. Project, 6.20%, 2/1/23........................ 947,554
100,000 Memphis Shelby County, Tennessee Airport Revenue,
8.13%, 2/15/12, MBIA................................ 104,200
145,000 Tennessee Housing Development Agency Mortgage, Series
A, 6.90%, 7/1/25.................................... 152,637
500,000 Tennessee Housing Development Agency Mortgage, Series
C, 6.10%, 7/1/15.................................... 510,885
740,000 Tennessee Housing Development Agency, 7.05%, 7/1/20.. 783,024
440,000 Tennessee Housing Development, 6.45%, 7/1/21......... 457,415
-----------
2,955,715
-----------
Total Alternative Minimum Tax Paper 3,262,099
-----------
Total (Cost--$16,930,150)(a) $17,403,966
===========
</TABLE>
- --------
Percentages indicated are based on net assets of $18,352,360.
(a) Represents cost for federal income tax and financial reporting purposes
and differs from value by net unrealized appreciation of securities as
follows:
<TABLE>
<S> <C>
Unrealized appreciation......................................... $489,617
Unrealized depreciation......................................... (15,801)
--------
Net unrealized appreciation..................................... $473,816
========
</TABLE>
AMBAC--Insured by American Municipal Bond Assurance Corp.
FGIC--Insured by Financial Guaranty Insurance Corp.
FHA--Insured by Federal Housing Administration
GNMA--Insured by Government National Mortgage Assoc.
GO--General Obligation
LOC--Letter of Credit
MBIA--Insured by Municipal Bond Insurance Assoc.
PCR--Pollution Control Revenue
See notes to financial statements.
B-86
<PAGE> 139
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
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.
Between the date of organization and the dates of commencement of operations
of the Riverside Capital Money Market Fund, the Riverside Capital Value
Equity Fund, the Riverside Capital Growth Fund, the Riverside Capital Fixed
Income Fund, the Riverside Capital Low Duration Government Securities Fund
and the Riverside Capital Tennessee Municipal Obligations Fund
(individually, a "Fund" and collectively, the "Funds"), each a series of the
Group, the Funds earned no investment income and had no operations other
than incurring organizational expenses and the sale of initial units of
beneficial interest ("shares") of the Funds.
The investment objective of the Money Market Fund is to seek current income
with liquidity and stability of principal. The investment objective of the
Value Equity Fund is to seek growth of capital by investing primarily in a
diversified portfolio of common stocks and securities convertible into
common stocks. The investment objective of the Growth Fund is to seek growth
of capital by investing primarily in a diversified portfolio of common
stocks and securities convertible into common stocks. The investment
objective of the Fixed Income Fund is to seek current income as well as
preservation of capital by investing in a portfolio of high grade fixed
income securities. The investment objective of the Low Duration Government
Securities Fund is to seek current income consistent with preservation of
capital. The investment objectives of the Tennessee Municipal Obligations
Fund are to seek (1) income which is exempt from federal income tax and
Tennessee state income tax, and (2) preservation of capital.
The Group is authorized to issue an unlimited number of shares without par
value. Sales of shares of the Funds may be made to customers of National
Bank of Commerce ("NBC") and its affiliates, to all accounts of
correspondent banks of NBC and to the general public. NBC 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 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.
Investments in common and preferred stocks of the Value Equity Fund, the
Growth Fund, the Fixed Income Fund, the Low Duration Government Securities
Fund, and the Tennessee Municipal Obligations 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) in which such securities are normally traded. Investments in
corporate bonds, municipal securities
Continued
B-87
<PAGE> 140
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1997
and U.S. Government securities of the variable net asset value funds are
valued at their market values determined on the basis of the mean of the
latest bid and asked quotations in the principal market (closing sales
prices if the principal market is an exchange) in which such securities are
normally traded. The variable net asset value funds may also use an
independent pricing service approved by the Board of Trustees to value
certain other securities. Such prices reflect market values which may be
established through the use of electronic and matrix techniques. 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 NBC 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.
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. The
Funds did not have significant holdings in reverse repurchase agreements
during the fiscal year.
DERIVATIVES:
A derivative is defined as a financial instrument whose value is derived
from the performance of underlying assets, interest rates 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 variable net asset value funds
may invest in structured debt obligations for the purpose of mitigating
interest rate risk in that fund. Such structured debt obligations may 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 unanticipated movements in the value of the
Continued
B-88
<PAGE> 141
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1997
security or the underlying assets or indices. It is possible that the Funds
may incur a loss as a result of their investments in derivative instruments.
It is each 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 that Funds investment
restrictions. The Funds did not have significant holdings in derivative
investments during the fiscal year, as described above.
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 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 variable net asset value funds.
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. The following
reclassification has been made to the components of net assets of the Money
Market Fund and Fixed Income Fund as of June 30, 1997, to more clearly
reflect the differences between financial statement amounts available for
distribution and the amounts available for distribution to comply with
income tax regulations: a decrease in capital and a corresponding decrease
in accumulated undistributed net realized losses on investment transactions
in the amount of $175,344 and $150,000, respectively.
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 two years commencing with the
date of the initial public offering (five years for the Tennessee Municipal
Obligations Fund).
3. PURCHASES AND SALES OF SECURITIES:
Purchases and sales of securities (excluding short-term securities) for the
year ended June 30, 1997 are as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- -----------
<S> <C> <C>
Value Equity Fund..................................... $ 8,486,414 $26,983,657
Growth Fund........................................... $ 7,537,463 $11,785,774
Fixed Income Fund..................................... $46,649,671 $58,896,701
Low Duration Government Securities Fund............... $ 7,346,080 $ 8,794,449
Tennessee Municipal Obligations Fund.................. $ 7,099,444 $ 9,085,627
</TABLE>
Continued
B-89
<PAGE> 142
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1997
4. RELATED PARTY TRANSACTIONS:
Investment advisory services are provided to the Funds by NBC. Under the
terms of the investment advisory agreement, NBC's fees are computed daily as
a percentage of the average net assets of each Fund. NBC 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, NBC will refund
to the Funds, or otherwise bear, such excess. Such limitation did not affect
the calculation of the investment advisory fees during the year ended June
30, 1997.
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS"),
an Ohio limited partnership, and BISYS Fund Services Ohio, Inc. ("BISYS
Ohio") 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 Ohio 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 NBC, broker dealers and other institutions, or to reimburse BISYS
or its affiliates, for 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 NBC, its correspondent and affiliated banks
and BISYS, for providing ministerial, recordkeeping 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 0.25% of
the average daily net asset value of a Fund.
BISYS is also entitled to receive commissions on sales of shares of the
variable net asset value funds. For the year ended June 30, 1997, BISYS
received $2,486 from commissions earned on sales of shares of the variable
net asset value funds, of which $246 was reallowed to affiliated
broker/dealers.
The Funds may and do invest available cash balances in the Group's Money
Market Fund.
Fees may be voluntarily reduced to assist the Funds in maintaining more
competitive expense ratios.
Continued
B-90
<PAGE> 143
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1997
Information regarding these transactions is as follows for the year ended
June 30, 1997:
<TABLE>
<CAPTION>
MONEY VALUE
MARKET EQUITY GROWTH
FUND FUND FUND
-------- ----------- -----------
<S> <C> <C> <C>
INVESTMENT ADVISORY FEES:
Annual fee before voluntary fee reductions .35% 1.00% of 1.00% of
(percentage of average net assets)....... first first
$50 million $50 million
.75% of .75% of
remaining remaining
Voluntary fee reductions.................. -- -- $216,357
ADMINISTRATION FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets)....... .20% .20% .20%
Voluntary fee reductions.................. -- -- $16,643
12B-1 FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets)....... .25% .25% .25%
Voluntary fee reductions.................. $139,417 $117,986 $56,419
ADMINISTRATIVE SERVICES FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets)....... .25% .25% .25%
Voluntary fee reductions.................. $148,375 $41,407 $13,481
FUND ACCOUNTANT AND TRANSFER AGENT FEES... $70,923 $76,087 $59,545
</TABLE>
<TABLE>
<CAPTION>
LOW DURATION TENNESSEE
FIXED GOVERNMENT MUNICIPAL
INCOME SECURITIES OBLIGATIONS
FUND FUND FUND
------- ------------ -----------
<S> <C> <C> <C>
INVESTMENT ADVISORY FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets).......... .65% .50% .65%
Voluntary fee reductions..................... -- $35,860 $112,622
ADMINISTRATION FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets).......... .20% .20% .20%
Voluntary fee reductions..................... -- $3,586 --
12B-1 FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets).......... .25% .25% .25%
Voluntary fee reductions..................... $47,135 $10,065 $18,800
ADMINISTRATIVE SERVICES FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets).......... .25% .25% .25%
Voluntary fee reductions..................... $3,307 $4,997 $20,618
FUND ACCOUNTANT AND TRANSFER AGENT FEES...... $54,442 $51,984 $71,497
</TABLE>
Continued
B-91
<PAGE> 144
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1997
5. CAPITAL CONTRIBUTIONS
During the year ended June 30, 1995, NBC purchased securities from the Fund
for their carrying value of $14,199,150 plus accrued interest. The market
value of these securities at the date of the sale to NBC was $13,667,783.
During the year ended, June 30, 1997, NBC voluntarily contributed $134,389
of its investment advisory fees and BISYS voluntarily contributed $40,955 of
its administrative fees to the Money Market Fund. During the years ended
June 30, 1996 and June 30, 1995, NBC voluntarily contributed $124,984 and
$97,370, respectively, of its investment advisory fees to the Money Market
Fund. In addition, during the year June 30, 1996 BISYS contributed $13,327
of its administrative fees to the Money Market Fund. The voluntary
contribution of investment advisory and administrative fees, and the
difference between the market value and the carrying value of the securities
on the transaction date are reflected in the accompanying financial
statements as a capital contribution to the Fund.
During the year ended June 30, 1997, NBC voluntarily contributed $150,000 to
reimburse the Fixed Income Fund for a loss realized on the disposition of a
bond issued by Montalbano Builders. In addition, NBC voluntarily established
an Irrevocable Letter of Credit (LOC) with The Bank of New York on June 4,
1997, with the Fixed Income Fund as the beneficiary of the LOC, in order to
support the value of two defaulted fixed income securities issued by Voyager
Lines Private Placement and Ray & Ross Transport. Prior to the Letter of
Credit NBC unconditionally and irrevocably committed to support the value of
these fixed income securities. These fixed income securities are holdings of
the Fixed Income Fund as of June 30, 1997.
The stated amount of the LOC is the lesser of $4,500,000 or the aggregate
amount of the unpaid par value and accrued interest on these defaulted fixed
income securities ($2,934,688 on the date the Letter of Credit was
established June 4, 1997). The Letter of Credit is payable to the Fixed
Income Fund upon certain payment events which include: (1) the issuer of one
or both of these fixed income securities has failed to repay the beneficiary
the par value and accrued interest due under the securities on the original
maturity date of the respective securities or such later date agreed to by
the Fixed Income Fund; (2) the Fixed Income Fund sells one or both of these
fixed income securities; or (3) one or both of these fixed income securities
have been disposed of and the Fixed Income Fund has either not assented to
such disposition or has revoked assent to such disposition.
The stated amount of the LOC exceeded the fair value of these securities by
$2,725,000 on the date the LOC was established. This amount, including
accrued interest and contributed capital for the realized loss on the
Montalbano Security, is accounted for in the accompanying financial
statements as a capital contribution to the Fixed Income Fund.
6. FEDERAL INCOME TAXES:
For federal income tax purposes, the following Funds have capital loss
carryforwards as of June 30, 1997, which are available to offset future
capital gains, if any:
<TABLE>
<CAPTION>
AMOUNT EXPIRES
---------- -------
<S> <C> <C>
Money Market Fund........................................... $ 41,870 2004
Fixed Income Fund........................................... 2,812,097 2003
2,114,706 2004
1,586,579 2005
</TABLE>
Continued
B-92
<PAGE> 145
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JUNE 30, 1997
<TABLE>
<CAPTION>
AMOUNT EXPIRES
------- -------
<S> <C> <C>
Low Duration Government Securities............................. 8,905 2003
23,561 2004
1,840 2005
Tennessee Municipal Obligations Fund........................... 138,752 2003
968,507 2004
</TABLE>
7. ELIGIBLE DISTRIBUTIONS (UNAUDITED):
The Group designates the following eligible distributions for the dividends
received deduction for corporations:
<TABLE>
<CAPTION>
VALUE
EQUITY GROWTH
FUND FUND
---------- --------
<S> <C> <C>
Dividend Income........................................... $1,556,172 $581,028
Dividend Income Per Share................................. $ 0.093 $ 0.131
</TABLE>
8. EXEMPT-INTEREST INCOME DESIGNATIONS (UNAUDITED):
The Sessions Group designates the following exempt-interest income for the
Tennessee Municipal Obligations Fund's taxable year ended June 30, 1997:
<TABLE>
<S> <C>
Exempt-Interest Distributions................................... $973,731
Exempt-Interest Distributions Per Share......................... $ 0.42
</TABLE>
The percentage break-down of the exempt-interest income by state for the
Tennessee Municipal Obligations Fund's taxable year ended June 30, 1997 was
as follows:
<TABLE>
<S> <C>
Alabama.......................................................... 0.26%
Arkansas......................................................... 0.04%
Georgia.......................................................... 2.28%
Kansas........................................................... 0.63%
Kentucky......................................................... 0.18%
Louisiana........................................................ 4.51%
Oklahoma......................................................... 2.10%
Pennsylvania..................................................... 2.48%
Puerto Rico...................................................... 0.81%
South Carolina................................................... 1.19%
Tennessee........................................................ 83.39%
West Virginia.................................................... 1.82%
Wyoming.......................................................... 0.31%
------
100.00%
</TABLE>
For the year ended June 30, 1997, 14.50% of the income earned by the
Tennessee Municipal Obligations may be subject to the alternative minimum
tax.
B-93
<PAGE> 146
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MONEY MARKET FUND
---------------------------------------------------------
YEAR ENDED JUNE 30,
---------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING OF PERIOD......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Investment Activities
Net investment income. 0.044 0.046 0.044 0.026 0.032
Net realized losses... -- -- (0.004) -- --
-------- -------- -------- -------- --------
Total from Invest-
ment
Activities......... 0.044 0.046 0.040 0.026 0.032
-------- -------- -------- -------- --------
Distributions
Net investment income. (0.044) (0.046) (0.044) (0.026) (0.032)
-------- -------- -------- -------- --------
Total Distributions. (0.044) (0.046) (0.044) (0.026) (0.032)
-------- -------- -------- -------- --------
Capital transactions.... -- -- 0.004 -- --
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return............ 4.44%(a) 4.75%(a) 4.44%(a) 2.65% 3.20%
RATIOS/SUPPLEMENTAL DA-
TA:
Net Assets, at end of
period (000)........... $140,174 $134,146 $157,904 $128,001 $141,840
Ratio of expenses to av-
erage net assets....... 1.09% 0.99% 0.97% 0.95% 0.85%
Ratio of net investment
income to average net
assets................. 4.36% 4.65% 4.41% 2.62% 3.17%
Ratio of expenses to av-
erage net assets*...... 1.30% 1.20% 1.18% 1.09% 0.94%
Ratio of net investment
income to average net
assets*................ 4.15% 4.44% 4.20% 2.48% 3.08%
</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) The capital contribution had no impact on the total return for the years
ended June 30, 1995, June 30, 1996, and June 30, 1997.
See notes to financial statements.
B-94
<PAGE> 147
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
VALUE EQUITY FUND
-------------------------------------------
YEAR ENDED JUNE 30,
-------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD........................... $ 14.54 $ 12.63 $ 12.67 $ 11.57 $ 11.04
------- ------- ------- ------- -------
Investment Activities
Net investment income........... 0.09 0.14 0.14 0.07 0.21
Net realized and unrealized
gains on investments........... 3.06 2.40 0.76 1.28 0.96
------- ------- ------- ------- -------
Total from Investment
Activities................... 3.15 2.54 0.90 1.35 1.17
------- ------- ------- ------- -------
Distributions
Net investment income........... (0.10) (0.14) (0.13) (0.06) (0.22)
In excess of net investment
income......................... -- -- -- -- --
Net realized gains.............. (2.06) (0.49) (0.15) (0.19) (0.42)
In excess of net realized gains. -- (0.66) -- --
------- ------- ------- ------- -------
Total Distributions........... (2.16) (0.63) (0.94) (0.25) (0.64)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD.... $ 15.53 $ 14.54 $ 12.63 $ 12.67 $ 11.57
======= ======= ======= ======= =======
Total Return (excludes sales
charges)......................... 23.66% 20.50% 8.03% 11.76% 10.94%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, at end of period
(000)............................ $79,564 $81,055 $80,264 $79,232 $52,629
Ratio of expenses to average net
assets........................... 1.62% 1.58% 1.58% 1.36% 0.73%
Ratio of net investment income to
average
net assets....................... 0.61% 1.01% 1.13% 0.52% 1.84%
Ratio of expenses to average net
assets*.......................... 1.83% 1.79% 1.79% 1.74% 1.69%
Ratio of net investment income to
average
net assets*...................... 0.40% 0.80% 0.92% 0.14% 0.88%
Portfolio turnover................ 11.47% 27.89% 35.64% 62.17% 16.13%
Average commission rate paid (a).. $0.0604 $0.0605 -- -- --
</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) Represents the total dollar amount of commissions paid on portfolio equity
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged. Disclosure of these rates were
not required until fiscal year 1996.
