<PAGE> 1
Rule 497(c)
Registration No. 33-21489
File No. 811-5545
THE KEYPREMIER U.S. TREASURY OBLIGATIONS MONEY MARKET FUND [KeyPremier
THE KEYPREMIER LIMITED DURATION GOVERNMENT SECURITIES FUND Funds Logo]
- --------------------------------------------------------------------------------
3435 Stelzer Road For current yield, purchase,
Columbus, Ohio 43219 and redemption information,
call (800) 766-3960.
- --------------------------------------------------------------------------------
The Sessions Group (the "Group") is an open-end management investment company.
The Group includes The KeyPremier U.S. Treasury Obligations Money Market Fund
(the "Treasury Money Market Fund") and The KeyPremier Limited Duration
Government Securities Fund (the "Government Securities Fund"), each of which is
a diversified portfolio of the Group. (The Treasury Money Market Fund and the
Government Securities Fund are hereinafter jointly 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").
Martindale Andres & Company, Inc., West Conshohocken, Pennsylvania (the
"Adviser"), which is a wholly owned subsidiary of Keystone Financial, Inc.
("Keystone"), acts as the investment adviser to each of the Funds.
Additional information about the Funds and the Group, contained in a Statement
of Additional Information, has been filed with the Securities and Exchange
Commission and is available upon request without charge by writing to the Group
at its address or by calling the Group at the telephone number shown above. The
Statement of Additional Information bears the same date as this Prospectus and
is incorporated by reference in its entirety into this Prospectus.
This Prospectus sets forth concisely the information about each of the Funds
and the Group that a prospective investor ought to know before investing.
Investors should read this Prospectus and retain it for future reference.
The Government Securities Fund's net asset value per share will fluctuate as
the value of its portfolio changes in response to changing market rates of
interest and/or other factors.
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS"),
Columbus, Ohio, acts as the Funds' administrator and distributor. BISYS Fund
Services, Inc., Columbus, Ohio, the general partner of BISYS, acts as the Funds'
transfer agent (the "Transfer Agent") and performs certain fund accounting
services for each of the Funds.
THE SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, THE ADVISER, KEYSTONE OR ANY OF THEIR AFFILIATES. SUCH SHARES ARE
NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL
AGENCY, AND AN INVESTMENT IN EITHER FUND INVOLVES CERTAIN INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THE TREASURY MONEY MARKET FUND SEEKS
TO MAINTAIN A CONSTANT NET ASSET VALUE OF $1.00 PER SHARE, BUT THERE CAN BE NO
ASSURANCE THAT NET ASSET VALUE WILL NOT VARY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is June 30, 1997.
<PAGE> 2
PROSPECTUS SUMMARY
SHARES OFFERED: Units of beneficial interest ("Shares") of the Treasury
Money Market Fund and the Government Securities Fund, two separate investment
funds of The Sessions Group, an Ohio business trust (the "Group").
OFFERING PRICE: The public offering price of the TREASURY MONEY MARKET FUND
is equal to the net asset value per share which the Treasury Money Market Fund
will seek to maintain at $1.00 per Share. (See "HOW TO PURCHASE AND REDEEM
SHARES.")
The public offering price of the GOVERNMENT SECURITIES FUND is equal to the
net asset value per share plus a sales charge of 3.00% of the public offering
price, reduced on investments of $100,000 or more. (See "HOW TO PURCHASE AND
REDEEM SHARES--Sales Charges.") Under certain circumstances, the sales charge
may be eliminated. (See "HOW TO PURCHASE AND REDEEM SHARES--Sales Charge
Waivers.")
MINIMUM PURCHASE: $1,000 minimum initial investment with $25 minimum
subsequent investments. Such minimum initial investment is reduced for investors
using the Auto Invest Plan described herein and for employees of the Adviser and
its affiliates.
TYPE OF COMPANY: Each Fund is a diversified series of an open-end,
management investment company.
INVESTMENT OBJECTIVES: For the TREASURY MONEY MARKET FUND, current income
with liquidity and stability of principal.
For the GOVERNMENT SECURITIES FUND, current income with preservation of
capital as a secondary objective.
INVESTMENT POLICIES: Under normal market conditions, the TREASURY MONEY
MARKET FUND will invest at least 65% of its total assets in securities issued by
the U.S. Treasury and in repurchase agreements secured by such Treasury
securities. All securities or instruments in which the Treasury Money Market
Fund invests have or are deemed to have remaining maturities of 397 days (13
months) or less, although instruments subject to repurchase agreements may bear
longer maturities.
Under normal market conditions, the GOVERNMENT SECURITIES FUND will invest
substantially all, but under such conditions in no event less than 65%, of its
total assets in securities issued or guaranteed by the U.S. Government or its
agencies and instrumentalities. Under such market conditions, the Government
Securities Fund expects to maintain an average portfolio duration of
approximately one to three years.
RISK FACTORS AND SPECIAL CONSIDERATIONS: An investment in each of the Funds
is subject to certain risks, including interest rate risk, as set forth in
detail under "INVESTMENT OBJECTIVES AND POLICIES--Risk Factors and Investment
Techniques." As with other mutual funds, there can be no assurance that either
Fund will achieve its investment objectives. Each Fund, to the extent set forth
under "INVESTMENT OBJECTIVES AND POLICIES," may engage in the following
practices: the use of repurchase agreements and reverse repurchase agreements,
the short selling of securities, the purchase of securities on a when-issued or
delayed-delivery basis and the lending of portfolio securities.
INVESTMENT ADVISER: Martindale Andres & Company, Inc. (the "Adviser").
2
<PAGE> 3
DIVIDENDS: For the Treasury Money Market Fund, dividends from net income
are declared daily and generally paid monthly. For the Government Securities
Fund, dividends from net income are declared and generally paid monthly. Net
realized capital gains, if any, are distributed at least annually for each of
the Funds.
DISTRIBUTOR: BISYS Fund Services Limited Partnership d/b/a BISYS Fund
Services ("BISYS").
3
<PAGE> 4
FEE TABLE
<TABLE>
<CAPTION>
GOVERNMENT
TREASURY MONEY SECURITIES
MARKET FUND FUND
-------------- -----------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).......................... 0% 3.00%
ESTIMATED ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees After Voluntary Fee Waivers(1)................. 0.00% 0.00%
12b-1 Fees..................................................... None None
Other Expenses(2).............................................. 0.54 0.50
---- ----
Estimated Total Fund Operating Expenses After Voluntary Fee
Waivers...................................................... 0.54% 0.50%
==== ====
</TABLE>
Example You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
The Treasury Money Market Fund.............................. $ 6 $17
The Government Securities Fund.............................. $ 35 $46
</TABLE>
The purpose of the above table is to assist a potential purchaser of Shares of
either of the Funds in understanding the various costs and expenses that an
investor in that Fund will bear directly or indirectly. Such expenses do not
include any fees charged by the Adviser or any of its affiliates to its customer
accounts which may have invested in Shares of the Funds. See "MANAGEMENT OF THE
GROUP" and "GENERAL INFORMATION" for a more complete discussion of the annual
operating expenses of the Funds. THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED
A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
- ---------------
(1) The Adviser has agreed with the Group to waive all of its investment
advisory fees for each of the Funds through September 30, 1997. Absent such
voluntary fee waivers, Management Fees and Estimated Total Fund Operating
Expenses for the Treasury Money Market Fund would be 0.40% and 0.94%,
respectively, and for the Government Securities Fund would be 0.60% and
1.10%, respectively.
(2) "Other Expenses" are estimated for the current fiscal year.
4
<PAGE> 5
PERFORMANCE INFORMATION
From time to time performance information for the Funds showing their average
annual total return, seven-day yield, seven-day effective yield and/or 30-day
yield may be presented in advertisements, sales literature and shareholder
reports. SUCH PERFORMANCE FIGURES ARE BASED ON HISTORICAL PERFORMANCE AND ARE
NOT INTENDED TO INDICATE FUTURE PERFORMANCE. Average annual total return will be
calculated for the period since commencement of operations for the applicable
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 a 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.
The seven-day yield of the Treasury Money Market Fund refers to the income
generated by an investment therein over a seven-day period (which period will be
stated in the advertisement). This income is then "annualized." That is, the
amount of income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The seven-day effective yield is calculated similarly but, when
annualized, the income earned by an investment in the Treasury Money Market Fund
is assumed to be reinvested. The seven-day effective yield is slightly higher
than the seven-day yield because of the compounding effect of this assumed
reinvestment. The Treasury Money Market Fund may also present a 30-day yield
which is calculated similarly to the seven-day yield but instead refers to a
30-day period rather than a seven-day period.
Yield for the Government Securities Fund will be computed by dividing the
Government Securities 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. The Government Securities
Fund may also present its average annual total return and yield excluding the
effect of a sales charge.
The Government Securities Fund has been initially funded by the transfer of
all of the assets of multiple corresponding collective investment funds and
common trust funds managed by the Adviser (collectively, the "CIFs"). Because
the management of the Government Securities Fund is substantially the same as
two of its corresponding CIFs, the quoted performance of the Government
Securities Fund will include the performance of those CIFs for the periods prior
to the effectiveness of the Group's registration statement as it relates to the
Government Securities Fund. Such performance will be restated to reflect the
estimated current fees of the Government Securities Fund. Such CIFs were not
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), and therefore were not subject to certain investment restrictions that
are imposed by the 1940 Act. If the CIFs had been so registered, their
performance might have been adversely affected.
In addition, from time to time the Government Securities Fund may also present
its distribution rate in supplemental sales literature and in shareholder
reports, both of which must be accompanied or preceded by a prospectus.