See notes to financial statements.
B-95
<PAGE> 148
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
GROWTH FUND
------------------------------------
APRIL 15,
YEAR ENDED JUNE 30, 1994 TO
------------------------- JUNE 30,
1997 1996 1995 1994 (B)
------- ------- ------- ---------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD... $14.01 $ 12.14 $ 9.82 $10.00
------- ------- ------- ------
Investment Activities
Net investment income................ 0.16 0.18 0.16 --
Net realized and unrealized gains
(losses) on investments............. 3.92 2.13 2.30 (0.18)
------- ------- ------- ------
Total from Investment Activities... 4.08 2.31 2.46 (0.18)
------- ------- ------- ------
Distributions
Net investment income................ (0.16) (0.18) (0.14) --
In excess of net investment income... -- (0.01) -- --
Net realized gains................... (0.42) (0.25) -- --
------- ------- ------- ------
Total Distributions................ (0.58) (0.44) (0.14) --
------- ------- ------- ------
NET ASSET VALUE, END OF PERIOD......... $17.51 $ 14.01 $ 12.14 $ 9.82
======= ======= ======= ======
Total Return (excludes sales charges).. 29.91% 19.35% 25.27% (1.80)%(c)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, at end of period (000)..... $37,405 $33,767 $21,485 $6,345
Ratio of expenses to average net
assets................................ 1.08% 1.05% 1.24% 2.59%(d)
Ratio of net investment income to
average net assets.................... 1.06% 1.37% 1.64% 0.25%(d)
Ratio of expenses to average net
assets*............................... 1.99% 1.97% 2.51% 3.90%(d)
Ratio of net investment income (loss)
to average net assets*................ 0.15% 0.45% 0.37% (1.07)%(d)
Portfolio turnover..................... 24.07% 31.22% 29.36% 0.00%
Average commissions rate paid (a)...... $0.0696 $0.0686 -- --
</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) Represents the total dollar amount of commissions paid on portfolio equity
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged. Disclosure of these rates were
not required until fiscal year 1996.
(b)Period from commencement of operations.
(c)Not annualized.
(d)Annualized.
See notes to financial statements.
B-96
<PAGE> 149
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FIXED INCOME FUND
-----------------------------------------------
YEAR ENDED JUNE 30,
-----------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD....................... $ 8.77 $ 9.27 $ 9.43 $ 10.44 $ 10.26
------- ------- ------- ------- -------
Investment Activities
Net investment income....... 0.57 0.59 0.58 0.57 0.68
Net realized and unrealized
gains (losses) on
investments................ (1.39) (0.48) (0.15) (0.76) 0.27
------- ------- ------- ------- -------
Total from Investment
Activities............... (.82) 0.11 0.43 (0.19) 0.95
------- ------- ------- ------- -------
Distributions
Net investment income....... (0.56) (0.58) (0.58) (0.57) (0.69)
In excess of net investment
income..................... -- -- (0.01) -- --
Net realized gains.......... -- -- -- -- (0.08)
In excess of net realized
gains...................... -- (0.03) -- (0.25) --
------- ------- ------- ------- -------
Total Distributions....... (0.56) (0.61) (0.59) (0.82) (0.77)
------- ------- ------- ------- -------
Capital Transactions.......... $ 1.29 -- -- -- --
------- ------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD....................... $ 8.68 $ 8.77 $ 9.27 $ 9.43 $ 10.44
======= ======= ======= ======= =======
Total Return (excludes sales
charges)..................... 5.55%(a) 1.05% 4.82% (2.20)% 9.64%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, at end of period
(000)........................ $18,227 $28,847 $39,496 $42,309 $35,951
Ratio of expenses to average
net assets................... 1.49% 1.48% 1.43% 1.37% 0.74%
Ratio of net investment income
to average
net assets................... 6.44% 6.32% 6.33% 5.61% 6.65%
Ratio of expenses to average
net assets*.................. 1.70% 1.69% 1.64% 1.70% 1.42%
Ratio of net investment income
to average
net assets*.................. 6.23% 6.11% 6.12% 5.28% 5.97%
Portfolio turnover............ 196.97% 363.84% 223.29% 328.44% 234.71%
</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) The total return for 1997 includes the effect of a capital contribution
from the Investment Advisor. Without the capital contribution the total
return would have been (12.33%).
See notes to financial statements.
B-97
<PAGE> 150
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
LOW DURATION GOVERNMENT
SECURITIES FUND
---------------------------------
APRIL 15,
YEAR ENDED JUNE 30, 1994 TO
---------------------- JUNE 30,
1997 1996 1995 1994 (A)
------ ------ ------ ---------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...... $ 9.95 $10.15 $ 9.93 $10.00
------ ------ ------ ------
Investment Activities
Net investment income................... 0.54 0.53 0.56 0.07
Net realized and unrealized gains
(losses) on investments................ 0.05 (0.20) 0.21 (0.08)
------ ------ ------ ------
Total from Investment Activities...... 0.59 0.33 0.77 (0.01)
------ ------ ------ ------
Distributions
Net investment income................... (0.54) (0.53) (0.55) (0.06)
------ ------ ------ ------
Total Distributions................... (0.54) (0.53) (0.55) (0.06)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD............ $10.00 $ 9.95 $10.15 $ 9.93
====== ====== ====== ======
Total Return (excludes sales charges)..... 6.12% 3.31% 8.03% (0.13)%(c)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, at end of period (000)........ $6,945 $7,461 $7,653 $7,692
Ratio of expenses to average net assets... 1.31% 1.44% 1.33% 2.85%(b)
Ratio of net investment income to average
net assets............................... 5.39% 5.19% 5.67% 3.63%(b)
Ratio of expenses to average net assets*.. 2.07% 2.20% 2.10% 3.67%(b)
Ratio of net investment income to average
net assets*.............................. 4.63% 4.43% 4.89% 2.81%(b)
Portfolio turnover........................ 104.79% 20.87% 34.47% 21.20%
</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) Period from commencement of operations.
(b) Annualized.
(c) Not annualized.
See notes to financial statements.
B-98
<PAGE> 151
THE SESSIONS GROUP
RIVERSIDE CAPITAL FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
TENNESSEE MUNICIPAL OBLIGATIONS FUND
------------------------------------------------
NOVEMBER 4,
YEAR ENDED JUNE 30, 1992 TO
---------------------------------- JUNE 30,
1997 1996 1995 1994 1993 (A)
------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD.................. $ 9.76 $ 9.84 $ 9.81 $ 10.44 $ 10.00
------- ------- ------- ------- -------
Investment Activities
Net investment income..... 0.53 0.53 0.50 0.48 0.30
Net realized and
unrealized gains
(losses) on investments.. 0.17 (0.08) 0.03 (0.57) 0.43
------- ------- ------- ------- -------
Total from Investment
Activities............. 0.70 0.45 0.53 (0.09) 0.73
------- ------- ------- ------- -------
Distributions
Net investment income..... (0.51) (0.53) (0.50) (0.48) (0.29)
In excess of net realized
gains.................... -- -- -- (0.06) --
------- ------- ------- ------- -------
Total Distributions..... (0.51) (0.53) (0.50) (0.54) (0.29)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD..................... $ 9.95 $ 9.76 $ 9.84 $ 9.81 $ 10.44
======= ======= ======= ======= =======
Total Return (excludes sales
charges)................... 7.38% 4.67% 5.61% (1.00)% 7.39%(c)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, at end of period
(000)...................... $18,352 $19,037 $20,827 $19,965 $17,425
Ratio of expenses to average
net assets................. 1.10% 0.98% 1.12% 1.19% 0.82%(b)
Ratio of net investment
income to average
net assets................. 5.33% 5.40% 5.24% 4.67% 4.76%(b)
Ratio of expenses to average
net assets*................ 1.91% 1.83% 1.98% 1.99% 1.62%(b)
Ratio of net investment
income to average
net assets*................ 4.52% 4.55% 4.38% 3.87% 3.96%(b)
Portfolio turnover.......... 38.66% 60.76% 62.59% 86.57% 52.52%
</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) Period from commencement of operations.
(b) Annualized.
(c) Not annualized.
See notes to financial statements.
B-99
<PAGE> 152
APPENDIX
COMMERCIAL PAPER RATINGS. Commercial paper ratings of Standard & Poor's
Ratings Service ("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> 153
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, Inc. ("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> 154
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. 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 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
A-3
<PAGE> 155
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
from 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 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
A-4
<PAGE> 156
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. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
A-5
<PAGE> 157
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 four 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
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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.
The following summarizes the four 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.
"BBB": Debt which has 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
then in higher rated categories.
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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
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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.
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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) First Market Money Market Fund (f/k/a Riverside
Capital Money Market Fund)
Financial Highlights
(ii) First Market Value Equity Fund (f/k/a Riverside
Capital Value Equity Fund)
Financial Highlights
(iii) First Market Fixed Income Fund (f/k/a Riverside
Capital Fixed Income Fund)
Financial Highlights
(iv) First Market Tennessee Municipal Obligations Fund
(f/k/a Riverside Capital Tennessee Municipal
Obligations Fund)
Financial Highlights
(v) First Market Growth Fund (f/k/a Riverside Capital
Growth Fund)
Financial Highlights
(vi) KeyPremier Prime Money Market Fund
Financial Highlights
(vii) KeyPremier Pennsylvania Municipal Bond Fund
Financial Highlights
(x) 1st Source Monogram Diversified Equity Fund
Financial Highlights
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(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) KeyPremier Established Growth Fund
Financial Highlights
(xv) KeyPremier Intermediate Term Income Fund
Financial Highlights
(xvi) KeyPremier Aggressive Growth Fund
Financial Highlights
(xvii) KeyPremier U.S. Treasury Obligations Money Market
Fund
Financial Highlights
(xviii) KeyPremier Limited Duration Government Securities
Fund
Financial Highlights
Included in Part B:
(i) First Market Money Market Fund (f/k/a Riverside
Capital Money Market Fund)
Independent Auditors' Report dated August 22, 1997.
Statements of Assets and Liabilities dated June 30,
1997.
Statements of Operations for the year ended June 30,
1997.
Statements of Changes in Net Assets for the years
ended June 30, 1997 and 1996.
Schedule of Portfolio Investments as of June 30,
1997.
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Notes to Financial Statements.
Financial Highlights for the years ended June 30,
1997, 1996, 1995, 1994 and 1993.
(ii) First Market Value Equity Fund (f/k/a Riverside
Capital Value Equity Fund)
Independent Auditors' Report dated August 22, 1997.
Statements of Assets and Liabilities dated June 30,
1997.
Statements of Operations for the year ended June 30,
1997.
Statements of Changes in Net Assets for the years
ended June 30, 1997 and 1996.
Schedule of Portfolio Investments as of June 30,
1997.
Notes to Financial Statements.
Financial Highlights for the years ended June 30,
1997, 1996, 1995, 1994 and 1993.
(iii) First Market Fixed Income Fund (f/k/a Riverside
Capital Fixed Income Fund)
Independent Auditors' Report dated August 22, 1997.
Statements of Assets and Liabilities dated June 30,
1997.
Statements of Operations for the year ended June 30,
1997.
Statements of Changes in Net Assets for the years
ended June 30, 1997 and 1996.
Schedule of Portfolio Investments as of June 30,
1997.
Notes to Financial Statements.
Financial Highlights for the years ended June 30,
1997, 1996, 1995, 1994 and 1993.
(iv) First Market Tennessee Municipal Obligations Fund
(f/k/a Riverside Capital Tennessee Municipal
Obligations Fund)
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Independent Auditors' Report dated August 22, 1997.
Statements of Assets and Liabilities at June 30,
1997.
Statements of Operations for the year ended June 30,
1997.
Statements of Changes in Net Assets for the years
ended June 30, 1997 and 1996.
Schedule of Portfolio Investments as of June 30,
1997.
Notes to Financial Statements.
Financial Highlights for the years ended June 30,
1997, 1996, 1995 and 1994, and for the period from
commencement of operations (November 4, 1992) to
June 30, 1993.
(v) First Market Growth Fund (f/k/a Riverside Capital
Growth Fund)
Independent Auditor's Report dated August 22, 1997.
Statements of Assets and Liabilities at June 30,
1997.
Statements of Operations for the year ended June 30,
1997.
Statements of Changes in Net Assets for the years
ended June 30, 1997 and 1996.
Schedule of Portfolio Investments as of June 30,
1997.
Notes to Financial Statements.
Financial Highlights for the years ended June 30,
1997, 1996 and 1995, and for the period from
commencement of operations (April 18, 1994) to June
30, 1994.
(vi) KeyPremier Prime Money Market Fund
Independent Auditors' Report dated August 22, 1997.
Statements of Assets and Liabilities at June 30,
1997.
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Statements of Operations for the period ended June
30, 1997.
Statements of Change in Net Assets for the period
ended June 30, 1997.
Schedule of Portfolio Investments as of June 30,
1997.
Notes to Financial Statements.
Financial Highlights for the period from
commencement of operations (October 7, 1996) to June
30, 1997.
(vii) KeyPremier Pennsylvania Municipal Bond Fund
Independent Auditors' Report dated August 22, 1997.
Statements of Assets and Liabilities at June 30,
1997.
Statements of Operations for the period ended June
30, 1997.
Statements of Changes in Net Assets for the period
ended June 30, 1997.
Schedule of Portfolio Investments as of June 30,
1997.
Notes to Financial Statements.
Financial Highlights for the period from
commencement of operations (October 1, 1996) to June
30, 1997.
(viii) 1st Source Monogram Diversified Equity Fund
Independent Auditors' Report dated August 22, 1997.
Statements of Assets and Liabilities at June 30,
1997.
Statements of Operations for the period ended June
30, 1997.
Statements of Changes in Net Assets for the period
ended June 30, 1997.
Schedule of Portfolio Investments as of June 30,
1997.
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Notes to Financial Statements.
Financial Highlights for the period from
commencement of operations (September 20, 1996) to
June 30, 1997.
(ix) 1st Source Monogram Income Equity Fund
Independent Auditors' Report dated August 22, 1997.
Statements of Assets and Liabilities at June 30,
1997.
Statements of Operations for the period ended June
30, 1997.
Statements of Changes in Net Assets for the period
ended June 30, 1997.
Schedule of Portfolio Investments as of June 30,
1997.
Notes to Financial Statements.
Financial Highlights for the period from
commencement of operations (September 24, 1996) to
June 30, 1997.
(x) 1st Source Monogram Special Equity Fund
Independent Auditors' Report dated August 22, 1997.
Statements of Assets and Liabilities at June 30,
1997.
Statements of Operations for the period ended June
30, 1997.
Statements of Changes in Net Assets for the period
ended June 30, 1997.
Schedule of Portfolio Investments as of June 30,
1997.
Notes to Financial Statements.
Financial Highlights for the period from
commencement of operations (September 19, 1996) to
June 30, 1997.
(xi) 1st Source Monogram Income Fund
Independent Auditors' Report dated August 22, 1997.
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Statements of Assets and Liabilities at June 30,
1997.
Statements of Operations for the period ended June
30, 1997.
Statements of Changes in Net Assets for the period
ended June 30, 1997.
Schedule of Portfolio Investments as of June 30,
1997.
Notes to Financial Statements.
Financial Highlights for the period from
commencement of operations (September 23, 1996) to
June 30, 1997.
(xii) KeyPremier Established Growth Fund
Independent Auditors' Report dated August 22, 1997.
Statements of Assets and Liabilities at June 30,
1997.
Statements of Operations for the period ended June
30, 1997.
Statements of Changes in Net Assets for the period
ended June 30, 1997.
Schedule of Portfolio Investments as of June 30,
1997.
Notes to Financial Statements.
Financial Highlights for the period from
commencement of operations (December 2, 1996) to
June 30, 1997.
(xiii) KeyPremier Intermediate Term Income Fund
Independent Auditors' Report dated August 22, 1997.