Distribution rates will be computed by dividing the distribution per share made
by the Government Securities Fund over a twelve-month period by the maximum
offering price per share at the end of that period. The calculation of income in
the distribution rate includes both income and capital gain dividends and does
not reflect unrealized gains or losses, although the Government Securities Fund
may also present a distribution rate excluding the effect of capital gains
and/or a sales charge. The distribution rate differs from the yield because it
includes capital gain dividends which are often
5
<PAGE> 6
non-recurring in nature, whereas yield does not include such items.
Investors may also judge the performance of the Funds by comparing or
referencing it to the performance of other mutual funds with comparable
investment objectives and policies through various mutual fund or market indices
and to data prepared by various services, which indices or data may be published
by such services or by other services or publications. In addition to
performance information, general information about the 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 Keystone or by any of its affiliates,
including the Adviser, to its customer accounts which may have invested in
Shares of the Funds 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.
INVESTMENT OBJECTIVES AND POLICIES
IN GENERAL
The investment objective of the Treasury Money Market Fund is to seek current
income with liquidity and stability of principal. The investment objectives for
the Government Securities Fund are current income with preservation of capital
as a secondary objective. The investment objectives of each Fund are non-
fundamental policies and as such may be changed by the Group's Trustees without
the vote of the Shareholders of that Fund. There can be no assurance that the
investment objectives of either Fund will be achieved.
THE TREASURY MONEY MARKET FUND
As a money market fund, the Treasury Money Market Fund invests exclusively in
United States dollar-denominated instruments which the Trustees of the Group and
the Adviser determine present minimal credit risks. All securities or
instruments in which the Treasury Money Market Fund invests have or are deemed
to have remaining maturities of 397 calendar days or less. The dollar-weighted
average maturity of the securities in the Treasury Money Market Fund will not
exceed 90 days.
Subject to the above limitations, under normal market conditions, the Treasury
Money Market Fund will invest at least 65% of its total assets in the following
types of securities: direct obligations issued by the U.S. Treasury including
bills, notes and bonds which differ from each other only in interest rates,
maturities and times of issuance; U.S. Treasury securities that have been
stripped of their unmatured interest coupons (which typically provide for
interest payments semi-annually); interest coupons that have been stripped from
such U.S. Treasury securities; receipts and certificates for such stripped debt
obligations and stripped coupons (collectively, "Stripped Treasury Securities");
and in repurchase agreements backed by such securities. Stripped Treasury
Securities will include (1) coupons that have been stripped from U.S. Treasury
bonds, which may be held through the Federal Reserve Bank's book-entry system
called "Separate Trading of Registered Interest and Principal of Securities"
("STRIPS") or through a program entitled "Coupon Under Book-Entry Safekeeping"
("CUBES").
Treasury bills have maturities of one year or less; Treasury notes have
maturities of one to ten years; and Treasury bonds generally have maturities of
greater than ten years. Stripped
6
<PAGE> 7
Treasury Securities are sold at a deep discount because the buyer of those
securities receives only the right to receive a future fixed payment
(representing principal or interest) on the security and does not receive any
rights to periodic interest payments on the security. The Treasury Money Market
Fund may engage in other investment techniques described below.
The Treasury Money Market Fund may also invest up to 35% of its total assets
in securities issued or guaranteed by agencies or instrumentalities of the U.S.
Government which are backed by the full faith and credit of the U.S. Treasury
and in repurchase agreements backed by such securities. Such securities include
those of the Government National Mortgage Association and the Export-Import Bank
of the United States.
THE GOVERNMENT SECURITIES FUND
Generally. Under normal market conditions, the Government Securities Fund will
invest substantially all, but under such conditions in no event less than 65%,
of its total assets in securities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities, including variable and floating rate
securities (collectively, "Government Obligations"), and in repurchase
agreements backed by such securities. Under such market conditions, the
Government Securities Fund expects to maintain an average portfolio duration of
one to three years.
A portion of the Government Securities Fund (but under normal market
conditions no more than 35% of its total assets) may be invested in securities
of other investment companies and in repurchase agreements for cash management
purposes.
The Government Securities Fund expects to invest in a variety of Government
Obligations, differing in their interest rates, maturities, and times of
issuance, including Stripped Treasury Securities. 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 Government
Securities Fund will invest in the obligations of such agencies or
instrumentalities only when the Adviser believes that the credit risk with
respect thereto is minimal.
Duration. The Government Securities Fund will attempt to limit its exposure to
interest rate risk by maintaining a duration which, on a weighted average basis
and under normal market conditions, will generally be less than three years.
Duration is a measure of the average life of a fixed-income security that was
developed as a more precise alternative to the concepts of "term to maturity" or
"average dollar weighted maturity" as measures of "volatility" or "risk"
associated with changes in interest rates. Duration incorporates a security'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 and the nature of the call
provisions, the market values of debt obligations may respond differently to
changes in interest rates.
7
<PAGE> 8
Traditionally, a debt security's "term-to-maturity" has been used as a measure
of the sensitivity of the security's price to changes in interest 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. Average dollar weighted maturity is calculated by averaging the
terms to maturity of each debt security held with each maturity "weighted"
according to the percentage of assets that its represents. Duration is a measure
of the expected life of a debt security on a present value basis and reflects
both principal and interest payments. 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 security, expected to be
received, and weights them by the present values of the cash to be received at
each future point in time. For any debt security with interest payments
occurring prior to the payment of principal, duration is ordinarily less than
maturity. In general, all other factors being the same, the lower the stated or
coupon rate of interest of a debt security, the longer the duration of the
security; conversely, the higher the stated or coupon rate of interest of a debt
security, the shorter the duration of the security.
There are some situations where 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 corresponds to the frequency of the coupon
reset. Another example where the interest rate exposure is not properly captured
by duration is 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 to project the economic life of a security and estimate
its interest rate exposure. Since the computation of duration is based on
predictions of future events rather than known factors, there can be no
assurance that the Government Securities Fund will at all times achieve its
targeted portfolio duration.
The change in market value of U.S. Government fixed-income securities is
largely a function of changes in the prevailing level of interest rates. When
interest rates are falling, a portfolio with a shorter duration generally will
not generate as high a level of total return as a portfolio with a longer
duration. When interest rates are flat, shorter duration portfolios generally
will not generate as high a level of total return as longer duration portfolios
(assuming that long-term interest rates are higher than short-term rates, which
is commonly the case). When interest rates are rising, a portfolio with a
shorter duration will generally outperform longer duration portfolios. With
respect to the composition of a fixed-income portfolio, the longer the duration
of the portfolio, generally the greater the anticipated potential for total
return, with, however, greater attendant interest rate risk and price volatility
than for a portfolio with a shorter duration.
While the Government Securities Fund intends to maintain an average portfolio
duration of three to five years under normal market conditions, there is no
limit as the maturity of any one security which the Government Securities Fund
may purchase.
Mortgage-Backed Securities. The securities in which the Government Securities
Fund may invest include mortgage-backed securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, such as GNMA, FNMA and
FHLMC. Such mortgage-backed securities may have mortgage obligations directly
backing such securities, including among others, conventional thirty year fixed
8
<PAGE> 9
rate mortgage obligations, graduated payment mortgage obligations, fifteen year
mortgage obligations and adjustable rate mortgage obligations. All of these
mortgage obligations can be used to create pass-through securities. A
passthrough security is created when mortgage obligations are pooled together
and undivided interests in the pool or pools are sold. The cash flow from the
mortgage obligations is passed through to the holders of the securities in the
form of periodic payments of interest, principal and prepayments (net of a
service fee). Prepayments occur when the holder of an individual mortgage
obligation prepays the remaining principal before the mortgage obligation's
scheduled maturity date.
As a result of the pass-through of prepayments of principal on the underlying
securities, mortgage-backed securities are often subject to more rapid
prepayment of principal than their stated maturity would indicate. Because the
prepayment characteristics of the underlying mortgage obligations vary, it is
not possible to predict accurately the realized yield or average life of a
particular issue of pass-through certificates. Prepayment rates are important
because of their effect on the yield and price of the securities. In addition,
prepayment rates will be used to determine a security's estimated average life
and the Government Securities Fund's dollar-weighted average portfolio maturity.
Accelerated prepayments have an adverse impact on yields for pass-through
securities purchased at a premium (i.e., a price in excess of principal amount)
and may involve additional risk of loss of principal because the premium may not
have been fully amortized at the time the obligations are repaid. The opposite
is true for pass-through securities purchased at a discount. The Government
Securities Fund may purchase mortgage-related securities at a premium or a
discount. Reinvestment of principal payments may occur at higher or lower rates
than the original yield on such securities. Due to the prepayment feature and
the need to reinvest payments and prepayments of principal at current rates,
mortgage-related securities can be less effective than typical bonds of similar
maturities at maintaining yields during periods of declining interest rates.
Zero Coupon Securities. The Government Securities Fund may invest in zero
coupon Government Obligations which are debt securities issued or sold at a
discount from their face value which do not entitle the holder to any periodic
payment of interest prior to maturity or a specified redemption date (or cash
payment date). The amount of the discount varies depending on the time remaining
until maturity or cash payment date, prevailing interest rates, liquidity of the
security and perceived credit quality of the issuer. Zero coupon securities also
may take the form of debt securities that have been stripped of their unmatured
interest coupons, the coupons themselves and receipts or certificates
representing interests in such stripped debt obligations and coupons. The market
prices of zero coupon securities generally are more volatile than the market
prices of interest-bearing securities and are likely to respond to a greater
degree to changes in interest rates than interest-bearing securities having
similar maturities and credit qualities. For further information regarding zero
coupon securities, see "Additional General Tax Information" in the Statement of
Additional Information.