Statements of Assets and Liabilities at June 30,
1997.
Statements of Operations for the period ended June
30, 1997.
Statements of Changes in Net Assets for the period
ended June 30, 1997.
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Schedule of Portfolio Investments as of June 30,
1997.
Notes to Financial Statements.
Financial Highlights for the period from
commencement of operations (December 2, 1996) to
June 30, 1997.
(xiv) KeyPremier Aggressive Growth Fund
Independent Auditors' Report dated August 22, 1997.
Statements of Assets and Liabilities at June 30,
1997.
Statement of Operations for the period ended June
30, 1997.
Statement of Changes in Net Assets for the period
ended June 30, 1997.
Schedule of Portfolio Investments as of June 30,
1997.
Notes to Financial Statements.
Financial Highlights for the period from
commencement of operations (February 3, 1997) to
June 30, 1997.
(xv) KeyPremier U.S. Treasury Obligations Money Market
Fund
Statement of Assets and Liabilities at September 30,
1997 (unaudited).
Statements of Operations for the period ended
September 30, 1997 (unaudited).
Statements of Changes in Net Assets for the period
ended September 30, 1997 (unaudited).
Schedule of Portfolio Investments as of September
30, 1997 (unaudited).
Notes to Financial Statements as of September 30,
1997 (unaudited).
Financial Highlights for the period from
commencement of operations (July 1, 1997) to
September 30, 1997 (unaudited).
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(xvi) KeyPremier Limited Duration Government Securities
Fund
Statement of Assets and Liabilities at September 30,
1997 (unaudited).
Statements of Operations for the period ended
September 30, 1997 (unaudited).
Statements of Changes in Net Assets for the period
ended September 30, 1997 (unaudited).
Schedule of Portfolio Investments as of September
30, 1997 (unaudited).
Notes to Financial Statements as of September 30,
1997 (unaudited).
Financial Highlights for the period from
commencement of operations (July 1, 1997) to
September 30, 1997 (unaudited).
(xvii) 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
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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.
(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.
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(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, is incorporated by
reference to Exhibit (l)(m) of
Post-Effective Amendment No. 39 to
Registrant's Registration Statement (No.
33-21489) filed on March 18, 1997.
(n) Amendment to Article IV, Section 4.2 of
Declaration of Trust as adopted as of
October 20, 1997.
(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) Proposed Investment Advisory Agreement
dated as of January 1, 1998, between
Registrant and National Bank of Commerce
(with respect to First Market Money Market
Fund, First Market Value Equity Fund, First
Market Fixed Income Fund and First Market
Growth Fund).
(b) Investment Advisory Agreement dated as of
October 27, 1992, as proposed to be amended
as of January 1, 1998, between Registrant
and National Bank of Commerce (with respect
to First Market Tennessee Municipal
Obligations
Fund).
(c) Proposed Sub-Investment Advisory Agreement
dated as of January 1, 1998, between
National Bank of Commerce and Morgan
Stanley Asset Management, Inc. (with
respect to First Market Money Market Fund
and First Market Growth Fund).
(d) Proposed Sub-Investment Advisory Agreement
dated as of January 1, 1998, between
National
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Bank of Commerce and Miller Anderson &
Sherrerd, LLP (with respect to First Market
Value Equity Fund and First Market Fixed
Income Fund).
(e) Investment Advisory Agreement dated July 9,
1996, as amended as of June 30, 1997,
between Registrant and Martindale Andres &
Company, Inc. (with respect to the
KeyPremier Funds) is incorporated by
reference to Exhibit (5)(e) of
Post-Effective Amendment No. 42 to
Registrant's Registration Statement (No.
33- 21489) filed on July 30, 1997.
(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 (with respect to the
First Market
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Funds f/k/a Riverside Capital Funds) is
incorporated by reference to Exhibit (6)(a)
of Post-Effective Amendment No. 43 to
Registrant's Registration Statement (No.
33-21489) filed on October 31, 1997.
(b) Form of Selected Dealer Agreement is
incorporated by reference to Exhibit (6)(b)
of 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 June 30, 1997,
between Registrant and BISYS Fund Services
Limited Partnership (with respect to the
KeyPremier Funds) is incorporated by
reference to Exhibit (6)(c) of
Post-Effective Amendment No. 42 to
Registrant's Registration Statement (No.
33- 21489) filed on July 30, 1997.
(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 (with respect
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
First Market Funds f/k/a the Riverside
Capital Funds) is incorporated by reference
to Exhibit (8)(a) of Post-Effective
Amendment No. 43 to Registrant's
Registration Statement (No. 33-21489) filed
on October 31, 1997.
(b) Custody Agreement dated July 9, 1996, as
amended as of June 30, 1997, between
Registrant and The Bank of New York (with
respect to the KeyPremier Funds) is
incorporated by reference to Exhibit (8)(b)
of Post-Effective Amendment No. 42 to
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Registrant's Registration Statement (No.
33- 21489) filed on July 30, 1997.
(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 June 30, 1997, between
Registrant and The Bank of New York (with
respect to the KeyPremier Funds) is
incorporated by reference to Exhibit (8)(d)
of Post-Effective Amendment No. 42 to
Registrant's Registration Statement (No.
33- 21489) filed on July 30, 1997.
(9) (a) Administration Agreement dated as of
November 1, 1997, between Registrant and
BISYS Fund Services Limited Partnership
(with respect to the First Market Funds
f/k/a the Riverside Capital Funds) is
incorporated by reference to Exhibit (9)(a)
of Post-Effective Amendment No. 43 to
Registrant's Registration Statement (No.
33-21489) filed on October 31, 1997.
(b) Amended Transfer Agency Agreement dated as
of September 1, 1992, as amended as of May
1, 1994, between Registrant and BISYS Fund
Services Ohio, Inc. (with respect to the
First Market Funds f/k/a the Riverside
Capital Funds) is incorporated by reference
to Exhibit (9)(b) of Post-Effective
Amendment No. 43 to Registrant's
Registration Statement (No. 33-21489) filed
on October 31, 1997.
(c) Fund Accounting Agreement dated as of
November 1, 1997, between Registrant and
BISYS Fund Services, Inc. (with respect to
the First Market Funds f/k/a the Riverside
Capital Funds) is incorporated by reference
to Exhibit (9)(c) of Post-Effective
Amendment No. 43 to Registrant's
Registration Statement (No. 33-21489) filed
on October 31, 1997.
(d) Form of Administrative Services Plan is
incorporated by reference to Exhibit (9)(d)
of Post-Effective Amendment No. 43 to
Registrant's Registration Statement (No.
33-21489) filed on October 31, 1997.
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(e) Servicing Agreement to Administrative
Services Plan dated as of October 19, 1993,
between Registrant and National Bank of
Commerce (with respect to the First Market
Money Market Fund, First Market Value
Equity Fund, First Market Fixed Income Fund
and First Market Tennessee Municipal
Obligations Fund, f/k/a Riverside Capital
Money Market Fund, Riverside Capital Equity
Fund, Riverside Capital Fixed Income Fund
and Riverside Capital Tennessee Municipal
Obligations Fund, respectively) is
incorporated by reference to Exhibit (9)(e)
of Post-Effective Amendment No. 43 to
Registrant's Registration Statement (No.
33-21489) filed on October 31, 1997.
(f) Omnibus Fee Agreement dated as of November
1, 1997, among Registrant, BISYS Fund
Services Limited Partnership and BISYS Fund
Services, Inc. (with respect to the First
Market Funds, f/k/a the Riverside Capital
Funds) is incorporated by reference to
Exhibit (9)(f) of Post-Effective Amendment
No. 43 to Registrant's Registration
Statement (No. 33-21489) filed on October
31, 1997.
(g) Servicing Agreement to Administrative
Services Plan dated April 5, 1994, between
Registrant and National Bank of Commerce
(with respect to First Market Growth Fund,
f/k/a Riverside Capital Growth Fund) is
incorporated by reference to Exhibit (9)(g)
of Post-Effective Amendment No. 43 to
Registrant's Registration Statement (No.
33-21489) filed on October 31, 1997.
(x) Management and Administration Agreement
dated July 9, 1996, as amended as of June
30, 1997, between Registrant and BISYS Fund
Services Limited Partnership (with respect
to the KeyPremier Funds) is incorporated by
reference to Exhibit (9)(x) of
Post-Effective Amendment No. 42 to
Registrant's Registration Statement (No.
33-21489) filed on July 30, 1997.
(y) Fund Accounting Agreement dated July 9,
1996, as amended as of June 30, 1997,
between Registrant and BISYS Fund Services,
Inc. (with respect to the KeyPremier Funds)
is incorporated by reference to Exhibit
(9)(y) of Post-Effective Amendment No. 42
to Registrant's Registration Statement (No.
33- 21489) filed on July 30, 1997.
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(z) Transfer Agency Agreement dated July 9,
1996, as amended as of June 30, 1997,
between Registrant and BISYS Fund Services,
Inc. (with respect to the KeyPremier Funds)
is incorporated by reference to Exhibit
(9)(z) of Post-Effective Amendment No. 42
to Registrant's Registration Statement (No.
33- 21489) filed on July 30, 1997.
(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 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 the Riverside Capital Funds registered
pursuant to Rule 24e-2 is incorporated by
reference to Exhibit (10)(a) of
Post-Effective Amendment No. 41 to
Registrant's Registration Statement (No.
33-21489) filed on May 21, 1997. Opinion of
Counsel with respect to shares of
KeyPremier U.S. Treasury Obligations Money
Market Fund and KeyPremier Limited Duration
Government Securities Fund is incorporated
by reference to Exhibit (10)(a) of
Post-Effective Amendment No. 40 to
Registrant's Registration Statement (No.
33-
C-16
<PAGE> 177
21489) filed on April 16, 1997. 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 Growth
Fund, KeyPremier Prime Money Market Fund,
KeyPremier Pennsylvania Municipal Bond
Fund, KeyPremier Aggressive Growth Fund,
KeyPremier Established Growth Fund,
KeyPremier Intermediate Term Income 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
was filed with Registrant's 24f-2 Notice
filed on August 27, 1997, pursuant to Rule
24f-2.
(b) Opinion of Special Counsel with respect to
First Market Tennessee Municipal
Obligations Fund, f/k/a Riverside Capital
Tennessee Municipal Obligations Fund) is
incorporated by reference to Exhibit
(10)(b) of Post-Effective Amendment No. 43
to Registrant's Registration Statement (No.
33-21489) filed on October 31, 1997.
(11) (a) Consent of KPMG Peat Marwick LLP with
respect to the First Market Funds (f/k/a
the Riverside Capital Funds). Consent of
KPMG Peat Marwick LLP (with respect to the
KeyPremier Funds) is incorporated by
reference to Exhibit (11)(a) of
Post-Effective Amendment No. 43 to
Registrant's Registration Statement (No.
33-21489) filed on October 31, 1997.
(b) Consent of Burch, Porter & Johnson PLLC is
incorporated by reference to Exhibit
(11)(b) of Post-Effective Amendment No. 43
to Registrant's Registration Statement (No.
33-21489) filed on October 31, 1997.
(c) Consent of Coopers & Lybrand L.L.P. is
incorporated by reference to Exhibit
(11)(c) of Post-Effective Amendment No. 43
to Registrant's Registration Statement (No.
33-21489) filed on October 31, 1997.
(12) None.
(13) Purchase Agreement dated as of July 19, 1988,
between Registrant and Winsbury Associates is
incorporated by reference to Exhibit (13) of
C-17
<PAGE> 178
Post-Effective Amendment No. 43 to Registrant's
Registration Statement (No. 33-21489) filed on
October 31, 1997.
(14) None.
(15) (a) Rule 12b-1 Plan (with respect to the
Riverside Capital Funds) is incorporated by
reference to Exhibit (15)(a) of
Post-Effective Amendment No. 43 to
Registrant's Registration Statement (No.
33-21489) filed on October 31, 1997.
(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.
(d) 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)(d) of
Post-Effective Amendment No. 43 to
Registrant's Registration Statement (No.
33-21489) filed on October 31, 1997.
(e) Rule 12b-1 Agreement dated October 19,
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)(e) of Post-Effective Amendment
No. 43 to Registrant's Registration
Statement (No. 33-21489) filed on October
31, 1997.
(f) 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)(f) of Post-Effective Amendment
No. 43 to Registrant's Registration
Statement (No. 33-21489) filed on October
31, 1997.
C-18
<PAGE> 179
(g) Rule 12b-1 Agreement dated as of April 5,
1994, between The Winsbury Company Limited
Partnership and Commerce Investment
Corpora- tion (with respect to Riverside
Capital Low Duration Government Securities
Fund and Riverside Capital Growth Fund) is
incorporated by reference to Exhibit
(15)(g) of Post-Effective Amendment No. 43
to Registrant's Registration Statement (No.
33-21489) filed on October 31, 1997.
(h) 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)(h) of
Post-Effective Amendment No. 43 to
Registrant's Registration Statement (No.
33-21489) filed on October 31, 1997.
(i) 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)(i) of Post- Effective Amendment No. 43
to Registrant's Registration Statement (No.
33-21489) filed on October 31, 1997.
(j) 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)(j) of Post- Effective Amendment No. 43
to Registrant's Registration Statement (No.
33-21489) filed on October 31, 1997.
(k) 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)(k) of Post-Effective
Amendment No. 43 to Registrant's
Registration Statement (No. 33-21489) filed
on October 31, 1997.
(l) 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)(l)
C-19
<PAGE> 180
of Post-Effective Amendment No. 43 to
Registrant's Registration Statement (No.
33-21489) filed on October 31, 1997.
(16) (a) Computations of Performance Quotations for
the Riverside Capital Funds are
incorporated by reference to Exhibit
(16)(a) of Post-Effective Amendment No. 43
to Registrant's Registration Statement (No.
33-21489) filed on October 31, 1997.
(b) Computations of Performance Quotations for
the KeyPremier Funds are incorporated by
reference to Exhibit (16)(b) of
Post-Effective Amendment No. 43 to
Registrant's Registration Statement (No.
33-21489) filed on October 31, 1997.
(c) Computations of Performance Quotations for
the 1st Source Monogram Funds are
incorporated by reference to Exhibit
(16)(c) of Post-Effective Amendment No. 43
to Registrant's Registration Statement (No.
33-21489) filed on October 31, 1997.
(17) Financial Data Schedules of the Riverside
Capital Funds. Financial Data Schedules of
the KeyPremier Funds and the 1st Source
Monogram Funds are incorporated by
reference to Exhibit (17) of Post-Effective
Amendment No. 43 to Registrant's
Registration Statement (No. 33-21489) filed
on October 31, 1997.
(18) None.
(19) (a) Powers of Attorney of Chalmers P. Wylie,
Walter B. Grimm and Maurice G. Stark are
incorporated by reference to Exhibit (19)(a)
of Post-Effective Amendment No. 43 to
Registrant's Registration Statement (No.
33-21489) filed on October 31, 1997.
(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
C-20
<PAGE> 181
Registrant's Registration Statement (No.
33-21489) filed on October 21, 1996.
(e) Power of Attorney of Thresa Dewar is
incorporated by reference to Exhibit
(19)(e) of Post-Effective Amendment No. 41
to Registrant's Registration Statement (No.
33- 21489) filed on May 21, 1997.
Item 25. Persons Controlled By or Under Common Control with
Registrant
None.
Item 26. Number of Holders of Securities
As of October 20, 1997, the number of record holders of each
series of shares of the Registrant were as follows:
<TABLE>
<CAPTION>
Title of Series Number of Record Holders
--------------- ------------------------
<S> <C>
Riverside Capital Money
Market Fund 25
Riverside Capital
Value Equity Fund 146
Riverside Capital
Fixed Income Fund 22
Riverside Capital Tennessee Municipal
Obligations Fund 19
Riverside Capital Low Duration
Government Securities Fund 6
Riverside Capital Growth Fund 56
KeyPremier Prime
Money Market Fund 28
KeyPremier Pennsylvania
Municipal Bond Fund 20
1st Source Monogram Diversified
Equity Fund 53
1st Source Monogram Income Equity Fund 42
1st Source Monogram Special Equity Fund 55
1st Source Monogram Income Fund 13
KeyPremier Established Growth Fund 183
KeyPremier Intermediate Term
Income Fund 35
KeyPremier Aggressive Growth Fund 206
KeyPremier U.S. Treasury Obligations
Money Market Fund 11
KeyPremier Limited Duration Government
Securities Fund 9
</TABLE>
C-21
<PAGE> 182
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(e) and 5(f) hereto, Article V of the Administration
Agreement filed as Exhibit 9(a) hereto, Section 4 of the
Management and Administration Agreements filed as Exhibits
9(x) and 9(aa) hereto, Section 9 of the Transfer Agency
Agreements filed as Exhibits 9(b), 9(z) and 9(ac) hereto,
Section 7 of the Fund Accounting Agreement filed as Exhibit
9(c) hereto, and Section 6 of the Fund Accounting Agreements
filed as Exhibits 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
C-22
<PAGE> 183
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, 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 affili-
ates hold and manage, on behalf of their clients, assets
which as of September 30, 1997, totalled $4.6 billion,
and of which approximately $1.6 billion 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.