An increase in interest rates will generally reduce the value of the
investments in the Government Securities Fund, and a decline in interest rates
will generally increase the value of those investments, although as described
above, some securities bear the risk of early prepayment. 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
9
<PAGE> 10
many factors other than current yield, including the preservation of capital,
maturity, and yield to maturity.
RISK FACTORS AND INVESTMENT TECHNIQUES
Like any investment program, an investment in either Fund entails certain
risks. Since the Government Securities Fund invests in bonds, investors in the
Government Securities Fund are exposed to bond market risk, i.e., fluctuations
in the market value of bonds. Bond prices are influenced primarily by changes in
the level of interest rates. When interest rates rise, the prices of bonds
generally fall; conversely, when interest rates fall, bond prices generally rise
although certain types of bonds are subject to the risks of prepayment as
described above when interest rates fall. There have been in the recent past
extended periods of cyclical increases in interest rates that have caused
significant declines in bond prices and have caused the effective maturity of
securities with prepayment features to be extended, thus effectively converting
short or intermediate term securities into longer term securities (the prices of
which generally are more volatile).
Depending upon the performance of the Government Securities Fund's
investments, the net asset value per share of the Government Securities Fund may
decrease instead of increase. The Group will attempt to maintain the net asset
value per share of the Treasury Money Market Fund at $1.00, but there can be no
assurance that it will be able to do so.
Each Fund may invest in certain variable or floating rate securities and the
Government Securities Fund may invest in mortgage-backed securities as described
above. Such instruments may be considered to be "derivatives." A derivative is
generally defined as an instrument whose value is based upon, or derived from,
some underlying index, reference rate (e.g., interest rates), security,
commodity or other asset. There is no limit as to the portion of a Fund's
portfolio that may be invested in any such derivatives at any one time.
Variable and Floating Rate Securities. Securities purchased by the Funds may
include variable and floating rate obligations. A variable rate obligation is
one whose terms provide for the adjustment of its interest rate on set dates and
which, upon such adjustment, can reasonably be expected to have a market value
that approximates its par value or amortized cost, as the case may be. A
floating rate obligation is one whose terms provide for the adjustment of its
interest rate whenever a specified interest rate changes and which, at any time,
can reasonably be expected to have a market value that approximates its par
value or amortized cost, as the case may be.
In the event the interest rate of a variable or floating rate obligation is
established by reference to an index or an interest rate that may from time to
time lag behind other market interest rates, there is the risk that the market
value of such obligation, on readjustment of its interest rate, will not
approximate its par value or amortized cost, as the case may be.
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 deems creditworthy under guidelines approved by
the Group's Board of Trustees. The seller agrees to repurchase such securities
at a mutually agreed date and price. The repurchase price generally equals the
price paid by the Fund plus interest negotiated on the basis of current
short-term rates, which may be more or less than the rate on the underlying
portfolio securities. Securities subject to repurchase agreements must be of the
same type and quality as those in which such Fund may invest directly.
Repurchase agreements are considered to be loans by a Fund under the 1940 Act.
For further information about repurchase agreements
10
<PAGE> 11
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 Government Obligations consistent with such
Fund's investment restrictions having a value equal to the repurchase price
(including accrued interest), and will continually monitor the account to ensure
that such equivalent value is maintained at all times. Reverse repurchase
agreements involve the risk that the market value of the securities sold by a
Fund may decline below the price at which such Fund is obligated to repurchase
the securities. Reverse repurchase agreements are considered to be borrowings by
a Fund under the 1940 Act and therefore a form of leverage. A Fund may
experience a negative impact on its net asset value if interest rates rise
during the term of a reverse repurchase agreement. The Funds generally will
invest the proceeds of such borrowings only when such borrowings will enhance
the Fund's liquidity or when the Fund reasonably expects that the interest
income to be earned from the investment of the proceeds is greater than the
interest expense of the transaction. For further information about reverse
repurchase agreements, see "INVESTMENT OBJECTIVE AND POLICIES--Additional
Information on Portfolio Instruments--Reverse Repurchase Agreements" in the
Statement of Additional Information.
Except as otherwise disclosed to the Shareholders of the 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, 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.
Short Sales. The Government Securities Fund will from time to time sell
securities short. Short sales are effected when the Adviser believes that the
price of a particular security will decline, and involves the sale of a security
which the Government Securities Fund does not own in the hope of purchasing the
same security at a later date at a lower price. When the Government Securities
Fund sells a security short, it will borrow the same security from a broker or
other institution to complete the sale. The Government Securities Fund may make
a profit or incur a loss depending upon whether the market price of the security
sold short decreases or increases between the date of the short sale and the
date on which the Government Securities Fund must replace the borrowed security.
An increase in the value of a security sold short by the Government Securities
Fund over the price at which it was sold short will result in a loss to the
Government Securities Fund, and there can be no assurance that the Government
Securities Fund will be able to close out the position at any particular time or
at an acceptable price.
All short sales must be fully collateralized, and the Government Securities
Fund will not sell securities short if, immediately after and as a result of the
sale, the value of all securities sold short by the Government Securities Fund
exceeds 25% of its total assets.
Securities Lending. In order to generate additional income, each Fund may,
from time to time, lend its portfolio securities to broker-dealers, banks, or
institutional borrowers of securities. A Fund must receive 100% collateral
11
<PAGE> 12
in the form of cash or U.S. Government securities. This collateral will be
valued daily by the Adviser. Should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Fund. During
the time portfolio securities are on loan, the borrower pays the Fund any
dividends or interest received on such securities. Loans are subject to
termination by a 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, a 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 has determined are
creditworthy under guidelines established by the Group's Board of Trustees.
Neither Fund will lend more than 33% of the total value of its portfolio
securities at any one time.
When-Issued or Delayed-Delivery Securities. 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. Each Fund will engage in when-issued and delayed-delivery
transactions only for the purpose of acquiring portfolio securities consistent
with and in furtherance of its investment objectives and policies, not for
investment leverage, although such transactions represent a form of leveraging.
When-issued or delayed-delivery securities are securities purchased for delivery
beyond the normal settlement date at a stated price and yield and thereby
involve a risk that the yield obtained in the transaction will be less than
those available in the market when delivery takes place. A Fund will generally
not pay for such securities or start earning interest or dividends on them until
they are received on the settlement date. When a Fund agrees to purchase such
securities, however, its custodian will set aside cash or liquid securities
equal to the amount of the commitment in a separate account. Securities
purchased on a when-issued or delayed-delivery 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 that Fund to miss a price or yield considered to be advantageous.
Investment Company Securities. The Government Securities Fund may also invest
in the securities of other investment companies, including a money market fund
advised by the Adviser (a "KeyPremier money market fund"), in accordance with
the limitations of the 1940 Act and any exemptions therefrom. Such Fund intends
to invest, for purposes of short-term cash management, in money market mutual
funds which invest in the same securities in which such Fund may invest. The
Government Securities 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 a
KeyPremier money market fund, the Adviser, BISYS, as the Government Securities
Fund's administrator, and their affiliates will reduce their fees charged to the
Government Securities 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 KeyPremier money market fund. Additional
restrictions on the Government Securities Fund's investments in the securities
of other mutual funds are contained in the Statement of Additional Information.
INVESTMENT RESTRICTIONS
Each Fund is subject to a number of investment restrictions that may be
changed only by
12
<PAGE> 13
a vote of a majority of the outstanding Shares of that Fund (as defined under
"GENERAL INFORMATION--Miscellaneous" herein). Each Fund will not:
1. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of the Fund's total assets would
be invested in such issuer or the Fund would hold more than 10% of the
outstanding voting securities of the issuer, except that 25% or less of the
Fund's total assets may be invested without regard to such limitations. There
is no limit to the percentage of assets that may be invested in U.S. Treasury
bills, notes, or other obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
2. Purchase any securities which would cause more than 25% of the Fund's
total assets at the time of purchase to be invested in securities of one or
more issuers conducting their principal business activities in the same
industry, provided that (a) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements secured by obligations of the
U.S. Government, its agencies or instrumentalities; (b) wholly owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their parents;
and (c) utilities will be divided according to their services. For example,
gas, gas transmission, electric and gas, electric, and telephone will each be
considered a separate industry.
3. Borrow money or issue senior securities except that the 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. So long as the Treasury Money Market
Fund's borrowings, including reverse repurchase agreements and dollar roll
agreements, exceed 5% of such Fund's total assets, the Fund will not acquire
any portfolio securities.
4. Make loans, except that the Fund may purchase or hold debt instruments
and lend portfolio securities in accordance with its investment objective and
policies, make time deposits with financial institutions and enter into
repurchase agreements.
The following additional investment restriction may be changed without the
vote of a majority of the outstanding Shares of the applicable Fund. Each Fund
may not purchase or otherwise acquire any security if, as a result, more than
10% of its net assets, in the case of the Treasury Money Market Fund, or 15% of
its net assets, in the case of the Government Securities Fund, would be invested
in securities that are illiquid. For purposes of this investment restriction,
illiquid securities include securities which are not readily marketable and
repurchase agreements with maturities in excess of seven days.
VALUATION OF SHARES
The net asset value of the Treasury Money Market Fund is determined and its
Shares are priced as of 12:00 noon (Eastern time) and the close of regular
trading on the New York Stock Exchange (the "Exchange") (generally 4:00 p.m.