<TABLE>
<CAPTION>
Position
Name with NBC Principal Occupation
---- -------- --------------------
<S> <C> <C>
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
</TABLE>
C-23
<PAGE> 184
<TABLE>
<S> <C> <C>
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)
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
</TABLE>
C-24
<PAGE> 185
<TABLE>
<S> <C> <C>
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)
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)
</TABLE>
(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
C-25
<PAGE> 186
Established Growth Fund, KeyPremier Intermediate Term Income
Fund, KeyPremier Aggressive Growth Fund, KeyPremier U.S.
Treasury Obligations Money Market Fund and KeyPremier Limited
Duration Government Securities 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 $2.5 billion under management.
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 Diversified
Equity Fund, 1st Source Monogram Income Equity Fund, 1st
Source Monogram Special Equity Fund and 1st Source
Monogram Income 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 September 30, 1997, totalled
approximately $1.47 billion. Of such amount,
approximately $851 million are managed on behalf of
personal trust customers and approximately $616 million
are managed on behalf of employee benefit plans. The
Adviser has over 60 years of banking experience and as of
September 30, 1997, on a consolidated basis with 1st
Source Corporation, had over $2.32 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.
<TABLE>
<CAPTION>
Position
Name with FSB Principal Occupation
- ---- -------- --------------------
<S> <C> <C>
Rev. E. William Beauchamp Director Executive Vice President
University of Notre Dame
</TABLE>
C-26
<PAGE> 187
<TABLE>
<S> <C> <C>
South Bend, IN 46556
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 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
</TABLE>
C-27
<PAGE> 188
<TABLE>
<S> <C> <C>
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)
</TABLE>
C-28
<PAGE> 189
<TABLE>
<S> <C> <C>
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)
</TABLE>
(d) Miller Anderson and Sherrerd LLP, West Conshohocken,
Pennsylvania ("Miller Anderson") is a sub-investment
adviser for 1st Source Monogram Diversified Equity Fund,
the First Market Value Equity Fund and the First Market
Fixed Income Fund. Miller Anderson is wholly owned by
Morgan Stanley, Dean Witter, Discover & Co., 1585
Broadway, New York, New York 10036. In addition to
serving as sub-investment adviser of such Funds, Miller
Anderson provides advice primarily to institutions,
including other investment companies, and currently has
approximately $47.2 billion in assets under management,
of which approximately $5.5 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, Dean Witter,
Discover & Co. or one of its affiliates. Set forth below are
the names and principal businesses of the members of the
Executive Committee of Miller Anderson who are engaged in any
other business, profession, vocation, or employment of a
substantial nature.
<TABLE>
<CAPTION>
Executive Committee Name and Address Nature of
Member of Miller Anderson of Business Connection
- ------------------------- ----------- ----------
<S> <C> <C>
Marna C. Whittington Rohm & Haas Company Director
Independence Mall West
Philadelphia, PA 19105
Federated Department Director
Stores
7 West 7th Street
</TABLE>
C-29
<PAGE> 190
<TABLE>
<S> <C> <C>
Cincinnati, Ohio 45202
Ellen D. Harvey, CFA Owosso Corporation Director
One Tower Bridge
14th Floor
W. Conshohocken, PA 19428
</TABLE>
(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 ("Columbus") 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 Columbus. Columbus 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. Columbus 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
Columbus:
C-30
<PAGE> 191
NAME AND POSITION BUSINESS AND
WITH COLUMBUS 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; Director and
Chairman, Columbus Circle Asset
Management, Ltd.
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.
C. Paul Tyborowski President, Columbus Circle Trust Company;
Managing Director President, Columbus Circle Asset
Management, Ltd.
The address of Columbus, 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 Columbus,
which advise and manage mutual funds, individual
accounts, profit-sharing and pension funds and
C-31
<PAGE> 192
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 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.
(g) Morgan Stanley Asset Management, Inc., 1221 Avenue of the
Americas, New York, New York 10020 ("MSAM") is the
sub-investment adviser for the First Market Money Market
Fund and the First Market Growth Fund. MSAM is wholly
owned by Morgan Stanley, Dean Witter, Discover & Co.,
1585 Broadway, New York, New York 10036. In addition to
serving as sub-investment adviser of such Funds, MSAM
conducts a worldwide portfolio management business and
provides a broad range of portfolio management services
to customers in the United States and abroad. At
C-32
<PAGE> 193
February 28, 1997, MSAM, together with its affiliated asset
management companies, had approximately $176.9 million in
assets under management, including its position as investment
manager.
To the knowledge of Registrant, none of the directors or
officers of MSAM, 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 MSAM also hold positions with Miller MSAM's
parent, Morgan Stanley, Dean Witter, Discover & Co. or one of
its affiliates. Set forth below are the names and principal
businesses of the Managing Directors of MSAM who have been
during the past two years or are engaged in any other
business, profession, vocation, or employment of a
substantial nature.
<TABLE>
<CAPTION>
Name and Address Nature of
Managing Director of MSAM of Business Connection
- ------------------------- ----------- ----------
<S> <C> <C>
David Martin Darst Goldman Sachs & Co. Vice President
New York, New York and Chief Finan-
cial Officer
</TABLE>
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 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, the Pacific Capital
Funds, the MMA Praxis Mutual Funds, The Riverfront Funds,
Inc., the Summit Investment Trust, the Qualivest Funds,
Empire Builder Tax Free Bond Fund, First Choice Funds
Trust, Fountain Square Funds, Hirtle Callaghan Trust,
HSBC Family of Funds, The Infinity Mutual Funds, Inc.,
Intrust Funds, The Kent Funds, Magna Funds, Marketwatch
Funds, Meyers Sheppard Investment Trust, Minerva Funds,
The Parkstone Advantage Funds, Pegasus Funds, The
Republic Funds Trust, The Republic Advisors Funds Trust,
SBSF Funds, Inc. dba Key Mutual Funds, Sefton Funds, The
Time Horizon Funds, and Variable Insurance Funds, each of
which is a management investment company.
(b) To the best of Registrant's knowledge, the partners of BISYS
are as follows:
C-33
<PAGE> 194
<TABLE>
<CAPTION>
Positions and
Name and Principal Positions and Offices Offices with
Business Address with BISYS Fund Services Registrant
---------------- ------------------------ ----------
<S> <C> <C>
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
</TABLE>
(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, First Market Value Equity
Fund and First Market Fixed Income 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).
(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).
C-34
<PAGE> 195
(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).
(13) Morgan Stanley Asset Management, Inc., 1221 Avenue of the
Americas, New York, New York 10020 (records relating to its
function as sub-investment adviser for the First Market Money
Market Fund and First Market Growth Fund).
Item 31. Management Services
None
Item 32. Undertakings
None
C-35
<PAGE> 196
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 3rd day of November,
1997.
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Walter B. Grimm President (Principal November 3, 1997
- -------------------------- Executive Officer) and
Walter B. Grimm Trustee
/s/*Thresa Dewar Treasurer (Principal November 3, 1997
- -------------------------- Financial Officer and
Thresa Dewar Principal Accounting
Officer)
/s/*Nancy E. Converse Trustee November 3, 1997
- --------------------------
Nancy E. Converse
/s/*Maurice G. Stark Trustee November 3, 1997
- --------------------------
Maurice G. Stark
/s/*James H. Woodward Trustee November 3, 1997
- --------------------------
James H. Woodward
/s/*Chalmers P. Wylie Trustee November 3, 1997
- --------------------------
Chalmers P. Wylie
*By /s/ Walter B. Grimm November 3, 1997
-----------------------
Walter B. Grimm
Attorney-In-Fact
</TABLE>
C-36
<PAGE> 197
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
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.
</TABLE>
C-37
<PAGE> 198
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
(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.
</TABLE>
C-38
<PAGE> 199
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
(m) Amendment to Article IV, Section 4.2 of
Declaration of Trust as adopted as of
January 14, 1997, was filed as Exhibit
(l)(m) to Post-Effective Amendment No.
39 to Registrant's Registration
Statement (No. 33-21489) filed on
March 18, 1997.
(n) Amendment to Article IV, Section 4.2 of
Declaration of Trust as adopted as of
October 20, 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) Proposed Investment Advisory Agreement
dated as of January 1, 1998, between
Registrant and National Bank of
Commerce (with respect to the First
Market Funds).
(b) Investment Advisory Agreement dated as
of October 27, 1992, as proposed to be
amended as of January 1, 1998, between
Registrant and National Bank of
Commerce (with respect to First Market
Tennessee Municipal Obligations Fund.
(c) Proposed Sub-Investment Advisory
Agreement dated as of January 1, 1998,
between National Bank of Commerce and
Morgan Stanley Asset Management, Inc.
(with respect to First Market Money
Market Fund and First Market Growth
Fund).
(d) Proposed Sub-Investment Advisory
Agreement dated as of January 1, 1998,
between National Bank of Commerce and
Miller Anderson & Sherrerd, LLP (with
respect to First Market Value Equity
Fund and First Market Fixed Income
Fund).
</TABLE>
C-39
<PAGE> 200
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
(e) Investment Advisory Agreement dated
July 9, 1996, as amended as of June 30,
1997, between Registrant and Martindale
Andres & Company, Inc. (with respect to
the KeyPremier Funds) was filed as
Exhibit (5)(e) to Post-Effective
Amendment No. 42 to Registrant's
Registration Statement (No. 33-21489)
filed on July 30, 1997.
(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.
</TABLE>
C-40
<PAGE> 201
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
6(a) Distribution Agreement dated October 1,
1993, as amended as of June 3, 1994,
between Registrant and The Winsbury
Company Limited Partnership (with
respect to the Riverside Capital Funds)
was filed as Exhibit (6)(a) to
Post-Effective Amendment No. 43 to
Registrant's Registration Statement
(No. 33-21489) filed on October 31,
1997.
(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 June 30,
1997, between Registrant and BISYS Fund
Services Limited Partnership (with
respect to the KeyPremier Funds) was
filed as Exhibit (6)(c) to Post-
Effective Amendment No. 42 to
Registrant's Registration Statement
(No. 33-21489) filed on July 30, 1997.
(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
(with respect 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)(a) to Post-Effective
Amendment No. 43 to Registrant's
</TABLE>
C-41
<PAGE> 202
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
Registration Statement (No. 33-21489)
filed on October 31, 1997.
(b) Custody Agreement dated July 9, 1996, as
amended as of June 30, 1997, between
Registrant and The Bank of New York
(with respect to the KeyPremier Funds)
was filed as Exhibit (8)(b) to Post-
Effective Amendment No. 42 to
Registrant's Registration Statement
(No. 33-21489) filed on July 30, 1997.
(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 June 30, 1997, between
Registrant and The Bank of New York
(with respect to the KeyPremier Funds)
was filed as Exhibit (8)(d) to Post-
Effective Amendment No. 42 to
Registrant's Registration Statement
(No. 33-21489) filed on July 30, 1997.
9(a) Administration Agreement dated as of
November 1, 1997, between Registrant
and BISYS Fund Services Limited
Partnership (with respect to the First
Market Funds, f/k/a the Riverside
Capital Funds) was filed as Exhibit
(9)(a) to Post- Effective Amendment No.
43 to Registrant's Registration
Statement (No. 33-21489) filed on
October 31, 1997.
(b) Amended Transfer Agency Agreement dated
as of September 1, 1992, as amended as
of May 1, 1994, between Registrant and
BISYS Fund Services Ohio, Inc. (with
respect to the First Market Funds,
f/k/a the Riverside Capital Funds) was
filed as Exhibit (9)(b) to Post-
Effective Amendment No. 43 to
Registrant's
</TABLE>
C-42
<PAGE> 203
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
Registration Statement (No. 33-21489)
filed on October 31, 1997.
(c) Fund Accounting Agreement dated as of
November 1, 1997, between Registrant
and BISYS Fund Services, Inc. (with
respect to the First Market Funds,
f/k/a the Riverside Capital Funds) was
filed as Exhibit (9)(c) to
Post-Effective Amendment No. 43 to
Registrant's Registration Statement
(No. 33-21489) filed on October 31,
1997.
(d) Form of Administrative Services Plan was
filed as Exhibit (9)(d) to
Post-Effective Amendment No. 43 to
Registrant's Registration Statement
(No. 33-21489) filed on October 31,
1997.
(e) 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)(e) to Post-Effective Amendment No.
43 to Registrant's Registration
Statement (No. 33-21489) filed on
October 31, 1997.
(f) Omnibus Fee Agreement dated as of
November 1, 1997, among Registrant,
BISYS Fund Services Limited Partnership
and BISYS Fund Services, Inc. (with
respect to the First Market Funds,
f/k/a the Riverside Capital Funds) was
filed as Exhibit (9)(f) to
Post-Effective Amendment No. 43 to
Registrant's Registration Statement
(No. 33-21489) filed on October 31,
1997.
</TABLE>
C-43
<PAGE> 204
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
(g) Servicing Agreement to Administrative
Services Plan dated April 5, 1994,
between Registrant and National Bank of
Commerce (with respect to Riverside
Capital Growth Fund) was filed as
Exhibit (9)(g) to Post-Effective
Amendment No. 43 to Registrant's
Registration Statement (No. 33-21489)
filed on October 31, 1997.
(x) Management and Administration Agreement
dated July 9, 1996, as amended as of
June 30, 1997, between Registrant and
BISYS Fund Services Limited Partnership
(with respect to the KeyPremier Funds)
was filed as Exhibit (9)(x) to Post-
Effective Amendment No. 42 to
Registrant's Registration Statement
(No. 33-21489) filed on July 30, 1997.
(y) Fund Accounting Agreement dated July 9,
1996, as amended as of June 30, 1997,
between Registrant and BISYS Fund
Services, Inc. (with respect to the
KeyPremier Funds) was filed as Exhibit
(9)(y) to Post-Effective Amendment No.
42 to Registrant's Registration
Statement (No. 33-21489) filed on July
30, 1997.
(z) Transfer Agency Agreement dated July 9,
1996, as amended as of June 30, 1997,
between Registrant and BISYS Fund
Services, Inc. (with respect to the
KeyPremier Funds) was filed as Exhibit
(9)(z) to Post-Effective Amendment No.
42 to Registrant's Registration
Statement (No. 33-21489) filed on July
30, 1997.
(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.
</TABLE>
C-44
<PAGE> 205
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
(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 the Riverside Capital Funds
registered pursuant to Rule 24e-2 was
filed as Exhibit (10)(a) to Post-
Effective Amendment No. 41 to
Registrant's Registration Statement
(No. 33-21489) filed on May 21, 1997.
Opinion of Counsel with respect to
shares of KeyPremier U.S. Treasury
Obligations Money Market Fund and
KeyPremier Limited Duration Government
Securities Fund was filed as Exhibit
(10)(a) to Post-Effective Amendment No.
40 to Registrant's Registration
Statement (No. 33-21489) filed on April
16, 1997. An Opinion of Counsel was
filed by Notice on August 27, 1997,
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
Growth Fund, KeyPremier Prime Money
</TABLE>
C-45
<PAGE> 206
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
Market Fund, KeyPremier Pennsylvania
Municipal Bond Fund, KeyPremier
Established Growth Fund, KeyPremier
Intermediate Term Income Fund,
KeyPremier Aggressive Growth 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).
(b) Opinion of Special Counsel with respect
to the First Market Tennessee Municipal
Obligations Fund, f/k/a Riverside
Capital Tennessee Municipal Obligations
Fund, was filed as Exhibit (10)(b) to
Post-Effective Amendment No. 43 to
Registrant's Registration Statement
(No. 33-21489) filed on October 31,
1997.
11(a) Consent of KPMG Peat Marwick LLP with
respect to the Riverside Capital Funds.
Consent of KPMG Peat Marwick with
respect to the KeyPremier Funds was
filed as Exhibit (11)(a) to
Post-Effective Amendment No. 43 to
Registrant's Registration Statement
(No. 33-21489) filed on October 31,
1997.
(b) Consent of Burch, Porter & Johnson PLLC
was filed as Exhibit (11)(b) to
Post-Effective Amendment No. 43 to
Registrant's Registration Statement
(No. 33-21489) filed on October 31,
1997.