Eastern time) on each Business Day of the Treasury Money Market Fund. The net
asset value of the Government Securities Fund is determined and its Shares are
priced as of the close of regular trading on the Exchange (generally 4:00 p.m.
Eastern time) on each Business Day of that Fund. The time or times at which the
Shares of a Fund are priced are hereinafter referred to as the "Valuation Time"
or "Valuation Times," as the case may be. A "Business Day" of a Fund is a day on
which the Exchange is open for trading and any other day (other
13
<PAGE> 14
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 the Fund's net asset value
per share might be materially affected. The Exchange will not be open in
observance of the following holidays: New Year's Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.
Net asset value per share for purposes of pricing purchases and redemptions is
calculated by dividing the value of all securities and other assets belonging to
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 the Government Securities Fund will
fluctuate as the value of the investment portfolio of the Government Securities
Fund changes. The Trustees of the Group have set the initial price of the
Government Securities Fund's Shares at $10 per share.
The assets in the Treasury 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 Treasury Money Market Fund will maintain a dollar-weighted average portfolio
maturity of 90 days or less. Although the Group seeks to maintain the Treasury
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 for the Government Securities Fund for which market
quotations are readily available are valued based upon their current available
prices in the principal market in which such securities normally are traded.
Unlisted securities for which market quotations are readily available are valued
at such market values. Other securities, including restricted securities and
other securities for which market quotations are not readily available, and
other assets are valued at fair value by the Adviser under procedures
established by, and under the supervision of the Group's Board of Trustees.
Securities may be valued by an independent pricing service approved by the
Group's Board of Trustees. Investments in debt securities with remaining
maturities of 60 days or less may be valued based upon the amortized cost
method.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares of the Funds are sold on a continuous basis by the Group's distributor,
BISYS (the "Distributor"). The principal office of the Distributor is 3435
Stelzer Road, Columbus, Ohio 43219. If you wish to purchase Shares, telephone
the Group at (800) 766-3960.
EMPLOYEE BENEFIT PLANS
Purchases, exchanges and redemptions of Shares through an employee benefit
plan may be subject to different requirements and limitations imposed by
employers than those discussed below. Investors should consult their employer
for more information on how to purchase, exchange and redeem Shares of the Funds
through their employer's plan.
PURCHASES OF SHARES
Shares may be purchased through procedures established by the Distributor in
connection with the requirements of qualified accounts maintained by or on
behalf of certain persons ("Customers") by the Adviser, its affiliates or its
correspondent entities (collectively, "Entities"). These procedures may include
instructions under which a Customer's account is "swept" automatically no less
frequently than weekly and amounts in excess of a minimum amount agreed upon by
the Entity and the Customer are invested by the Distributor in Shares of a
particular Fund, depending upon
14
<PAGE> 15
the type of the Customer's account and/or the instructions of the Customer.
Shares of the Funds sold to the Entities acting in a fiduciary, advisory,
custodial, agency, or other similar capacity on behalf of Customers will
normally be held of record by the Entities. With respect to Shares of the Funds
so sold, it is the responsibility of the particular Entity to transmit purchase
or redemption orders to the Distributor and to deliver federal funds for
purchase on a timely basis. Beneficial ownership of Shares will be recorded by
the Entities and reflected in the account statements provided by the Entities to
Customers.
Investors may also purchase Shares of either 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 KeyPremier Funds, P.O. Box
182707, Columbus, Ohio 43218-2707. Subsequent purchases of Shares of that Fund
may be made at any time by mailing a check (or other negotiable bank draft or
money order) payable to the Group, to the above address.
If an Account Registration Form has been previously received by the Group,
investors may also purchase Shares by wiring funds to the Funds' custodian.
Prior to wiring any such funds and in order to ensure that wire orders are
invested promptly, investors must call the Group at (800) 766-3960 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 Treasury Money Market Fund will be deemed
to have been received by the Distributor only when federal funds with respect
thereto are available to the Treasury 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 Treasury Money
Market Fund which is transmitted by federal funds wire will be available the
same day for investment by the Treasury 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 Treasury Money
Market Fund purchased before 12:00 noon, Eastern Time, begin earning dividends
on the same Business Day. Shares of the Treasury Money Market Fund purchased
after 12:00 noon, Eastern Time, begin earning dividends on the next Business
Day. All Shares of the Treasury Money Market Fund continue to earn dividends
through the day before their redemption.
For an order for the purchase of Shares of the Government Securities Fund that
is placed through a broker-dealer, the applicable public offering price will be
the net asset value as so determined (plus any applicable sales charge), but
only if the broker-dealer receives the order and transmits it to the Distributor
prior to the Valuation Time for that day. The broker-dealer is responsible for
transmitting such orders by the Valuation Time. If the broker-dealer fails to do
so, the investor's right to that day's closing price must be settled between the
investor and the broker-dealer. If the broker-
15
<PAGE> 16
dealer receives the order after the Valuation Time for that day, the price will
be based on the net asset value determined as of the Valuation Time for the next
Business Day.
MINIMUM INVESTMENT
Except as otherwise discussed below under "Auto Invest Plan," the minimum
investment is $1,000 for the initial purchase of Shares of either Fund by an
investor and $25 for subsequent purchases of Shares of that Fund. The initial
minimum investment amount is reduced to $250 for employees of the Adviser,
Keystone or any of their affiliates.
Depending upon the terms of a particular Customer's account, the Entities or
their affiliates may charge a Customer account fees for automatic investment and
other cash management services provided in connection with an investment in the
Funds. Information concerning these services and any charges will be provided by
the Entities. This Prospectus should be read in conjunction with any such
information received from the Entities or their affiliates.
The Group reserves the right to reject any order for the purchase of Shares in
whole or in part, including purchases made with foreign checks and third party
checks not originally made payable to the order of the investor.
Every Shareholder will receive a confirmation of each new transaction in his
or her account, which will also show the total number of Shares owned by the
Shareholder and the number of Shares being held in safekeeping by the Transfer
Agent for the account of the Shareholder. Reports of purchases and redemptions
of Shares by Entities on behalf of their Customers will be sent by the Entities
to their Customers. Shareholders may rely on these statements in lieu of
certificates. Certificates representing Shares will not be issued.
AUTO INVEST PLAN
The KeyPremier Funds Auto Invest Plan enables Shareholders to make regular
monthly or quarterly purchases of Shares of the Funds 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 next determined after receipt of payment by the
Transfer Agent. The required minimum initial investment when opening an account
using the Auto Invest Plan is $250; the minimum amount for subsequent
investments is $25. To participate in the Auto Invest Plan, Shareholders should
complete the appropriate section of the Account Registration Form or a
supplemental sign-up form which can be acquired by calling the Group at (800)
766-3960. For a Shareholder to change the Auto Invest instructions, the request
must be made in writing to the Group at: 3435 Stelzer Road, Columbus, Ohio
43219.
The Group may eliminate or change the Auto Invest Plan at any time or from
time to time without notice thereof.
KEYPREMIER INDIVIDUAL RETIREMENT ACCOUNT ("IRA")
A KeyPremier IRA enables individuals, even if they participate in an
employer-sponsored retirement plan, to establish their own retirement program.
KeyPremier IRA contributions may be tax-deductible and earnings are tax
deferred. Under the Tax Reform Act of 1986, the tax deductibility of IRA
contributions is restricted or eliminated for individuals who participate in
certain employer pension plans and whose annual income exceeds certain limits.
Existing IRAs and future contributions up
16
<PAGE> 17
to the IRA maximums, whether deductible or not, still earn income on a
tax-deferred basis.
All KeyPremier IRA distribution requests must be made in writing to the
Distributor. Any deposits to a KeyPremier IRA must distinguish the type and year
of the contributions.
For more information on the KeyPremier IRAs call the Group at (800) 766-3960.
Investment in Shares of the KeyPremier Pennsylvania Municipal Bond Fund or any
other tax-exempt fund would not be appropriate for a KeyPremier IRA.
Shareholders are advised to consult a tax adviser on KeyPremier IRA contribution
and withdrawal requirements and restrictions.
IN-KIND PURCHASES
Payment for Shares of either Fund may, in the discretion of the Adviser, be
made in the form of securities that are permissible investments for that Fund as
described in this Prospectus. For further information about this form of
payment, contact the Adviser. In connection with an in-kind securities payment,
the applicable Fund will require, among other things, that the securities be
valued on the date of purchase in accordance with the pricing methods used by
that Fund and that that Fund receive satisfactory assurances that it will have
good and marketable title to the securities received by it; that the securities
be in proper form of transfer to the Fund; and that adequate information be
provided concerning the basis and other tax matters relating to the securities.
The Government Securities Fund has been initially funded by the transfer of
all of the assets of two corresponding collective investment funds and two
common trust funds managed by the Adviser.
SALES CHARGES
The public offering price of Shares of the Government Securities Fund equals
net asset value plus a sales charge in accordance with the table below. BISYS
receives this sales charge as Distributor and reallows a portion of it as dealer
discounts and brokerage commissions. However, the Distributor, in its sole
discretion may pay certain dealers all or part of the portion of the sales
charge it receives. The broker or dealer who receives a reallowance in excess of
90% of the sales charge may be deemed to be an "underwriter" for purposes of the
Securities Act of 1933.
There is no sales charge imposed by the Treasury Money Market Fund in
connection with the purchase of its Shares.