(c) Consent of Coopers & Lybrand L.L.P. was
filed as Exhibit (11)(c) to
Post-Effective Amendment No. 43 to
Registrant's Registration Statement
(No. 33-21489) filed on October 31,
1997.
13 Purchase Agreement dated as of July 19,
1988, between Registrant and Winsbury
Associates was filed as Exhibit (13) to
Post-Effective Amendment No. 43 to
Registrant's Registration Statement
(No. 33-21489) filed on October 31,
1997.
</TABLE>
C-46
<PAGE> 207
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
15(a) Rule 12b-1 Plan (with respect to the
First Market Funds, f/k/a Riverside
Capital Funds) was filed as Exhibit
(15)(a) to Post-Effective Amendment No.
43 to Registrant's Registration
Statement (No. 33-21489) filed on
October 31, 1997.
(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.
(d) 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)(d) to
Post-Effective Amendment No. 43 to
Registrant's Registration Statement
(No. 33-21489) filed on October 31,
1997.
(e) Rule 12b-1 Agreement dated October 19,
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)(e) to Post-Effective Amendment No.
43 to Registrant's Registration
Statement (No. 33-21489) filed on
October 31, 1997.
(f) 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
</TABLE>
C-47
<PAGE> 208
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
Tennessee Municipal Obligations Fund)
was filed as Exhibit (15)(f) to
Post-Effective Amendment No. 43 to
Registrant's Registration Statement
(No. 33-21489) filed on October 31,
1997.
(g) 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)(g) to
Post-Effective Amendment No. 43 to
Registrant's Registration Statement
(No. 33-21489) filed on October 31,
1997.
(h) 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)(h) to
Post-Effective Amendment No. 43 to
Registrant's Registration Statement
(No. 33-21489) filed on October 31,
1997.
(i) 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 First
Market Funds, f/k/a the Riverside
Capital Funds) was filed as Exhibit
(15)(i) to Post-Effective Amendment No.
43 to Registrant's Registration
Statement (No. 33-21489) filed on
October 31, 1997.
(j) Rule 12b-1 Agreement dated as of May 16,
1994, between Morgan, Keegan & Co. and
The Winsbury Company Limited
Partnership (with respect to the First
Market Funds, f/k/a the Riverside
Capital Funds) was filed as Exhibit
(15)(j) to Post-Effective Amendment No.
43 to Registrant's Registration
Statement (No. 33-21489) filed on
October 31, 1997.
</TABLE>
C-48
<PAGE> 209
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
(k) 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 First Market
Funds, f/k/a the Riverside Capital
Funds) was filed as Exhibit (15)(k) to
Post-Effective Amendment No. 43 to
Registrant's Registration Statement
(No. 33-21489) filed on October 31,
1997.
(l) 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 First Market
Funds, f/k/a the Riverside Capital
Funds) was filed as Exhibit (15)(l) to
Post-Effective Amendment No. 43 to
Registrant's Registration Statement
(No. 33-21489) filed on October 31,
1997.
16(a) Computations of Performance Quotations
for the Riverside Capital Funds were
filed as Exhibit (16)(a) to
Post-Effective Amendment No. 43 to
Registrant's Registration Statement
(No. 33-21489) filed on October 31,
1997.
(b) Computations of Performance Quotations
for the KeyPremier Funds were filed as
Exhibit (16)(b) to Post-Effective
Amendment No. 43 to Registrant's
Registration Statement (No. 33-21489)
filed on October 31, 1997.
(c) Computations of Performance Quotations
for the 1st Source Monogram Funds were
filed as Exhibit (16)(c) to
Post-Effective Amendment No. 43 to
Registrant's Registration Statement
(No. 33-21489) filed on October 31,
1997.
17 Financial Data Schedules for the
Riverside Capital Funds. Financial Data
Schedules for the KeyPremier Funds and
the 1st Source Monogram Funds were
filed as Exhibit (17) to Post-Effective
Amendment No. 43 to Registrant's
</TABLE>
C-49
<PAGE> 210
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
Registration Statement (No. 33-21489)
filed on October 31, 1997.
18 None.
19(a) Powers of Attorney of Maurice G. Stark,
Chalmers P. Wylie and Walter B. Grimm
were filed as Exhibit (17) to
Post-Effective Amendment No. 43 to
Registrant's Registration Statement
(No. 33-21489) filed on October 31,
1997.
(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.
(e) Power of Attorney of Thresa Dewar was
filed as Exhibit (19)(e) to Post-
Effective Amendment No. 41 to
Registrant's Registration Statement
(No. 33-21489) filed on May 21, 1997.
</TABLE>
C-50
<PAGE> 211
As filed with the Securities and Exchange Commission November 3, 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. 44 [ x ]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [ x ]
Amendment No. 46 [ 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)(n)
THE SESSIONS GROUP
AMENDMENT TO DECLARATION OF TRUST
Amended: October 20, 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, effective January 1, 1998, 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:
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 First Market Money Market
Fund, and there is further established and designated additional Series
of Shares designated Series D, which shall represent interests in First
Market Value Equity Fund, Series E, which shall represent interests in
First Market Fixed Income Fund, Series M, which shall represent
interests in First Market Tennessee Municipal Obligations Fund, Series
S, which shall represent interests in First Market 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 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 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 S, Series U,
Series V, Series X, Series Y, Series Z, Series AA, 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 sub-series at the time of establishing and designating the
same) have the following relative rights and preferences:; and
<PAGE> 1
EXHIBIT (5)(a)
INVESTMENT ADVISORY AGREEMENT
This Agreement is made as of January 1, 1998, between The Sessions
Group, an Ohio business trust (the "Trust"), and National Bank of Commerce, a
national banking association (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 confirm and retain the Investment Adviser
to continue to provide, or to arrange for the provision of, investment advisory
services to four 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 four existing 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:
ss.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.
ss.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, and any and all amendments thereto or
restatements thereof (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> 2
(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) 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
relating to the Funds; and
(f) 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.
ss.3. Management. Subject to the supervision of the Trust's Board of
Trustees, the Investment Adviser will provide, or arrange for the provision of,
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, or arrange for
others to 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, or arrange for others to 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, or arrange for the provision of, the
services under this Agreement in accordance with each of the Fund's investment
objectives, policies, and restrictions as stated in the Prospectus and
resolutions of the Trust's Board of Trustees.
Subject to the provisions of this Agreement, the Declaration of Trust
and the 1940 Act, the Investment Adviser directly and indirectly may select and
enter into contracts with one or more qualified investment advisers
("Sub-Advisers") to provide to the Trust some or all of the services required by
this Agreement. With respect to any such appointment by the Investment Adviser
of any of the Sub-Advisers, the Investment Adviser will, as appropriate:
- 2 -
<PAGE> 3
(a) prepare and provide to the Trust's Board of Trustees monthly
portfolio compliance reports for the Funds;
(b) maintain in accordance with the provisions of the 1940 Act
each Fund's records relating to the purchase and sale of
portfolio securities;
(c) provide general oversight of the Funds' continuous investment
programs; and
(d) periodically review, evaluate and report, no less frequently
than quarterly, to the Trust's Board of Trustees with respect
to the performance of the Sub-Advisers and the activities and
performance of the Adviser.
In fulfilling its responsibilities hereunder, the Investment Adviser
further agrees that it will, or, with respect to services provided to the Trust
by any of the Sub-Advisers appointed by the Investment Adviser, that it will
require that each of the Sub-Advisers:
(i) use the same skill and care in providing such services as
it uses in providing services to fiduciary accounts for which it has
investment responsibilities;
(ii) conform with all applicable Rules and Regulations of the
Securities and Exchange Commission and in addition will conduct its
activities under this Agreement (or any applicable sub-investment
advisory agreement) in accordance with any applicable regulations of
any governmental authority pertaining to the investment advisory
activities of the Investment Adviser;
(iii) not make loans to any person to purchase or carry shares
of beneficial interest in the Trust or make loans to the Trust;
(iv) 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, or require that each of the
Sub-Advisers 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 or any of the Sub-Advisers
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
- 3 -
<PAGE> 4
the specific transaction and on a continuing basis). Consistent with
this obligation, the Investment Adviser and any of the Sub-Advisers
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 or any of the
Sub-Advisers 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 and any
of the Sub-Advisers are 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 or Sub-Advisers determine 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 or Sub-Advisers 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 of shares of
the Trust. Except as otherwise permitted by applicable laws, rules and
regulations or any exemptions therefrom, in no instance will portfolio
securities be purchased from or sold to BISYS Fund Services Limited
Partnership, the Investment Adviser, any Sub-Adviser, or any affiliated
person of the Trust, BISYS Fund Services Limited Partnership, the
Investment Adviser or any Sub-Adviser;
(v) 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;
(vi) 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 or any Sub-Adviser may be exposed to civil
or criminal contempt proceedings for failure to comply, when
- 4 -
<PAGE> 5
requested to divulge such information by duly constituted authorities,
or when so requested by the Trust; and
(vii) will maintain its policy and practice of conducting its
fiduciary functions independently. In making investment recommendations
for the Funds, the Investment Adviser's or Sub-Advisers' 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 any Sub-Adviser or of their
respective parents, subsidiaries or affiliates. In dealing with such
customers, the Investment Adviser or any Sub-Adviser and their
respective parents, subsidiaries, and affiliates will not inquire or
take into consideration whether securities of those customers are held
by the Trust.
ss.4. Services Not Exclusive. The investment management services
furnished by the Investment Adviser and any Sub-Adviser hereunder are not to be
deemed exclusive, and the Investment Adviser and any Sub-Adviser shall be free
to furnish similar services to others so long as its services under this
Agreement or any sub-advisory agreement are not impaired thereby.
ss.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, and to require each of the Sub-Advisers to
surrender promptly, to the Trust any of such records upon the Trust's request.
The Investment Adviser further agrees to preserve, and to require each of the
Sub-Advisers 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.
ss.6. Expenses. During the term of this Agreement, the Investment
Adviser will pay all expenses, including as applicable, the compensation of any
Sub-Advisers appointed by it, 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.
ss.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 effective
date of this Agreement; provided, however, that 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.
- 5 -
<PAGE> 6
ss.8. Limitation of Liability. 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.
ss.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 December 31, 1999.
Thereafter, if not terminated, this Agreement shall continue in effect
as to a particular Fund for successive periods of twelve months each ending on
December 31st 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 at least 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.)
ss.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.
ss.11. Amendment of this Agreement. No provision of this Agree- ment
may be changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which
- 6 -
<PAGE> 7
enforcement of the change, waiver, discharge or termination is sought.
ss.12. Name. The Trust hereby acknowledges that the name "First Market"
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 "First Market" 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 "First Market" 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.
ss.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> 8
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.
NATIONAL BANK OF COMMERCE THE SESSIONS GROUP
By By
----------------------------- ----------------------------------
Name Name
--------------------------- --------------------------------
Title Title
-------------------------- -------------------------------
- 8 -
<PAGE> 9
Dated: January 1, 1998
Schedule A
to the
Investment Advisory Agreement
between The Sessions Group and
National Bank of Commerce
dated as of January 1, 1998
<TABLE>
<CAPTION>
Name of Fund Compensation* Date
- ------------ ------------- ----
<S> <C> <C>
First Market Money Annual Rate of January 1, 1998
Market Fund thirty-five one-
hundredths of one
percent (0.35%) of
such Fund's average
net assets
First Market Value Annual rate of one January 1, 1998
Equity Fund percent (1.00%) of
such Fund's first
$250 million of
average daily net
assets and seventy-
five one-hundredths
of one percent
(0.75%) of such
Fund's remaining
average daily net
assets
First Market Fixed Annual rate of January 1, 1998
Income Fund sixty-five one-
hundredths of one
percent (0.65%) of
such Fund's average
daily net assets
</TABLE>
- ----------
*All Fees are computed daily and paid monthly.
A-1
<PAGE> 10
<TABLE>
<S> <C> <C>
First Market Growth Annual rate of one January 1, 1998
Fund percent (1.00%) of
such Fund's first
$250 million of
average daily net
assets and seventy-
five one-hundredths
of one percent
(0.75%) of such
Fund's remaining
average daily net
assets
</TABLE>
THE SESSIONS GROUP
By
-----------------------------------------
Name
---------------------------------------
Title
--------------------------------------
NATIONAL BANK OF COMMERCE
By
-----------------------------------------
Name
---------------------------------------
Title
--------------------------------------
A-2
<PAGE> 1
EXHIBIT (5)(b)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of October 27, 1992, between THE SESSIONS GROUP, an
Ohio business trust (herein called the "Trust"), and NATIONAL BANK OF COMMERCE,
a national banking association (herein called 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 furnish
investment advisory and administrative services to a newly created investment
portfolio 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 portfolio
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:
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.
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, and any and all amendments thereto or restatements thereof (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;
- 1 -
<PAGE> 2
(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) the Trust's Registration Statement on Form N-lA 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 all amendments thereto; and
(f) 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.
3. Management. Subject to the supervision of the Trust's Board of
Trustees, the Investment Adviser will provide a continuous investment program
for 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. 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 and resolutions of the Trust's Board of Trustees. The
Investment Adviser further agrees that it:
(a) will use the same skill and care in providing such
services as it uses in providing services to fiduciary accounts for
which it has investment responsibilities;
(b) will 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;
- 2 -
<PAGE> 3
(c) will not make loans to any person to purchase or carry
shares of beneficial interest in the Trust or make loans to the Trust;
(d) will 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. Consistent with this
obligation, when the execution and price offered by two or more brokers
or dealers are comparable, the Investment Adviser may, in its
discretion, purchase and sell portfolio securities to and from brokers
and dealers who provide the Investment Adviser with research advice and
other services. Except as otherwise disclosed to the shareholders of
the Funds and as permitted by applicable laws, rules and regulations,
in no instance will portfolio securities be purchased from or sold to
The Winsbury Company, the Investment Adviser, or any affiliated person
of the Trust, The Winsbury Company 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 interestholders, 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 parent or its subsidiaries or affiliates.
In dealing with such customers, the Investment Adviser and its parent,
subsidiaries, and affiliates will not inquire or take into
consideration whether securities of those customers are held by the
Trust.
- 3 -
<PAGE> 4
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.
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 prescribed by
Rule 31a-2 under the 1940 Act the records required to be maintained by Rule
31a-1 under the 1940 Act.
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.
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 equal
to the lesser of (a) the fee set forth on Schedule A hereto or (b) such other
fee as may from time to time be agreed upon in writing by the Trust and
Investment Adviser. 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.
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 The Winsbury Company under the
Administration Agreement between The Winsbury Company 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 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.
- 4 -
<PAGE> 5
8. Limitation of Liability. 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.
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), 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 March 31,
1994.
Thereafter, if not terminated, this Agreement shall continue in effect
as to a particular Fund for successive periods of twelve months each ending on
March 31 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.)
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.
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.
- 5 -
<PAGE> 6
12. 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.
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/ Roy E. Rogers
---------------------------------
Name Roy E. Rogers
-------------------------------
Title President
------------------------------
NATIONAL BANK OF COMMERCE
By /s/ J. Hallam Boyd, Jr.
---------------------------------
Name J. Hallam Boyd, Jr.
-------------------------------
Title Senior Vice President
------------------------------
- 6 -
<PAGE> 7
Dated: January 1, 1998
Schedule A
to the
Investment Advisory Agreement
between The Sessions Group and
National Bank of Commerce
dated as of October 27, 1992
<TABLE>
<CAPTION>
Name of Fund Compensation* Date
- ------------ ------------- ----
<S> <C> <C>
First Market Annual rate of January 1, 1998
Tennessee Municipal sixty-five one-
Obligations Fund hundredths of one
percent (.65%) of
such Fund's average
daily net assets
</TABLE>
THE SESSIONS GROUP
By
---------------------------------
Name
-------------------------------
Title
------------------------------
NATIONAL BANK OF COMMERCE
By
---------------------------------
Name
-------------------------------
Title
------------------------------
- ------------
*All fees are computed daily and paid monthly.
A-1
<PAGE> 1
EXHIBIT(5)(C)
SUB-INVESTMENT ADVISORY AGREEMENT
This Sub-Investment Advisory Agreement is made as of the 1st day of
January, 1998, by and between National Bank of Commerce, a national banking
association (the "Adviser"), and Morgan Stanley Asset Management, Inc., a
Delaware corporation (the "Sub-Adviser").
WHEREAS, the Adviser serves as investment adviser of certain portfolios
of The Sessions Group, an Ohio business trust and an open-end management
investment company (the "Trust"), which has filed a registration statement (the
"Registration Statement") under the Investment Company Act of 1940, as amended
(the "1940 Act") and the Securities Act of 1933.
WHEREAS, the Trust is comprised of several separate investment
portfolios, five of which currently are advised by the Adviser and are generally
known as the "First Market Funds;" and
WHEREAS, the Adviser desires to avail itself of the services,
information, advice, assistance and facilities of an investment adviser
experienced in the management of portfolio securities to assist the Adviser in
performing services for certain of the First Market Funds, all as now or
hereafter may be identified in Schedule A hereto (such existing investment
portfolios and any such additional investment portfolios as may be added to
Schedule A hereto from time to time are together called the "Funds"); and
WHEREAS, the Sub-Adviser represents that it has the legal power and
authority to perform the services contemplated hereunder without violation of
applicable law (including the Investment Advisers Act of 1940), and is engaged
in the business of rendering investment advisory services to investment
companies and desires to provide such services to the Trust and the Adviser; and
WHEREAS, the Sub-Adviser is familiar with the investment objectives,
policies and restrictions of the Funds and has reviewed the Investment Advisory
Agreement dated as of January 1, 1998, between the Adviser and the Trust (the
"Adviser Agreement").
NOW, THEREFORE, in consideration of the terms and conditions
hereinafter set forth, it is agreed as follows:
ss.1. Appointment of the Sub-Adviser. The Adviser hereby appoints the
Sub-Adviser to provide a continuous investment program for the Funds, subject to
such instructions and supervision as the Adviser may from time to time furnish
and further subject to the control and direction of the Trust's Board of
Trustees, for the period and on the terms hereinafter set forth. The Sub-Adviser
hereby accepts such appointment and agrees during such period to render the
services and to assume the obligations herein set forth for the compensation
herein provided. The Sub-Adviser will provide the services under this Agreement
in accordance with the Funds' investment objectives, policies and restrictions
as stated in the
<PAGE> 2
Funds' most recent Prospectus and Statement of Additional Information and as the
same may, from time to time, be supplemented or amended and in resolutions of
the Trust's Board of Trustees. The Adviser agrees to furnish the Sub-Adviser
copies of all amendments of or supplements to such Prospectus and Statement of
Additional Information within three business days of their filing with the
United States Securities and Exchange Commission ("SEC"). The Sub-Adviser shall
for all purposes herein be deemed to be an independent contractor and shall,
except as expressly provided or authorized (whether herein or otherwise), have
no authority to act for or represent the Adviser, the Funds or the Trust in any
way.
ss.2. Sub-Advisory Services. Subject to such instructions and
supervision as the Adviser may from time to time furnish, the continuous
investment program of the Funds provided by the Sub-Adviser shall include, among
other things, investment research and management with respect to all securities,
investments and cash equivalents in the Funds. The Sub-Adviser will determine
from time to time what securities and other investments will be purchased,
retained or sold by the Funds, the appropriate portion of each Fund's assets to
be invested in particular countries or geographic regions, the use of foreign
exchange contracts and other foreign currency matters, and the manner in which
voting rights, rights to consent to corporate action and other rights pertaining
to the Funds' investments should be exercised. The Sub-Adviser will implement
such determinations through the placement, in the name of the applicable Fund,
of orders for the execution of portfolio transactions with it through such
brokers or dealers as it may select.
In fulfilling its responsibilities hereunder, the Sub-Adviser agrees
that it will:
(a) use the same skill and care in providing such services as it
uses in providing services to other fiduciary accounts for
which it has investment responsibilities;
(b) conform with all applicable Rules and Regulations of the SEC
and in addition will conduct its activities under this
Agreement in accordance with any applicable regulations of any
government authority pertaining to the investment advisory
activities of the Sub-Adviser and shall furnish such written
reports or other documents substantiating such compliance as
the Adviser reasonably may from time to time request;
(c) place orders pursuant to investment determinations for the
Funds either directly with the issuer or with an underwriter,
market maker or broker or dealer. In placing orders with
brokers and dealers, the Sub-Adviser will use its reasonable
best efforts to obtain prompt execution of orders in an
effective manner at the most
2
<PAGE> 3
favorable price. Consistent with this obligation, the
Sub-Adviser may, 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 Sub-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
Sub-Adviser is authorized to pay a broker or dealer who
provides such brokerage and research services a commission for
effecting a securities transaction for the Fund which is in
excess of the amount of commission another broker or dealer
would have charged for effecting that transaction if the
Sub-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 Sub-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 Sub-Adviser may
consider the sale of shares of the Trust. In no instance will
portfolio securities be purchased from or sold to the Trust,
BISYS Fund Services Limited Partnership, the Adviser, any
other sub-investment adviser for the Trust ("other
sub-advisers"), or the Sub-Adviser or any affiliate of the
foregoing except as may be permitted by the 1940 Act, any
rules or regulations thereunder, or an exemption therefrom;
(d) maintain all necessary or appropriate books and records with
respect to the Funds' securities transactions in accordance
with all applicable laws, rules and regulations, including but
not limited to Section 31(a) of the 1940 Act and will furnish
the Trust's Board of Trustees such periodic and special
reports as the Board reasonably may request;
(e) treat confidentially and as proprietary information of the
Adviser and the Trust all records and other information
relative to the Adviser and the Trust 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 that subject to
prompt notification to the Trust and the Adviser, the
Sub-Adviser may divulge such information to duly constituted
authorities, or when so requested by the Adviser and the
Trust, provided, however, that nothing contained herein shall
prohibit the
3
<PAGE> 4
Sub-Adviser from complying with applicable laws or regulations
or advertising or soliciting the public generally with respect
to other products or services, regardless of whether such
advertisement or solicitation may include prior, present or
potential shareholders of the Fund;
(f) maintain its policy and practice of conducting its fiduciary
functions independently. In making investment recommendations
for the Trust, the Sub-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 Adviser, other sub-advisers, the Sub-Adviser
or of their respective parents, subsidiaries or affiliates. In
dealing with such customers, the Sub-Adviser and its parent,
subsidiaries, and affiliates will not inquire or take into
consideration whether securities of those customers are held
by the Trust; and
(g) render, upon request of the Adviser or the Trust's Board of
Trustees, written reports concerning the investment activities
of the Funds.
ss.3. Expenses. During the term of this Agreement, the Sub- 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 and taxes, if any) purchased for the Funds.
ss.4. Books and Records. In compliance with the requirements of Rule
31a-3 under the 1940 Act, the Sub-Adviser hereby agrees that all records, if
any, which it maintains for the Funds are the property of the Funds and further
agrees to surrender promptly to the Adviser or the Trust any such records upon
the Adviser's or the Trust's request and that such records shall be available
for inspection by the SEC. The Sub-Adviser further agrees to preserve for the
periods and at the places prescribed by Rule 31a-2 under the 1940 Act the
records required to be maintained by Rule 31a-1 under the 1940 Act.
ss.5. Compensation of the Sub-Adviser. In consideration of services
rendered pursuant to this Agreement, the Adviser will pay the Sub-Adviser a fee
at the annual rate of the value of each Fund's average daily net assets set
forth in Schedule A hereto; provided, however, that the Sub-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. Such fee shall be accrued daily and
paid monthly as soon as practicable after the end of each month. If the
Sub-Adviser shall serve for less than the whole of any month, the foregoing
compensation shall be prorated. For the purpose of determining fees payable to
the Sub-Adviser, the value
4
<PAGE> 5
of the Funds' net assets shall be computed at the times and in the manner
specified in the Trust's Registration Statement. Notwithstanding anything
contained herein to the contrary, the Sub-Adviser shall not be compensated on
the basis of a share of capital gains or upon capital appreciation of any Fund
or any portion thereof except as may be authorized by applicable law.
ss.6. Services Not Exclusive. The services of the Sub-Adviser hereunder
are not to be deemed exclusive, and the Sub-Adviser shall be free to render
similar services to others, including others who may invest in the same
securities as the Funds, and to engage in other activities, so long as the
services rendered hereunder are not impaired. It is understood that the action
taken by the Sub-Adviser under this Agreement may differ from the advice given
or the timing or nature of action taken with respect to other clients of the
Sub-Adviser, and that a transaction in a specific security may not be
accomplished for all clients of the Sub-Adviser at the same time or at the same
price.
ss.7. Use of Names. The Adviser shall not use the name of the
Sub-Adviser in any prospectus, sales literature or other material relating to
the Trust in any manner not approved prior thereto, in writing by the
Sub-Adviser; provided, however, that the Sub-Adviser shall approve all uses of
its name which merely refer in accurate terms to its appointment hereunder or
which are required by the SEC or a state securities commission; and, provided
further, that in no event shall such approval be unreasonably withheld. The
Sub-Adviser shall not use the name of the Trust, the Fund or the Adviser in any
material relating to the Sub-Adviser in any manner not approved prior thereto by
the Adviser; provided, however, that the Adviser shall approve all uses of its
and the Fund's or the Trust's name which merely refer in accurate terms to the
appointment of the Sub-Adviser hereunder or which are required by the SEC or a
state securities commission; and, provided further, that in no event shall such
approval be unreasonably withheld.
ss.8. Liability of the Sub-Adviser; Indemnification. (a) The
Sub-Adviser may rely on information believed by it to be accurate and reliable.
Neither the Sub-Adviser nor its officers, directors, employees, agents or
controlling persons (as defined in the 1940 Act) shall be subject to any
liability for any act or omission, error of judgment or mistake of law, or for
any loss suffered by the Trust or a Fund, in the course of, connected with or
arising out of any services to be rendered hereunder, except by reason of wilful
misfeasance, bad faith or gross negligence on the part of the Sub-Adviser in the
performance of its duties or by reason of reckless disregard on the part of the
Sub-Adviser of its obligations and duties under this Agreement. Any person, even
though also employed by the Sub-Adviser shall be deemed, when acting within the
scope of his employment by the Trust, to be acting in such employment solely for
the Trust and not as an employee or agent of the Sub-Adviser.
5
<PAGE> 6
(b) The Adviser agrees to indemnify and hold harmless the Sub-Adviser,
and each of its affiliates, agents, directors, officers and employees (each of
the foregoing being hereinafter referred to as a "Sub-Adviser Indemnified
Person") from and against any and all losses, liabilities, judgments,
settlements, claims, damages and expenses whatsoever, including, without
limitation, all expenses, including attorneys' fees and disbursements,
reasonably incurred in connection with the investigation of, the preparation
for, or the defense of any claim, action, investigation or proceeding
(collectively, "Losses"), whether or not instituted or resulting in liability
and whether or not any Sub-Adviser Indemnified Person is named as a party
thereto, as and when incurred by any Sub-Adviser Indemnified Person, arising out
of, relating to or incurred in connection with:
(i) any violation or alleged violation of any law, rule or regulation
or any judgment, order or decree caused by any action taken or omitted
to be taken by the Adviser or any of its affiliates in connection with
the performance by the Adviser of the obligations arising out of this
Agreement; and
(ii) any breach or alleged breach by the Adviser or any of its
affiliates of any of their respective obligations, representations,
warranties or agreements contained herein.
(c) The Sub-Adviser agrees to indemnify and hold harmless the Adviser,
and each of its affiliates, agents, directors, officers and employees (each of
the foregoing being hereinafter referred to as an "Adviser Indemnified Person")
from and against any and all Losses, whether or not instituted or resulting in
liability and whether or not any Adviser Indemnified Person is named as a party
thereto, as and when incurred by any Adviser Indemnified Person, arising out of,
relating to or incurred in connection with:
(i) any violation or alleged violation of any law, rule or regulation
or any judgment, order or decree caused by any action taken or omitted
to be taken by the Sub-Adviser or any of its affiliates in connection
with the performance by the Sub-Adviser of the obligations arising out
of this Agreement; and
(ii) any breach or alleged breach by the Sub-Adviser or any of its
affiliates of any of their respective obligations, representations,
warranties or agreements contained herein.
(d) Each person entitled to indemnification under Subsections (b) or
(c) above (an "indemnified party") shall give prompt notice to each person
responsible for indemnifying such indemnified party (an "indemnifying party") of
any action commenced against it in respect of which indemnify may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability that it may have otherwise than on account
6
<PAGE> 7
of this Section. An indemnifying party, upon request of the indemnified party,
shall retain counsel reasonably satisfactory to the indemnified party to
represent the indemnified party and any others the indemnifying party may
designate in such proceeding and shall pay the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them. It
is understood that the indemnifying party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
fees and expenses of more than one separate firm (in addition to any local
counsel) for the indemnified parities, and that all such fees and expenses shall
be reimbursed as they are incurred. In the case of any such separate firm for an
Adviser Indemnified Person, such firm shall be designated in writing by the
Adviser. In the case of any such separate firm for a Sub-Adviser Indemnified
Person, such firm shall be designated in writing by the Sub-Adviser. The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any Losses by reason of such
settlement or judgment. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened proceeding in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter of
such proceedings.
ss.9. Limitation of Trust's Liability. The Sub-Adviser acknowledges
that it has received notice of and accepts the limitations upon the Trust's and
the Funds' liability set forth in its Declaration of Trust and under Ohio law.
The Sub-Adviser agrees that any of the Trust's obligations shall be limited to
the assets of the Funds and that the Sub-Adviser shall not seek satisfaction of
any such obligation from the shareholders of the Trust nor from any Trustee,
officer, employee or agent of the Trust.
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
7
<PAGE> 8
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.
ss.10. Duration, Renewal, Termination and Amendment. This Agreement
will become effective as of the date first written above, provided that it shall
have been approved by vote of a majority of the outstanding voting securities of
each Fund, in accordance with the requirements under the 1940 Act, and, unless
sooner terminated as provided herein, shall continue in effect until January 1,
2000.
Thereafter, if not terminated, this Agreement shall continue in effect
with respect to a Fund for successive periods of one year each ending on
December 31st of each year, provided such continuance is specifically approved
with respect to a Fund 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 that Fund. This Agreement
may be terminated as to a Fund at any time, without payment of any penalty, by
the Trust's Board of Trustees, by the Adviser, or by a vote of the majority of
the outstanding voting securities of that Fund upon, at least 60 days' prior
written notice to the Sub-Adviser, or by the Sub-Adviser upon at least 60 days'
prior written notice to the Adviser and the Trust's Board of Trustees, or upon
such shorter notice as may be mutually agreed upon. This Agreement shall
terminate automatically and immediately upon termination of the Adviser
Agreement. This Agreement shall terminate automatically and immediately in the
event of its assignment. The terms "assignment" and "vote of a majority of the
outstanding voting securities" shall have the meaning set forth for such terms
in the 1940 Act. This Agreement may be amended at any time by the Adviser and
the Sub-Adviser, subject to approval by the Trust's Board of Trustees and by a
majority of the Trust's Board of Trustees who are not "interested persons" of
the Trust, case in person at a meeting called for the purpose of voting on such
approval, and, if required by the 1940 Act and applicable SEC rules and
regulations, a vote of a majority of the applicable Fund's outstanding voting
securities.
8
<PAGE> 9
ss.11. Confidential Relationship. Any information and advice furnished
by either party to this Agreement to the other shall be treated as confidential
and shall not be disclosed to third parties except as required by law or by this
Agreement.
ss.12. Severability. 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.
ss.13. Miscellaneous. This Agreement constitutes the full and complete
agreement of the parties hereto with respect to the subject matter hereof. Each
party agrees to perform such further actions and execute such further documents
as are necessary to effectuate the purposes hereof. This Agreement shall be
construed and enforced in accordance with and governed by the laws of the State
of New York, provided that nothing herein shall be construed as being
inconsistent with the 1940 Act. The captions in this Agreement are included for
convenience only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be executed in
several counterparts, all of which together shall for all purposes constitute
one Agreement, binding on all parties.
ss.14. Potential Conflicts of Interest. (a) Subject to applicable
statutes and regulations, it is understood that trustees, officers or agents of
the Trust are or may be interested in the Sub-Adviser or its affiliates as
directors, officers, employees, agents, shareholders or otherwise, and that the
directors, officers, employees, agents or shareholders of the Sub-Adviser or its
affiliates may be interested in the Trust, as trustees, officers, agents or
otherwise.
(b) If the Sub-Adviser considers the purchase or sale of securities for
a Fund and other advisory clients of the Sub-Adviser at or about the same time,
transactions in such securities will be allocated among such Fund and such other
clients in a manner deemed fair and reasonable by the Sub-Adviser, subject to
any guidelines that may be adopted by the Board of Trustees of the Trust.
ss.15. Notices. Any communication hereunder shall be in writing and
shall be delivered in person or by telex or facsimile (followed by mailing such
written communication, air mail postage prepaid, on the date on which such telex
or facsimile is sent, to the address set forth below). Any communication or
document to be made or delivered by one person to another pursuant to this
Agreement shall be made or delivered to that other person at the following
relevant address (unless that other person has by fifteen (15) days' notice to
the other specified another address):
If to the Sub-Adviser:
9
<PAGE> 10
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
Attention: General Counsel
Telephone No.: (212) 296-7100
Facsimile No.: (212) 921-5477
Telex No.: (212) 680-1248
If to the Adviser:
National Bank of Commerce
One Commerce Square
Memphis, Tennessee 38150
Attention: _________________
Telephone No.: (901)________
Facsimile No.: _____________
Communications or documents made or delivered by personal delivery shall be
deemed to have been received on the day of such delivery. Communications or
documents made or delivered by telex or facsimile shall be deemed to have been
received, if by telex, when acknowledged by the addressee's correct answer back
code and, if by facsimile, upon production of a transmission report by the
machine from which the facsimile was sent which indicates that the facsimile was
sent in its entirety to the facsimile number of the recipient; provided that a
hard copy of the communication or document so made or delivered by telex or
facsimile was posted the same day as the communication or document was made or
delivered by electronic means.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first written above.