<TABLE>
<CAPTION>
SALES DEALER
CHARGE SALES DISCOUNTS AND
AS CHARGE AS BROKERAGE
AMOUNT OF % OF NET % OF PUBLIC COMMISSIONS AS
TRANSACTION AT AMOUNT OFFERING % OF PUBLIC
PUBLIC OFFERING PRICE INVESTED 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.... 1.52 1.50 1.35
$1,000,000 or more... 0 0 0
</TABLE>
From time to time dealers who receive dealer discounts and brokerage
commissions from the Distributor may reallow all or a portion of such dealer
discounts and brokerage commissions to other dealers or brokers. The
Distributor, at its expense, will also provide additional compensation to
dealers in connection with sales of Shares of the 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 the Funds, 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
17
<PAGE> 18
seminars of a business nature. Compensation will also include the following
types of non-cash compensation offered through sales contests: (1) vacation
trips, including the provision of travel arrangements and lodging at luxury
resorts at an exotic location, (2) tickets for entertainment events (such as
concerts, cruises and sporting events) and (3) merchandise (such as clothing,
trophies, clocks and pens). Dealers may not use sales of the Income Fund's
Shares to qualify for this compensation to the extent such may be prohibited by
the laws of any state or any self-regulatory agency, such as the National
Association of Securities Dealers, Inc. None of the aforementioned compensation
is paid for by the Funds or their Shareholders.
SALES CHARGE WAIVERS
The Distributor will waive sales charges for the purchase of Shares of the
Government Securities Fund by or on behalf of (1) purchasers for whom Keystone,
the Adviser, one of their affiliates or another financial institution acts in a
fiduciary, advisory, agency, custodial (other than individual retirement
accounts), or similar capacity, (2) officers, trustees, directors, advisory
board members, employees and retired employees (including spouses, children and
parents of the foregoing) of Keystone, the Adviser, the Group, BISYS and any
affiliated company thereof, (3) investors who purchase Shares with the proceeds
from a distribution from the Adviser, Keystone or an affiliate trust or agency
account, (4) brokers, dealers and agents who have a sales agreement with the
Distributor, and their employees (and their spouses and children under 21, and
(5) investment advisers or financial planners regulated by a federal or state
governmental authority who are purchasing Shares for their own account or for an
account for which they are authorized to make investment decisions (i.e., a
discretionary account) and who charge a management, consulting or other fee for
their services, and clients of such investment advisers or financial planners
who place trades for their own accounts if the accounts are linked to the master
account of such investment adviser or financial planner on the books and records
of a broker or agent). The Distributor may change or eliminate the foregoing
waivers at any time or from time to time without notice thereof. The Distributor
may also periodically waive all or a portion of the sales charge for all
investors with respect to the Government Securities Fund.
In addition, the Distributor may waive sales charges for the purchase of the
Government Securities Fund's Shares with the proceeds from the recent redemption
of shares of a non-money market fund that imposes a sales charge. The purchase
must be made within 60 days of the redemption, and the Distributor must be
notified in writing by the investor, or by his financial institution, at the
time the purchase is made. A copy of the investor's account statement showing
such redemption must accompany such notice.
CONCURRENT PURCHASES
For purposes of qualifying for a lower sales charge, investors have the
privilege of combining concurrent purchases of the Government Securities Fund
and one or more of the other funds of the Group sold with a sales charge and
advised by the Adviser ("KeyPremier Load Funds"). For example, if a Shareholder
concurrently purchases Shares in the Government Securities Fund at the total
public offering price of $50,000 and Shares in The KeyPremier Established Growth
Fund at the total public offering price of $50,000, the sales charge with
respect to the Shares of the Government Securities Fund would be that applicable
to a $100,000 purchase as shown in the table above. This privilege, however, may
be modified or eliminated at any time or from time to time by the Group without
notice thereof.
18
<PAGE> 19
LETTER OF INTENT
An investor may obtain a reduced sales charge by means of a written Letter of
Intent which expresses the intention of such investor to purchase Shares of the
Government Securities Fund at a designated total public offering price within a
designated 13-month period. Each purchase of Shares under a Letter of Intent
will be made at the net asset value plus the sales charge applicable at the time
of such purchase to a single transaction of the total dollar amount indicated in
the Letter of Intent. A Letter of Intent may include purchases of Shares made
not more than 90 days prior to the date such investor signs a Letter of Intent;
however, the 13-month period during which the Letter of Intent is in effect will
begin on the date of the earliest purchase to be included. This program may be
modified or eliminated at any time or from time to time by the Group without
notice. For further information about letters of intent, interested investors
should contact the Group at (800) 766-3960.
A Letter of Intent is not a binding obligation upon the investor to purchase
the full amount indicated. The minimum initial investment under a Letter of
Intent is 5% of such amount. Shares purchased with the first 5% of such amount
will be held in escrow (while remaining registered in the name of the investor)
to secure payment of the higher sales charge applicable to the Shares actually
purchased if the full amount indicated is not purchased, and such escrowed
Shares will be involuntarily redeemed to pay the additional sales charge, if
necessary. Dividends on escrowed Shares, whether paid in cash or reinvested in
additional Shares, are not subject to escrow. The escrowed Shares will not be
available for disposal by the investor until all purchases pursuant to the
Letter of Intent have been made or the higher sales charge has been paid. When
the full amount indicated has been purchased, the escrow will be released. An
adjustment will be made to reflect any reduced sales charge applicable to Shares
purchased during the 90-day period prior to the date the Letter of Intent was
entered into at the conclusion of the 13-month period and in the form of
additional Shares credited to the Shareholder's account at the then current
public offering price applicable to a single purchase of the total amount of the
total purchases. Additionally, if the total purchases within the 13-month period
exceed the amount specified, a similar adjustment will be made to reflect
further reduced sales charges applicable to such purchases, if any.
RIGHT OF ACCUMULATION
Pursuant to the right of accumulation, investors are permitted to purchase
Shares of the Government Securities Fund at the public offering price applicable
to the total of (a) the total public offering price of the Shares of the
Government Securities Fund then being purchased plus (b) an amount equal to the
then current net asset value of the purchaser's combined holdings of the Shares
of all KeyPremier Load Funds. The "purchaser's combined holdings" described in
the preceding sentence shall include the combined holdings of the purchaser, the
purchaser's spouse and children under the age of 21 and the purchaser's
retirement plan accounts. To receive the applicable public offering price
pursuant to the right of accumulation, Shareholders must, at the time of
purchase, give the Transfer Agent sufficient information to permit confirmation
of qualification. This right of accumulation, however, may be modified or
eliminated at any time or from time to time by the Group without notice.
EXCHANGE PRIVILEGE
Shares of the Government Securities Fund may be exchanged for Shares of a
KeyPremier money market fund or any other KeyPremier Load Fund if the amount to
be exchanged meets the applicable minimum investment requirements and the
exchange is made in states where it is legally authorized. Each exchange will be
made at respective net asset values except that a sales charge, equal to the
difference,
19
<PAGE> 20
if any, between the sales charge payable upon the purchase of shares of the
KeyPremier Fund to be acquired in the exchange and the sales charge previously
paid on the Shares to be exchanged, will be assessed. In determining the sales
charge previously paid on the Shares to be exchanged, such Shares may include
Shares which were acquired through a previous exchange for shares on which a
sales charge was paid. Under such circumstances, the Shareholder must notify the
Group that a sales charge was originally paid and provide the Group with
sufficient information to permit confirmation of the Shareholder's right not to
pay a sales charge.
An exchange is considered a sale of Shares for federal income tax purposes.
However, a Shareholder may not include any sales charge on Shares of the
Government Securities Fund as a part of the cost of those Shares for purposes of
calculating the gain or loss realized on an exchange of those Shares within 90
days of their purchase.
The Group may at any time modify or terminate the foregoing exchange
privileges. The Group, however, will give Shareholders 60 days' advance written
notice of any such modification.
A Shareholder wishing to exchange his or her Shares may do so by contacting
the Group at (800) 766-3960 or by providing written instructions to the Group.
Any Shareholder who wishes to make an exchange should obtain and review the
current prospectus of the fund in which he or she wishes to invest before making
the exchange. For a discussion of risks associated with unauthorized telephone
exchanges, see "Redemption by Telephone" below.
REDEMPTION OF SHARES
Shares may ordinarily be redeemed by mail or by telephone. However, all or
part of a Customer's Shares may be redeemed in accordance with instructions and
limitations pertaining to his or her account at an Entity. For example, if a
Customer has agreed with an Entity to maintain a minimum balance in his or her
account with the Entity, and the balance in that account falls below that
minimum, the Customer may be obliged to redeem, or the Entity may redeem on
behalf of the Customer, all or part of the Customer's Shares of 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
20
<PAGE> 21
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 proceeds sent electronically directly
to a domestic commercial bank account previously designated by the Shareholder
on the Account Registration Form. A shareholder may also have such payment
mailed directly to the Shareholder at the Shareholder's address as recorded by
the Transfer Agent. However, this option may be suspended for a period of 30
days following a telephonic address change. Under most circumstances, such
payments will be transmitted on the next Business Day following receipt of a
valid request for redemption. The Group may reduce the amount of a wire
redemption payment by the then-current wire redemption charge of the Funds'
custodian. There is currently no charge for having payment of redemption
requests mailed or sent electronically to a designated bank account. For
telephone redemptions, call the Group at (800) 766-3960.
Neither the Group, the Funds nor their service providers will be liable for
any loss, damages, expense or cost arising out of any telephone redemption
effected in accordance with the Group's telephone redemption procedures, acting
upon instructions reasonably believed to be genuine. The Group will employ
procedures designed to provide reasonable assurance that instructions by
telephone are genuine; if these procedures are not followed, the Group, the
Funds or their 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 $50 monthly. To participate in the Auto
Withdrawal Plan, Shareholders should call (800) 766-3960 for more information.