NATIONAL BANK OF COMMERCE
By
----------------------------------
Title
-------------------------------
MORGAN STANLEY ASSET MANAGEMENT, INC.
By
----------------------------------
Title
-------------------------------
10
<PAGE> 11
Dated: January 1, 1998
SCHEDULE A
To the Sub-Investment Advisory Agreement
between National Bank of Commerce and
Morgan Stanley Asset Management, Inc.
<TABLE>
<CAPTION>
Name of Fund COMPENSATION* DATE
- ------------ ------------- ----
<S> <C> <C>
First Market Money Annual rate of 0.25% of the January 1, 1998
Market Fund average daily net assets of
such Fund.
First Market Growth Annual rate of 0.625% of the January 1, 1998
Fund average daily net assets of
such Fund up to $20 million,
0.50% of the average daily
net assets of such Fund from
$20 million up to $30 million,
and 0.375% of the average
daily net assets of such Fund
from $30 million to $35 million.
If the average daily net assets of
such Fund equal or exceed $35
million, the annual rate of
0.56% of the average daily net
assets of such Fund.
</TABLE>
MORGAN STANLEY ASSET MANAGEMENT,INC. NATIONAL BANK OF COMMERCE
By By
--------------------------------- ----------------------------
Title Title
------------------------------ -------------------------
- ----------
*All fees are computed daily and paid monthly.
11
<PAGE> 1
EXHIBIT (5)(d)
SUB-INVESTMENT ADVISORY AGREEMENT
This Sub-Investment Advisory Agreement is made as of the 1st day of
January, 1998, by and between National Bank of Commerce, a national banking
association (the "Adviser"), and Miller Anderson & Sherrerd, LLP, a Pennsylvania
limited liability partnership (the "Sub-Adviser").
WHEREAS, the Adviser serves as investment adviser of certain portfolios
of The Sessions Group, an Ohio business trust and an open-end management
investment company (the "Trust"), which has filed a registration statement (the
"Registration Statement") under the Investment Company Act of 1940, as amended
(the "1940 Act") and the Securities Act of 1933.
WHEREAS, the Trust is comprised of several separate investment
portfolios, five of which currently are advised by the Adviser and are generally
known as the "First Market Funds;" and
WHEREAS, the Adviser desires to avail itself of the services,
information, advice, assistance and facilities of an investment adviser
experienced in the management of portfolio securities to assist the Adviser in
performing services for certain of the First Market Funds, all as now or
hereafter may be identified in Schedule A hereto (such existing investment
portfolios and any such additional investment portfolios as may be added to
Schedule A hereto from time to time are together called the "Funds"); and
WHEREAS, the Sub-Adviser represents that it has the legal power and
authority to perform the services contemplated hereunder without violation of
applicable law (including the Investment Advisers Act of 1940), and is engaged
in the business of rendering investment advisory services to investment
companies and desires to provide such services to the Trust and the Adviser; and
WHEREAS, the Sub-Adviser is familiar with the investment objectives,
policies and restrictions of the Funds and has reviewed the Investment Advisory
Agreement dated as of January 1, 1998, between the Adviser and the Trust (the
"Adviser Agreement").
NOW, THEREFORE, in consideration of the terms and conditions
hereinafter set forth, it is agreed as follows:
ss.1. Appointment of the Sub-Adviser. The Adviser hereby appoints the
Sub-Adviser to provide a continuous investment program for the Funds, subject to
such instructions and supervision as the Adviser may from time to time furnish
and further subject to the control and direction of the Trust's Board of
Trustees, for the period and on the terms hereinafter set forth. The Sub-Adviser
hereby accepts such appointment and
<PAGE> 2
agrees during such period to render the services and to assume the obligations
herein set forth for the compensation herein provided. The Sub-Adviser will
provide the services under this Agreement in accordance with the Funds'
investment objectives, policies and restrictions as stated in the Funds' most
recent Prospectus and Statement of Additional Information and as the same may,
from time to time, be supplemented or amended and in resolutions of the Trust's
Board of Trustees. The Adviser agrees to furnish the Sub-Adviser copies of all
amendments of or supplements to such Prospectus and Statement of Additional
Information within three business days of their filing with the United States
Securities and Exchange Commission ("SEC"). The Sub-Adviser shall for all
purposes herein be deemed to be an independent contractor and shall, except as
expressly provided or authorized (whether herein or otherwise), have no
authority to act for or represent the Adviser, the Funds or the Trust in any
way.
ss.2. Sub-Advisory Services. Subject to such instructions and
supervision as the Adviser may from time to time furnish, the continuous
investment program of the Funds provided by the Sub-Adviser shall include, among
other things, investment research and management with respect to all securities,
investments and cash equivalents in the Funds. The Sub-Adviser will determine
from time to time what securities and other investments will be purchased,
retained or sold by the Funds, the appropriate portion of each Fund's assets to
be invested in particular countries or geographic regions, the use of foreign
exchange contracts and other foreign currency matters, and the manner in which
voting rights, rights to consent to corporate action and other rights pertaining
to the Funds' investments should be exercised. The Sub-Adviser will implement
such determinations through the placement, in the name of the applicable Fund,
of orders for the execution of portfolio transactions with it through such
brokers or dealers as it may select.
In fulfilling its responsibilities hereunder, the Sub-Adviser agrees
that it will:
(a) use the same skill and care in providing such services as it
uses in providing services to other fiduciary accounts for
which it has investment responsibilities;
(b) conform with all applicable Rules and Regulations of the SEC
and in addition will conduct its activities under this
Agreement in accordance with any applicable regulations of any
government authority pertaining to the investment advisory
activities of the Sub-Adviser and shall furnish such written
reports or other documents substantiating such compliance as
the Adviser reasonably may from time to time request;
(c) place orders pursuant to investment determinations for the
Funds either directly with the issuer or with an
<PAGE> 3
underwriter, market maker or broker or dealer. In placing
orders with brokers and dealers, the Sub-Adviser will use its
reasonable best efforts to obtain prompt execution of orders
in an effective manner at the most favorable price. Consistent
with this obligation, the Sub-Adviser may, 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 Sub-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 Sub-Adviser is
authorized to pay a broker or dealer who provides such
brokerage and research services a commission for effecting a
securities transaction for the Fund which is in excess of the
amount of commission another broker or dealer would have
charged for effecting that transaction if the Sub-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 Sub-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 Sub-Adviser may
consider the sale of shares of the Trust. In no instance will
portfolio securities be purchased from or sold to the Trust,
BISYS Fund Services Limited Partnership, the Adviser, any
other sub-investment adviser for the Trust ("other
sub-advisers"), or the Sub-Adviser or any affiliate of the
foregoing except as may be permitted by the 1940 Act, any
rules or regulations thereunder, or an exemption therefrom;
(d) maintain all necessary or appropriate books and records with
respect to the Funds' securities transactions in accordance
with all applicable laws, rules and regulations, including but
not limited to Section 31(a) of the 1940 Act and will furnish
the Trust's Board of Trustees such periodic and special
reports as the Board reasonably may request;
(e) treat confidentially and as proprietary information of the
Adviser and the Trust all records and other information
relative to the Adviser and the Trust 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 that subject to
prompt notification
<PAGE> 4
to the Trust and the Adviser, the Sub-Adviser may divulge such
information to duly constituted authorities, or when so
requested by the Adviser and the Trust, provided, however,
that nothing contained herein shall prohibit the Sub-Adviser
from complying with applicable laws or regulations or
advertising or soliciting the public generally with respect to
other products or services, regardless of whether such
advertisement or solicitation may include prior, present or
potential shareholders of the Fund;
(f) maintain its policy and practice of conducting its fiduciary
functions independently. In making investment recommendations
for the Trust, the Sub- 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 Adviser, other sub-advisers, the Sub-Adviser
or of their respective parents, subsidiaries or affiliates. In
dealing with such customers, the Sub-Adviser and its parent,
subsidiaries, and affiliates will not inquire or take into
consideration whether securities of those customers are held
by the Trust; and
(g) render, upon request of the Adviser or the Trust's Board of
Trustees, written reports concerning the investment activities
of the Funds.
ss.3. Expenses. During the term of this Agreement, the Sub- 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 and taxes, if any) purchased for the Funds.
ss.4. Books and Records. In compliance with the requirements of Rule
31a-3 under the 1940 Act, the Sub-Adviser hereby agrees that all records, if
any, which it maintains for the Funds are the property of the Funds and further
agrees to surrender promptly to the Adviser or the Trust any such records upon
the Adviser's or the Trust's request and that such records shall be available
for inspection by the SEC. The Sub-Adviser further agrees to preserve for the
periods and at the places prescribed by Rule 31a-2 under the 1940 Act the
records required to be maintained by Rule 31a-1 under the 1940 Act.
ss.5. Compensation of the Sub-Adviser. In consideration of services
rendered pursuant to this Agreement, the Adviser will pay the Sub-Adviser a fee
at the annual rate of the value of each Fund's average daily net assets set
forth in Schedule A hereto; provided, however, that the Sub-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. Such fee shall be accrued daily and
paid monthly as soon as practicable after the
<PAGE> 5
end of each month. If the Sub-Adviser shall serve for less than the whole of any
month, the foregoing compensation shall be prorated. For the purpose of
determining fees payable to the Sub-Adviser, the value of the Funds' net assets
shall be computed at the times and in the manner specified in the Trust's
Registration Statement. Notwithstanding anything contained herein to the
contrary, the Sub-Adviser shall not be compensated on the basis of a share of
capital gains or upon capital appreciation of any Fund or any portion thereof
except as may be authorized by applicable law.
ss.6. Services Not Exclusive. The services of the Sub-Adviser hereunder
are not to be deemed exclusive, and the Sub-Adviser shall be free to render
similar services to others, including others who may invest in the same
securities as the Funds, and to engage in other activities, so long as the
services rendered hereunder are not impaired. It is understood that the action
taken by the Sub-Adviser under this Agreement may differ from the advice given
or the timing or nature of action taken with respect to other clients of the
Sub-Adviser, and that a transaction in a specific security may not be
accomplished for all clients of the Sub-Adviser at the same time or at the same
price.
ss.7. Use of Names. The Adviser shall not use the name of the
Sub-Adviser in any prospectus, sales literature or other material relating to
the Trust in any manner not approved prior thereto in writing by the
Sub-Adviser; provided, however, that the Sub-Adviser shall approve all uses of
its name which merely refer in accurate terms to its appointment hereunder or
which are required by the SEC or a state securities commission; and, provided
further, that in no event shall such approval be unreasonably withheld. The
Sub-Adviser shall not use the name of the Trust, the Fund or the Adviser in any
material relating to the Sub-Adviser in any manner not approved prior thereto by
the Adviser; provided, however, that the Adviser shall approve all uses of its
and the Fund's or the Trust's name which merely refer in accurate terms to the
appointment of the Sub-Adviser hereunder or which are required by the SEC or a
state securities commission; and, provided further, that in no event shall such
approval be unreasonably withheld.
ss.8. Liability of the Sub-Adviser; Indemnification. (a) The
Sub-Adviser may rely on information believed by it to be accurate and reliable.
Neither the Sub-Adviser nor its officers, directors, employees, agents or
controlling persons (as defined in the 1940 Act) shall be subject to any
liability for any act or omission, error of judgment or mistake of law, or for
any loss suffered by the Trust or a Fund, in the course of, connected with or
arising out of any services to be rendered hereunder, except by reason of wilful
misfeasance, bad faith or gross negligence on the part of the Sub-Adviser in the
performance of its duties or by reason of reckless disregard on the part of the
Sub-Adviser of its obligations and duties under this Agreement. Any person,
<PAGE> 6
even though also employed by the Sub-Adviser shall be deemed, when acting within
the scope of his employment by the Trust, to be acting in such employment solely
for the Trust and not as an employee or agent of the Sub-Adviser.
(b) The Adviser agrees to indemnify and hold harmless the Sub-Adviser,
and each of its affiliates, agents, directors, officers and employees (each of
the foregoing being hereinafter referred to as a "Sub-Adviser Indemnified
Person") from and against any and all losses, liabilities, judgments,
settlements, claims, damages and expenses whatsoever, including, without
limitation, all expenses, including attorneys' fees and disbursements,
reasonably incurred in connection with the investigation of, the preparation
for, or the defense of any claim, action, investigation or proceeding
(collectively, "Losses"), whether or not instituted or resulting in liability
and whether or not any Sub-Adviser Indemnified Person is named as a party
thereto, as and when incurred by any Sub-Adviser Indemnified Person, arising out
of, relating to or incurred in connection with:
(i) any violation or alleged violation of any law, rule or regulation
or any judgment, order or decree caused by any action taken or omitted
to be taken by the Adviser or any of its affiliates in connection with
the performance by the Adviser of the obligations arising out of this
Agreement; and
(ii) any breach or alleged breach by the Adviser or any of its
affiliates of any of their respective obligations, representations,
warranties or agreements contained herein.
(c) The Sub-Adviser agrees to indemnify and hold harmless the Adviser,
and each of its affiliates, agents, directors, officers and employees (each of
the foregoing being hereinafter referred to as an "Adviser Indemnified Person")
from and against any and all Losses, whether or not instituted or resulting in
liability and whether or not any Adviser Indemnified Person is named as a party
thereto, as and when incurred by any Adviser Indemnified Person, arising out of,
relating to or incurred in connection with:
(i) any violation or alleged violation of any law, rule or regulation
or any judgment, order or decree caused by any action taken or omitted
to be taken by the Sub-Adviser or any of its affiliates in connection
with the performance by the Sub-Adviser of the obligations arising out
of this Agreement; and
(ii) any breach or alleged breach by the Sub-Adviser or any of its
affiliates of any of their respective obligations, representations,
warranties or agreements contained herein.
<PAGE> 7
(d) Each person entitled to indemnification under Subsections (b) or (c) above
(an "indemnified party") shall give prompt notice to each person responsible for
indemnifying such indemnified party (an "indemnifying party") of any action
commenced against it in respect of which indemnify may be sought hereunder, but
failure to so notify an indemnifying party shall not relieve such indemnifying
party from any liability that it may have otherwise than on account of this
Section. An indemnifying party, upon request of the indemnified party, shall
retain counsel reasonably satisfactory to the indemnified party to represent the
indemnified party and any others the indemnifying party may designate in such
proceeding and shall pay the fees and disbursements of such counsel related to
such proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless (i) the indemnifying party
and the indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. It is understood
that the indemnifying party shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the fees and
expenses of more than one separate firm (in addition to any local counsel) for
the indemnified parities, and that all such fees and expenses shall be
reimbursed as they are incurred. In the case of any such separate firm for an
Adviser Indemnified Person, such firm shall be designated in writing by the
Adviser. In the case of any such separate firm for a Sub-Adviser Indemnified
Person, such firm shall be designated in writing by the Sub-Adviser. The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any Losses by reason of such
settlement or judgment. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened proceeding in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter of
such proceedings.
ss.9. Limitation of Trust's Liability. The Sub-Adviser acknowledges
that it has received notice of and accepts the limitations upon the Trust's and
the Funds' liability set forth in its Declaration of Trust and under Ohio law.
The Sub-Adviser agrees that any of the Trust's obligations shall be limited to
the assets of the Funds and that the Sub-Adviser shall not seek satisfaction of
any such obligation from the shareholders of the
<PAGE> 8
Trust nor from any Trustee, officer, employee or agent of the Trust.
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.
ss.10. Duration, Renewal, Termination and Amendment. This Agreement
will become effective as of the date first written above, provided that it shall
have been approved by vote of a majority of the outstanding voting securities of
each Fund, in accordance with the requirements under the 1940 Act, and, unless
sooner terminated as provided herein, shall continue in effect until January 1,
2000.