Purchases of additional Shares, including use of the Auto Invest Plan described
above, concurrent with withdrawals may be disadvantageous to certain
Shareholders because of tax liabilities and sales charges. For a Shareholder to
change the Auto Withdrawal instructions, the request must be made in writing to
the Group.
PAYMENTS TO SHAREHOLDERS
Redemption orders are effected at the net asset value per share next
determined after the Shares are properly tendered for redemption, as described
above. Payment to Shareholders for Shares redeemed will be made within seven
days after receipt by the Distributor of the request for redemption. However, to
the greatest extent possible, the Treasury Money Market 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
21
<PAGE> 22
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 the Government
Securities Fund, to the greatest extent possible, such Fund will attempt to
honor requests from Shareholders for next day payments upon redemption of Shares
if the request for redemption is received by the Distributor before the
Valuation Time on a Business Day or, if the request for redemption is received
after the Valuation Time, to honor requests for payment on the second Business
Day. The Funds will attempt to so honor redemption requests unless it would be
disadvantageous to that Fund or its Shareholders to sell or liquidate portfolio
securities in an amount sufficient to satisfy requests for payments in that
manner.
At various times, the Group may be requested to redeem Shares for which it has
not yet received good payment. In such circumstances, the Group may delay the
forwarding of proceeds for up to 15 days or more until payment has been
collected for the purchase of such Shares. The Group intends to pay cash for all
Shares redeemed, but under abnormal conditions which make payment in cash
unwise, the Group may make payment wholly or partly in portfolio securities at
their then market value equal to the redemption price. In such cases, an
investor may incur brokerage costs in converting such securities to cash.
Due to the relatively high cost of handling small investments, the Group
reserves the right to redeem, at net asset value, the Shares of a Fund of any
Shareholder if, because of redemptions of Shares by or on behalf of the
Shareholder (but not as a result of a decrease in the market price of such
Shares, the deduction of any sales charge or the establishment of an account
with less than $1,000 using the Auto Invest Plan), the account of such
Shareholder has a value of less than $1,000 ($250 if the Shareholder is an
employee of the Adviser or one of its affiliates). Accordingly, an investor
purchasing Shares of 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 the Group exercises its right to redeem such Shares and to
send the proceeds to the Shareholder, the Shareholder will be given notice that
the value of the Shares in his or her account is less than the minimum amount
and will be allowed at least 60 days to make an additional investment in an
amount which will increase the value of the account to at least $1,000 ($250 if
the Shareholder is an employee of the Adviser or one of its affiliates).
See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION" in the Statement of
Additional Information for examples of when the Group may suspend the right of
redemption or redeem shares involuntarily in light of the Group's
responsibilities under the 1940 Act.
CHECK-WRITING REDEMPTION PROCEDURE
The Transfer Agent will provide any Shareholder of the Treasury Money Market
Fund who so requests with a supply of checks, imprinted with the Shareholder's
name, which may be drawn against the Treasury Money Market Fund's account
maintained by The Bank of New York (the "Bank"), for redemption of Fund Shares.
These checks may be made payable to the order of any person in any amount not
less than $500. To participate in this procedure, an investor must complete the
Check-Writing Redemption Form available from the Transfer Agent. When a check is
presented to the Bank for payment, the Transfer Agent (as the Shareholder's
agent) will cause the Treasury Money Market Fund to redeem sufficient Shares in
the Shareholder's account to cover the amount of the check. Shares continue
earning daily dividends until the day on which the check is presented to the
Bank for payment. Cancelled checks will be returned to the Shareholder. Due to
the delay caused by the requirement that redemptions be priced at the next
computed net asset value, the
22
<PAGE> 23
Bank will only accept for payment checks presented through normal bank clearing
channels. Shareholders should not attempt to withdraw the full amount of an
account or to close out an account by using this procedure.
No charge will be made to a Shareholder for participation in the check-writing
redemption procedure or for the clearance of any checks. However, a
Shareholder's account may be subject to charges for copies, returned checks and/
or returned items of deposit.
In order to stop payment on a check, the Shareholder must notify the Group in
writing before the check has been presented to the Bank for payment. A charge
may be deducted from the Shareholder's account for each stop payment order.
DIVIDENDS AND TAXES
DIVIDENDS
The net income of the Treasury Money Market Fund is declared daily and such
dividends are generally paid monthly. A dividend for the Government Securities
Fund is declared monthly at the close of business on the day of declaration
consisting of an amount of accumulated undistributed net income of the
Government Securities Fund as determined necessary or appropriate by the
appropriate officers of the Group. Such dividend is generally paid monthly.
Shareholders of both Funds will automatically receive all income dividends and
capital gains distributions in additional full and fractional Shares of the
appropriate 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, if any, for the Funds 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 the applicable
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
Each Fund is treated as a separate entity for federal income tax purposes and
intends to qualify as a "regulated investment company" under the Internal
Revenue Code of 1986 (the "Code") for so long as such qualification is in the
best interest of such 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 its investment company taxable income (before
deduction of dividends paid).
A non-deductible 4% excise tax is imposed on regulated investment companies
that do not distribute in each calendar year (regardless of having a
non-calendar taxable year) an amount equal to 98% of their ordinary income for
the calendar year plus 98% of their capital gain net income for the one-year
period ending on October 31 of such calendar year. If distributions
23
<PAGE> 24
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 its Shareholders all
or substantially all of such Fund's net ordinary income and net realized capital
gains and that such distributed net ordinary income and distributed net realized
capital gains will be taxable income to Shareholders for federal income tax
purposes, even if paid in additional Shares of that Fund and not in cash. Since
all of each Fund's net investment income is expected to be derived from earned
interest and short-term capital gains, it is anticipated that no part of any
distribution from the Funds will be eligible for the dividends received
deduction for corporations.
Distribution by a Fund of the excess of net long-term capital gain, if any,
over net short-term capital loss is taxable to Shareholders as long-term capital
gain in the year in which it is received, regardless of how long the Shareholder
has held the Shares. Such distributions are not eligible for the dividends
received deduction.
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 of the Government Securities Fund, 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 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.
STATE TAXES
Even though a portion of distributions of net income by the Treasury Money
Market Fund to its Shareholders will be attributable to interest on U.S.
Treasury obligations, which may be exempt from state or local tax if received
directly by a Shareholder, Shareholders of the Treasury Money Market Fund may be
subject to state and local taxes with respect to their ownership of Shares or
their receipt of distributions from the Treasury Money Market Fund. In addition,
to the extent Shareholders receive distributions of income attributable to
investments in repurchase agreements by the Treasury Money Market Fund, such
distributions may also be subject to state or local taxes.
GENERAL
Additional information regarding federal taxes is contained in the Statement
of Additional Information under the heading "ADDITIONAL INFORMATION--Additional
General Tax Information." However, the information contained in this Prospectus
and the additional material in the Statement of Additional Information are only
brief summaries of some of the important tax considerations generally affecting
the Funds and their Shareholders. Accordingly, potential investors are urged to
consult their own tax advisers concerning the application of federal, state and
local taxes as such laws and regulations affect their own tax situation.
Shareholders will be advised at least annually as to the federal income tax
consequences of distributions made to them during the year.
MANAGEMENT OF THE GROUP
TRUSTEES OF THE GROUP
Overall responsibility for management of the Group rests with its Board of
Trustees. Unless so required by the Group's Declaration of Trust or By-Laws or
by Ohio law, at any given time all of the Trustees may not have been
24
<PAGE> 25
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 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
each Fund for acting as Administrator, may receive fees under the Administrative
Services Plan discussed below and may retain all or a portion of any sales load
imposed upon purchases of Shares. BISYS Fund Services, Inc. receives fees from
each Fund for acting as Transfer Agent and for providing certain fund accounting
services.
INVESTMENT ADVISER
Martindale Andres & Company, Inc., Four Falls Corporate Center, Suite 200,
West Conshohocken, Pennsylvania 19428, is the investment adviser of each Fund
and has served as such since each Fund's inception. The Adviser is a wholly
owned subsidiary of Keystone Financial, Inc., 1 Keystone Plaza, Harrisburg,
Pennsylvania 17101 ("Keystone"). The Adviser was organized in 1989 and was
acquired by Keystone in December 1995. Except with respect to the other
KeyPremier Funds, the Adviser has not previously served as the investment
adviser to a registered open-end management investment company. However, the
Adviser has managed since its founding the investment portfolio of high net
worth individuals, endowments, pension and common trust funds. The Adviser
currently has over $960 million under management.
Subject to the general supervision of the Board of Trustees of the Group and
in accordance with the investment objectives and restrictions of each Fund, the
Adviser manages each Fund, makes decisions with respect to and places orders for
all purchases and sales of its portfolio securities, and maintains each Fund's
records relating to such purchases and sales.
Mr. James H. Somers is primarily responsible for the day-to-day management of
each Fund's portfolio. Mr. Somers joined the Adviser as a portfolio manager in
September, 1995. From 1991 to September, 1995, Mr. Somers was president and
owner of his own money management firm. Prior thereto and for five years he was
a Vice President of Kidder Peabody & Company in New York.
For the services provided and expenses assumed pursuant to its Investment
Advisory Agreement with the Group, the Adviser is entitled to receive a fee from
the Treasury Money Market Fund, computed daily and paid monthly, at the annual
rate of forty one-hundredths of one percent (.40%) of such Fund's average daily
net assets. With respect to the Government Securities Fund, the Adviser is
entitled to receive a fee from such Fund, computed daily and paid monthly, at
the annual rate of sixty one-hundredths of one percent (.60%) 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 one or more of the Funds to increase the net income
of that Fund available for distribution as dividends. The Adviser may not seek
reimbursement of such voluntarily reduced fees after the end of the fiscal year
in which the fees were reduced. The reduction of such fee will cause the yield
and total return of that Fund to be higher than they would otherwise be in the
absence of such a reduction.
ADMINISTRATOR AND DISTRIBUTOR
BISYS is the administrator for each Fund and also acts as the Funds' principal
under-
25
<PAGE> 26
writer and distributor (the "Administrator" or the "Distributor," as the context
indicates). BISYS and its affiliated companies, including BISYS Fund Services,
Inc., are wholly owned by The BISYS Group, Inc., a publicly-held company which
is a provider of information processing, loan servicing and 401(k)
administration and recordkeeping services to and through banking and other
financial organizations.
The Administrator generally assists in all aspects of each Fund's
administration and operation. For expenses assumed and services provided as
administrator pursuant to its management and administration agreement with the
Group, the Administrator receives a fee from each Fund, computed daily and paid
periodically, calculated at an annual rate of eleven and one-half one-hundredths
of one percent (.115%) of that Fund's average daily net assets. The
Administrator may periodically voluntarily reduce all or a portion of its
administration fee with respect to one or more of the Funds to increase the net
income of that Fund available for distribution as dividends. The Administrator
may not seek reimbursement of such reduced fees after the end of the fiscal year
in which the fees were reduced. The voluntary reduction of such fee will cause
the yield and total return of that Fund to be higher than they would otherwise
be in the absence of such a fee reduction.
The Distributor acts as agent for 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 may retain all or a portion of any
sales charge imposed upon the purchase of Shares. See "HOW TO PURCHASE AND
REDEEM SHARES--Sales Charges."
EXPENSES
The Adviser and the Administrator each bear all expenses in connection with
the performance of their services as investment adviser and administrator,
respectively, other than the cost of securities (including brokerage
commissions, if any) purchased for the Funds. Each Fund will bear the following
expenses relating to its operations: organizational expenses, taxes, interest,
any brokerage fees and commissions, fees and expenses of the Trustees of the
Group, Commission fees, state securities qualification fees, costs of preparing
and printing prospectuses for regulatory purposes and for distribution to the
Fund's current shareholders, outside auditing and legal expenses, advisory fees,
fees and out-of-pocket expenses of the custodian, fund accountant and Transfer
Agent, costs for independent pricing services, certain insurance premiums, costs
of maintenance of the Group's existence, costs of shareholders' reports and
meetings, expenses incurred under the Administrative Services Plan described
below and any extraordinary expenses incurred in the Fund's operation.
ADMINISTRATIVE SERVICES PLAN
The Group has adopted an Administrative Services Plan (the "Services Plan")
pursuant to which each Fund is authorized to pay compensation to banks and other
financial institutions (each a "Service Organization"), which may include the
Adviser, Entities, 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 each Fund, computed daily and paid monthly, at an annual
rate of up to .25% of the average daily net asset value of Shares of that Fund
owned beneficially or of record by such Service Organization's customers for
whom the Service Organization provides such services.
26
<PAGE> 27
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 Funds on behalf
of customers, providing periodic statements to customers showing their positions
in the Shares of the Funds, 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 Funds pursuant to specific
or pre-authorized instructions. As of the date hereof, no such servicing
agreements have been entered into by the Group on behalf of either Fund.
BANKING LAWS
The Adviser believes that it possesses the legal authority to perform the
investment advisory services for each Fund contemplated by its investment
advisory agreement with the Group, as described in this Prospectus, without
violation of applicable banking laws and regulations, and has so represented in
its investment advisory agreement with the Group. Future changes in Federal or
state statutes and regulations relating to permissible activities of banks or
bank holding companies and their subsidiaries and affiliates as well as further
judicial or administrative decisions or interpretations of present and future
statutes and regulations could change the manner in which the Adviser could
continue to perform such services for the Funds. See "MANAGEMENT OF THE
GROUP--Glass-Steagall Act" in the Statement of Additional Information for
further discussion of applicable law and regulations.
GENERAL INFORMATION
DESCRIPTION OF THE GROUP AND ITS SHARES
The Group was organized as an Ohio business trust on April 25, 1988. The Group
consists of nineteen 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 the 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, 1st Source Monogram U.S.
Treasury Obligations Money Market Fund, 1st Source Monogram Diversified Equity
Fund, 1st Source Monogram Income Equity Fund, 1st Source Monogram Special Equity
Fund, 1st Source Monogram Income Fund, 1st Source Monogram Intermediate Tax-Free
Bond Fund, Riverside Capital Money Market Fund, Riverside Capital Value Fund,
Riverside Capital Fixed Income Fund, Riverside Capital Growth Fund, Riverside
Capital Tennessee Municipal Obligations Fund and Riverside Capital Low Duration
Government Securities Fund.
Shareholders are entitled to one vote for each dollar of value invested and a
proportionate fractional vote for any fraction of a dollar invested, and will
vote in the aggregate and not by fund except as otherwise expressly required by
law. For example, Shareholders of the Government Securities Fund will vote in
the aggregate with other shareholders of the Group with respect to the election
of Trustees. However, Shareholders of that Fund will vote as a fund, and not in
the aggregate with other shareholders of the Group, for purposes of approval or
amendment of the Government Securities Fund's investment advisory agreement.
27
<PAGE> 28
Overall responsibility for the management of each Fund is vested in the Board
of Trustees of the Group. See "MANAGEMENT OF THE GROUP--Trustees of the Group."
Individual Trustees are elected by the shareholders of the Group, although
Trustees may, under certain circumstances, fill vacancies, including vacancies
created by expanding the size of the Board. Trustees may be removed by the Board
of Trustees or shareholders in accordance with the provisions of the Declaration
of Trust and By-Laws of the Group and Ohio law. See "ADDITIONAL
INFORMATION--Miscellaneous" in the Statement of Additional Information for
further information.
An annual or special meeting of shareholders to conduct necessary business is
not required by the Declaration of Trust, the 1940 Act or other authority
except, under certain circumstances, to elect Trustees, amend the Declaration of
Trust, the investment advisory agreement or 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 of
shareholders.
The Group has represented to the Commission that the Trustees will call a
special meeting of shareholders for purposes of considering the removal of one
or more Trustees upon written request therefor from shareholders holding not
less than 10% of the outstanding votes of the Group. At such a meeting, a quorum
of shareholders (constituting a majority of votes attributable to all
outstanding shares of the Group), by majority vote, has the power to remove one
or more Trustees.
Immediately prior to the public offering of the Funds' Shares, BISYS Fund
Services Ohio, Inc. was the sole shareholder of each Fund. It is expected that
immediately after the public offering of the Funds' Shares, BISYS Fund Services
Ohio, Inc.'s holding of Shares of each Fund will be reduced below 5%.
CUSTODIAN
The Bank of New York serves as the custodian for each Fund.
TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
BISYS Fund Services, 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. also provides
certain accounting services for the Funds pursuant to a Fund Accounting
Agreement and receives a fee from each Fund for such services equal to the
greater of (a) a fee computed at an annual rate of 0.03% of that Fund's average
daily net assets or (b) the annual fee of $30,000. See "MANAGEMENT OF THE
GROUP--Transfer Agency and Fund Accounting Services" in the Statement of
Additional Information for further information.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and annual reports
audited by independent public accountants.
As used in this Prospectus and in the Statement of Additional Information,
"assets belonging to the fund" means the consideration received by a fund upon
the issuance or sale of shares in the fund, together with all income, earnings,
profits, and proceeds derived from the investment thereof, including any
proceeds from the sale, exchange, or liquidation of such investments, and any
funds or amounts derived from any reinvestment of such proceeds, and any general
assets of the Group not readily identified as belonging to a particular fund
that are allocated to such 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
28
<PAGE> 29
and expenses and as to the timing and allocable portion of any general assets
with respect to the Funds 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
such Fund are represented in person or by proxy, or (b) the holders of more than
50% of the outstanding votes of Shareholders of that Fund.
Inquiries regarding the Funds may be directed in writing to the Group at 3435
Stelzer Road, Columbus, Ohio 43219, or by calling toll free (800) 766-3960.
29
<PAGE> 30
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 31
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 32
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 33
INVESTMENT ADVISER THE
Martindale Andres & Company, Inc. KEYPREMIER
Four Falls Corporate Center, Suite 200 U.S. TREASURY
West Conshohocken, Pennsylvania 19428 OBLIGATIONS
MONEY MARKET
ADMINISTRATOR AND DISTRIBUTOR FUND
BISYS Fund Services Limited Partnership
3435 Stelzer Road
Columbus, Ohio 43219 THE
KEYPREMIER
LEGAL COUNSEL LIMITED DURATION
Baker & Hostetler LLP GOVERNMENT
65 East State Street SECURITIES FUND
Columbus, Ohio 43215
AUDITORS [KEYPREMIER FUNDS LOGO]
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, Ohio 43215
TABLE OF CONTENTS
<TABLE>
<CAPTION> MARTINDALE,
ANDRES & COMPANY, INC.