Thereafter, if not terminated, this Agreement shall continue in effect
with respect to a Fund for successive periods of one year each ending on
December 31st of each year, provided such continuance is specifically approved
with respect to a Fund 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 that Fund. This Agreement
may be terminated as to a Fund at any time, without payment of any penalty, by
the Trust's Board of Trustees, by the Adviser, or by a vote of the majority of
the outstanding voting securities of that Fund upon, at least 60 days' prior
written notice to the Sub-Adviser, or by the Sub-Adviser upon at least 60 days'
prior written notice to the Adviser and the Trust's Board of Trustees, or upon
such shorter notice as may be mutually agreed upon. This Agreement shall
terminate automatically and immediately upon termination of the Adviser
Agreement. This Agreement shall terminate automatically and immediately in the
event of its assignment. The terms "assignment" and "vote of a majority of the
outstanding voting securities" shall have the meaning set forth for such terms
in the 1940 Act. This Agreement may be amended at any time by the Adviser and
the Sub-Adviser, subject to approval by the Trust's Board of Trustees and by a
majority of the Trust's Board of Trustees who are not "interested
<PAGE> 9
persons" of the Trust, cast in person at a meeting called for the purpose of
voting on such approval, and, if required by the 1940 Act and applicable SEC
rules and regulations, a vote of a majority of the applicable Fund's outstanding
voting securities.
ss.11. Confidential Relationship. Any information and advice furnished
by either party to this Agreement to the other shall be treated as confidential
and shall not be disclosed to third parties except as required by law or by this
Agreement.
ss.12. Severability. 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.
ss.13. Miscellaneous. This Agreement constitutes the full and complete
agreement of the parties hereto with respect to the subject matter hereof. Each
party agrees to perform such further actions and execute such further documents
as are necessary to effectuate the purposes hereof. This Agreement shall be
construed and enforced in accordance with and governed by the laws of the State
of New York, provided that nothing herein shall be construed as being
inconsistent with the 1940 Act. The captions in this Agreement are included for
convenience only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be executed in
several counterparts, all of which together shall for all purposes constitute
one Agreement, binding on all parties.
ss.14. Potential Conflicts of Interest. (a) Subject to applicable
statutes and regulations, it is understood that trustees, officers or agents of
the Trust are or may be interested in the Sub-Adviser or its affiliates as
directors, officers, employees, agents, shareholders or otherwise, and that the
directors, officers, employees, agents or shareholders of the Sub-Adviser or its
affiliates may be interested in the Trust, as trustees, officers, agents or
otherwise.
(b) If the Sub-Adviser considers the purchase or sale of securities for
a Fund and other advisory clients of the Sub-Adviser at or about the same time,
transactions in such securities will be allocated among such Fund and such other
clients in a manner deemed fair and reasonable by the Sub-Adviser, subject to
any guidelines that may be adopted by the Board of Trustees of the Trust.
ss.15. Notices. Any communication hereunder shall be in writing and
shall be delivered in person or by telex or facsimile (followed by mailing such
written communication, air mail postage prepaid, on the date on which such telex
or facsimile is sent, to the address set forth below). Any communication or
document to be made or delivered by one person to another pursuant to this
Agreement shall be made or delivered to that other person at the
<PAGE> 10
following relevant address (unless that other person has by fifteen (15) days'
notice to the other specified another address):
If to the Sub-Adviser:
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
Attention: General Counsel
Telephone No.: (212) 296-7100
Facsimile No.: (212) 921-5477
Telex No.: (212) 680-1248
If to the Adviser:
National Bank of Commerce
One Commerce Square
Memphis, Tennessee 38150
Attention:___________________
Telephone No.: (901)_________
Facsimile No.: ______________
Communications or documents made or delivered by personal delivery shall be
deemed to have been received on the day of such delivery. Communications or
documents made or delivered by telex or facsimile shall be deemed to have been
received, if by telex, when acknowledged by the addressee's correct answer back
code and, if by facsimile, upon production of a transmission report by the
machine from which the facsimile was sent which indicates that the facsimile was
sent in its entirety to the facsimile number of the recipient; provided that a
hard copy of the communication or document so made or delivered by telex or
facsimile was posted the same day as the communication or document was made or
delivered by electronic means.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first written above.
NATIONAL BANK OF COMMERCE MILLER ANDERSON & SHERRERD, LLP
By Morgan Stanley Asset Man-
agement Holdings, Inc.,
its General Partner
By By
-------------------------- ----------------------------
Title Title
----------------------- -------------------------
<PAGE> 11
Dated: January 1, 1998
SCHEDULE A
To the Sub-Investment Advisory Agreement
between National Bank of Commerce and
Miller Anderson & Sherrerd, LLP
<TABLE>
<CAPTION>
Name of Fund COMPENSATION* DATE
- ------------ ------------- ----
<S> <C> <C>
First Market Value Annual rate of 0.625% of the January 1, 1998
Equity Fund average daily net assets of
such Fund up to $20 million,
0.50% of the average daily
net assets of such Fund from
$20 million up to $30 million,
and 0.375% of the average
daily net assets of such Fund
from $30 million to $35 million.
If the average daily net assets
of such Fund equal or exceed $35
million, the annual rate of
0.56% of the average daily net
assets of such Fund.
First Market Fixed Annual Rate of 0.50% of the January 1, 1998
Income Fund average daily net assets of
such Fund up to $25 million
and 0.25% of the average
daily net assets of such Fund
from $25 million to $75 million.
If the average daily net assets
of such Fund equal or exceed $75
million, the annual rate of
0.33% of the average daily net
assets of such Fund.
</TABLE>
MILLER ANDERSON & SHERRERD, LLP NATIONAL BANK OF COMMERCE
By Morgan Stanley Asset
Management Holdings, Inc., its
General Partner
By By
------------------------------- -----------------------------
Title Title
---------------------------- --------------------------
- ----------
*All fees are computed daily and paid monthly.
<PAGE> 1
Exhibit (11)(a)
INDEPENDENT AUDITORS' CONSENT
The Board of Trustees of
The Sessions Group--The Riverside Capital Funds:
We consent to the use of report dated August 22, 1997 included in
post-effective amendment No. 44 to the Registration Statement on Form N-1A of
The Sessions Group--The Riverside Capital Funds and to the references to our
firm under the headings "Auditors" in the Statement of Additional Information
and "Financial Highlights" in the prospectus to the aforementioned Registration
Statement.
KPMG PEAT MARWICK LLP
Columbus, Ohio
November 3, 1997
<PAGE> 1
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
November 3, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000832403
<NAME> THE SESSIONS GROUP
<SERIES>
<NUMBER> 1
<NAME> THE RIVERSIDE CAPITAL MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 139,244,823
<INVESTMENTS-AT-VALUE> 139,244,823
<RECEIVABLES> 1,513,902
<ASSETS-OTHER> 3,728
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 140,762,453
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 588,105
<TOTAL-LIABILITIES> 588,105
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 140,217,042
<SHARES-COMMON-STOCK> 140,207,056
<SHARES-COMMON-PRIOR> 134,348,769
<ACCUMULATED-NII-CURRENT> 1,035
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 43,729
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 140,174,348
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,473,132
<OTHER-INCOME> 0
<EXPENSES-NET> 1,491,452
<NET-INVESTMENT-INCOME> 5,981,680
<REALIZED-GAINS-CURRENT> (4,905)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 5,976,775
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,981,680
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 364,918,578
<NUMBER-OF-SHARES-REDEEMED> 359,396,813
<SHARES-REINVESTED> 336,522
<NET-CHANGE-IN-ASSETS> 6,028,725
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 203,145
<GROSS-ADVISORY-FEES> 480,718
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,779,244
<AVERAGE-NET-ASSETS> 137,220,349
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .044
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .044
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 1.09
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000832403
<NAME> THE SESSIONS GROUP
<SERIES>
<NUMBER> 2
<NAME> THE RIVERSIDE VALUE EQUITY FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 59,249,887
<INVESTMENTS-AT-VALUE> 79,486,489
<RECEIVABLES> 150,604
<ASSETS-OTHER> 1,930
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 79,639,023
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 74,641
<TOTAL-LIABILITIES> 74,641
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 53,750,542
<SHARES-COMMON-STOCK> 5,123,020
<SHARES-COMMON-PRIOR> 5,573,485
<ACCUMULATED-NII-CURRENT> 68,203
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5,509,035
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 20,236,602
<NET-ASSETS> 79,564,382
<DIVIDEND-INCOME> 1,671,207
<INTEREST-INCOME> 25,268
<OTHER-INCOME> 0
<EXPENSES-NET> 1,230,731
<NET-INVESTMENT-INCOME> 465,744
<REALIZED-GAINS-CURRENT> 8,840,538
<APPREC-INCREASE-CURRENT> 6,722,105
<NET-CHANGE-FROM-OPS> 16,028,387
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 504,356
<DISTRIBUTIONS-OF-GAINS> 10,634,101
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 290,948
<NUMBER-OF-SHARES-REDEEMED> 1,111,533
<SHARES-REINVESTED> 370,120
<NET-CHANGE-IN-ASSETS> (1,490,752)
<ACCUMULATED-NII-PRIOR> 106,815
<ACCUMULATED-GAINS-PRIOR> 7,302,598
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 694,259
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,390,124
<AVERAGE-NET-ASSETS> 75,901,249
<PER-SHARE-NAV-BEGIN> 14.54
<PER-SHARE-NII> .09
<PER-SHARE-GAIN-APPREC> 3.06
<PER-SHARE-DIVIDEND> .10
<PER-SHARE-DISTRIBUTIONS> 2.06
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.53
<EXPENSE-RATIO> 1.62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000832403
<NAME> THE SESSIONS GROUP
<SERIES>
<NUMBER> 3
<NAME> THE RIVERSIDE FIXED INCOME FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 18,051,043
<INVESTMENTS-AT-VALUE> 18,148,196
<RECEIVABLES> 295,217
<ASSETS-OTHER> 3,609
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 18,447,022
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 220,243
<TOTAL-LIABILITIES> 220,243
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 24,704,152
<SHARES-COMMON-STOCK> 2,099,019
<SHARES-COMMON-PRIOR> 3,289,966
<ACCUMULATED-NII-CURRENT> 35,281
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 6,609,807
<ACCUM-APPREC-OR-DEPREC> 97,153
<NET-ASSETS> 18,226,779
<DIVIDEND-INCOME> 27,571
<INTEREST-INCOME> 1,877,178
<OTHER-INCOME> 0
<EXPENSES-NET> 357,620
<NET-INVESTMENT-INCOME> 1,547,129
<REALIZED-GAINS-CURRENT> (434,866)
<APPREC-INCREASE-CURRENT> (2,855,544)
<NET-CHANGE-FROM-OPS> (1,743,281)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,546,955
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 90,153
<NUMBER-OF-SHARES-REDEEMED> 1,364,087
<SHARES-REINVESTED> 82,987
<NET-CHANGE-IN-ASSETS> (10,620,430)
<ACCUMULATED-NII-PRIOR> 72,377
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 6,354,913
<GROSS-ADVISORY-FEES> 156,128
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 408,062
<AVERAGE-NET-ASSETS> 24,019,740
<PER-SHARE-NAV-BEGIN> 8.77
<PER-SHARE-NII> .57
<PER-SHARE-GAIN-APPREC> (1.39)
<PER-SHARE-DIVIDEND> .56
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 1.29
<PER-SHARE-NAV-END> 8.68
<EXPENSE-RATIO> 1.49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000832403
<NAME> THE SESSIONS GROUP
<SERIES>
<NUMBER> 5
<NAME> THE RIVERSIDE TENNESSEE MUNICIPAL OBLIGATIONS FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 16,930,150
<INVESTMENTS-AT-VALUE> 17,403,966
<RECEIVABLES> 967,052
<ASSETS-OTHER> 4,092
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 18,375,110
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 22,750
<TOTAL-LIABILITIES> 22,750
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 18,944,032
<SHARES-COMMON-STOCK> 1,843,918
<SHARES-COMMON-PRIOR> 1,949,549
<ACCUMULATED-NII-CURRENT> 41,771
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1,107,259
<ACCUM-APPREC-OR-DEPREC> 473,816
<NET-ASSETS> 18,352,360
<DIVIDEND-INCOME> 9,855
<INTEREST-INCOME> 1,195,725
<OTHER-INCOME> 0
<EXPENSES-NET> 205,810
<NET-INVESTMENT-INCOME> 999,770
<REALIZED-GAINS-CURRENT> 101,371
<APPREC-INCREASE-CURRENT> 231,707
<NET-CHANGE-FROM-OPS> 1,332,848
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 974,115
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 90,725
<NUMBER-OF-SHARES-REDEEMED> 226,674
<SHARES-REINVESTED> 30,318
<NET-CHANGE-IN-ASSETS> (684,728)
<ACCUMULATED-NII-PRIOR> 41,200
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 1,207,935
<GROSS-ADVISORY-FEES> 122,007
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 357,850
<AVERAGE-NET-ASSETS> 18,770,413
<PER-SHARE-NAV-BEGIN> 9.76
<PER-SHARE-NII> .53
<PER-SHARE-GAIN-APPREC> .17
<PER-SHARE-DIVIDEND> .51
<PER-SHARE-DISTRIBUTIONS> 0
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<PER-SHARE-NAV-END> 9.95
<EXPENSE-RATIO> 1.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000832403
<NAME> THE SESSIONS GROUP
<SERIES>
<NUMBER> 8
<NAME> THE RIVERSIDE GROWTH FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 24,543,367
<INVESTMENTS-AT-VALUE> 37,369,819
<RECEIVABLES> 70,344
<ASSETS-OTHER> 1,121
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 37,441,284
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 35,870
<TOTAL-LIABILITIES> 35,870
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 23,198,904
<SHARES-COMMON-STOCK> 2,136,152
<SHARES-COMMON-PRIOR> 2,409,383
<ACCUMULATED-NII-CURRENT> 9,950
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,370,108
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,826,452
<NET-ASSETS> 37,405,414
<DIVIDEND-INCOME> 707,799
<INTEREST-INCOME> 5,539
<OTHER-INCOME> 0
<EXPENSES-NET> 360,344
<NET-INVESTMENT-INCOME> 352,994
<REALIZED-GAINS-CURRENT> 1,370,108
<APPREC-INCREASE-CURRENT> 7,020,864
<NET-CHANGE-FROM-OPS> 8,743,966
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 354,568
<DISTRIBUTIONS-OF-GAINS> 934,819
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 182,434
<NUMBER-OF-SHARES-REDEEMED> 493,776
<SHARES-REINVESTED> 38,111
<NET-CHANGE-IN-ASSETS> 3,638,045
<ACCUMULATED-NII-PRIOR> 11,382
<ACCUMULATED-GAINS-PRIOR> 934,961
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 332,857
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 663,244
<AVERAGE-NET-ASSETS> 33,285,644
<PER-SHARE-NAV-BEGIN> 14.01
<PER-SHARE-NII> .16
<PER-SHARE-GAIN-APPREC> 3.92
<PER-SHARE-DIVIDEND> .16
<PER-SHARE-DISTRIBUTIONS> .42
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.51
<EXPENSE-RATIO> 1.08
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000832403
<NAME> THE SESSIONS GROUP
<SERIES>
<NUMBER> 10
<NAME> THE RIVERSIDE LOW DURATION GOVERNMENT SECURITIES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 6,814,208
<INVESTMENTS-AT-VALUE> 6,860,099
<RECEIVABLES> 111,784
<ASSETS-OTHER> 193
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,972,076
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 27,084
<TOTAL-LIABILITIES> 27,084
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,933,266
<SHARES-COMMON-STOCK> 694,680
<SHARES-COMMON-PRIOR> 750,109
<ACCUMULATED-NII-CURRENT> 14,939
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 49,104
<ACCUM-APPREC-OR-DEPREC> 45,891
<NET-ASSETS> 6,944,992
<DIVIDEND-INCOME> 8,356
<INTEREST-INCOME> 472,604
<OTHER-INCOME> 0
<EXPENSES-NET> 94,265
<NET-INVESTMENT-INCOME> 386,695
<REALIZED-GAINS-CURRENT> (12,845)
<APPREC-INCREASE-CURRENT> 54,148
<NET-CHANGE-FROM-OPS> 427,998
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 389,508
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,000
<NUMBER-OF-SHARES-REDEEMED> 97,847
<SHARES-REINVESTED> 31,418
<NET-CHANGE-IN-ASSETS> (515,999)
<ACCUMULATED-NII-PRIOR> 15,797
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 34,304
<GROSS-ADVISORY-FEES> 35,860
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 148,773
<AVERAGE-NET-ASSETS> 7,172,099
<PER-SHARE-NAV-BEGIN> 9.95
<PER-SHARE-NII> .54
<PER-SHARE-GAIN-APPREC> .05
<PER-SHARE-DIVIDEND> .54
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 1.31
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