INVESTMENT ADVISER
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.................... 2
FEE TABLE............................. 4
PERFORMANCE INFORMATION............... 5
INVESTMENT OBJECTIVE AND POLICIES..... 6
INVESTMENT RESTRICTIONS............... 12
VALUATION OF SHARES................... 13 Prospectus
HOW TO PURCHASE AND REDEEM SHARES..... 14
DIVIDENDS AND TAXES................... 23 dated June 30, 1997
MANAGEMENT OF THE GROUP............... 24
GENERAL INFORMATION................... 27
</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
THE FUNDS OR BY BISYS IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
<PAGE> 34
Rule 497(c)
Registration No. 33-21489
File No. 811-5545
The KeyPremier U.S. Treasury Obligations Money Market Fund
The KeyPremier Limited Duration Government Securities Fund
Two Investment Portfolios of
THE SESSIONS GROUP
Statement of Additional Information
June 30, 1997
This Statement of Additional Information is not a prospectus, but
should be read in conjunction with the prospectus (the "Prospectus") of The
KeyPremier U.S. Treasury Obligations Money Market Fund (the "Treasury Money
Market Fund") and The KeyPremier Limited Duration Government Securities Fund
(the "Government Securities Fund"), each dated as of the date hereof. The
Treasury Money Market Fund and the Government Securities Fund are hereafter
collectively referred to as the "Funds" and individually as a "Fund." The Funds
are two of nineteen funds of The Sessions Group, an Ohio business trust (the
"Group"). This Statement of Additional Information is incorporated in its
entirety into the Prospectus. Copies of the Prospectus may be obtained by
writing the Group at 3435 Stelzer Road, Columbus, Ohio 43219, or by telephoning
toll free (800) 766-3960.
<PAGE> 35
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
THE SESSIONS GROUP.......................................... A-1
INVESTMENT OBJECTIVES AND POLICIES.......................... A-1
Additional Information on Portfolio Instruments.... A-1
Investment Restrictions............................ A-7
Portfolio Turnover................................. A-9
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.............. A-9
NET ASSET VALUE............................................. A-10
MANAGEMENT OF THE GROUP..................................... A-11
Trustees and Officers.............................. A-11
Investment Adviser................................. A-13
Portfolio Transactions............................. A-15
Glass-Steagall Act................................. A-17
Administrator...................................... A-18
Distributor........................................ A-19
Administrative Services Plan....................... A-20
Custodian.......................................... A-21
Transfer Agency and Fund Accounting Services....... A-21
Auditors........................................... A-22
Legal Counsel...................................... A-22
ADDITIONAL INFORMATION...................................... A-23
Description of Shares.............................. A-23
Vote of a Majority of the Outstanding Shares....... A-24
Additional General Tax Information................. A-24
30-Day Yield of the Government Securities Fund..... A-28
Calculation of Total Return........................ A-28
Distribution Rates................................. A-29
Performance Comparisons............................ A-29
Miscellaneous...................................... A-30
</TABLE>
- i -
<PAGE> 36
STATEMENT OF ADDITIONAL INFORMATION
THE SESSIONS GROUP
The Sessions Group (the "Group") is an open-end management investment
company which currently offers nineteen separate investment portfolios. This
Statement of Additional Information deals with two of those portfolios, the
Treasury Money Market Fund and the Government Securities Fund, each of which is
considered to be a diversified portfolio.
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 either Fund should be made without first reading the Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
The following policies supplement the investment objectives and
policies of the Funds as set forth in the respective Prospectus.
U.S. GOVERNMENT OBLIGATIONS. Each Fund may invest in obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, although the Treasury Money Market Fund currently expects to
invest only in those obligations which are backed by the full faith and credit
of the U.S. Government. Obligations of certain agencies and instrumentalities
of the U.S. Government are supported by the full faith and credit of the U.S.
Treasury; others are supported by the right of the issuer to borrow from the
Treasury; others are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; and still others are supported
only by the credit of the instrumentality. No assurance can be given that the
U.S. Government would provide financial support to U.S. Government- sponsored
agencies or instrumentalities if it is not obligated to do so by law.
Each Fund may also invest in the following types of U.S. Treasury
securities: direct obligations issued by the U.S. Treasury including bills,
notes and bonds which differ from each other only in interest rates, maturities
and times of issuance; U.S. Treasury securities that have been stripped of
their unmatured interest coupons (which typically provide for interest payments
semi-annually); interest coupons that have been stripped from such U.S.
Treasury securities; receipts and certificates for such stripped debt
obligations and stripped coupons (collectively, "Stripped Treasury
Securities"); and in repurchase agreements collateralized by such securities.
Stripped Treasury Securities will include (1) coupons that have been stripped
from U.S. Treasury
<PAGE> 37
bonds, which may be held through the Federal Reserve Bank's book-entry system
called "Separate Trading of Registered Interest and Principal of Securities"
("STRIPS") or through a program entitled "Coupon Under Book-Entry Safekeeping"
("CUBES").
Treasury bills have maturities of one year or less; Treasury notes
have maturities of one to ten years and Treasury bonds generally have
maturities of greater than ten years. Stripped Treasury Securities are sold at
a deep discount because the buyer of those securities receives only the right
to receive a future fixed payment (representing principal or interest) on the
security and does not receive any rights to periodic interest payments on the
security.
VARIABLE AND FLOATING RATE SECURITIES. Each 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 par value or amortized
cost, as the case may be.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The Government Securities
Fund may, consistent with its investment objective and policies, invest in
mortgage-related securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities.
Mortgage-backed securities, for purposes of the Prospectus and this
Statement of Additional Information, represent pools of mortgage loans
assembled for sale to investors by various governmental agencies such as the
Government National Mortgage Association and government-related organizations
such as the Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation. Although the mortgage-related securities are guaranteed
by the U.S. Government or one of its agencies or instrumentalities, the market
value of the security, which may fluctuate, is not so secured. If the
Government Securities Fund purchases a mortgage-related security at a premium,
that portion may be lost if there is a decline in the market value of the
security whether resulting from changes in interest rates or prepayments in the
underlying mortgage collateral. As with other interest-bearing securities, the
prices of such securities are inversely affected by changes in interest rates.
However, though the value of a mortgage-related security may decline when
interest rates rise, the converse is not necessarily true, since in periods of
declining interest rates the mortgages underlying the securities
B-2
<PAGE> 38
are prone to prepayment, thereby shortening the average life of the security
and shortening the period of time over which income at the higher rate is
received. Conversely, when interest rates are rising, the rate of prepayment
tends to decrease, thereby lengthening the average life of the security and
lengthening the period of time over which income at the lower rate is received.
For these and other reasons, a mortgage-related security's average maturity may
be shortened or lengthened as a result of interest rate fluctuations and,
therefore, it is not possible to predict accurately the security's return to
the Government Securities Fund. In addition, regular payments received in
respect of mortgage-related securities include both interest and principal. No
assurance can be given as to the return the Government Securities Fund will
receive when these amounts are reinvested.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-backed securities
and among the securities that they issue. Mortgage-related securities issued by
the Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed as
to the timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the United States. GNMA is a
wholly-owned U.S. Government corporation within the Department of Housing and
Urban Development. GNMA certificates also are supported by the authority of
GNMA to borrow funds from the U.S. Treasury to make payments under its
guarantee. Mortgage- related securities issued by the Federal National
Mortgage Association ("FNMA") include FNMA Guaranteed Mortgage Pass-Through
Certificates (also known as "Fannie Maes") which are solely the obligations of
the FNMA and are not backed by or entitled to the full faith and credit of the
United States. The FNMA is a government-sponsored organization owned entirely
by private stockholders. Fannie Maes are guaranteed as to timely payment of the
principal and interest by FNMA. Mortgage-backed 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.
B-3
<PAGE> 39
Mortgage-backed securities have certain characteristics which are
different from traditional debt securities. Among the major differences are
that interest and principal payments are made more frequently, usually monthly,
and that principal may be prepaid at any time because the underlying mortgage
loans or other assets generally may be prepaid at any time. As a result, if the
Government Securities Fund purchases such a security at a premium, a prepayment
rate that is faster than expected will reduce yield to maturity, while a
prepayment rate that is slower than expected will have the opposite effect of
increasing yield to maturity. Alternatively, if the Government Securities Fund
purchases these securities at a discount, faster than expected prepayments will
increase, while slower than expected prepayments will reduce, yield to
maturity.
Mortgage-backed securities, like all fixed income securities,
generally decrease in value as a result of increases in interest rates. In
addition, although generally the value of fixed-income securities increases
during periods of falling interest rates and, as stated above, decreases during
periods of rising interest rates, as a result of prepayments and other factors,
this is not always the case with respect to mortgage-backed securities.
Although the extent of prepayments on a pool of mortgage loans depends
on various economic and other factors, as a general rule prepayments on fixed
rate mortgage loans will increase during a period of declining interest rates.
Accordingly, amounts available for reinvestment by the Government Securities
Fund are likely to be greater during a period of declining interest rates and,
as a result, likely to be reinvested at lower interest rates than during a
period of rising interest rates. Mortgage-backed securities generally decrease
in value as a result of increases in interest rates and may benefit less than
other fixed income securities from declining interest rates because of the risk
of prepayment.
WHEN-ISSUED SECURITIES. As discussed in the Prospectus, each Fund may
purchase securities on a "when-issued" basis (I.E., for delivery beyond the
normal settlement date at a stated price and yield). When a Fund agrees to
purchase securities on a "when- issued" basis, the Fund's custodian will set
aside cash or liquid portfolio securities equal to the amount of the commitment
in a separate account. Normally, a Fund's custodian will set aside portfolio
securities to satisfy the purchase commitment, and in such a case, the Fund may
be required subsequently to place additional assets in the separate account in
order to assure that the value of the account remains equal to the amount of
that Fund's commitment. It may be expected that a Fund's net assets will
fluctuate to a greater degree when it sets aside portfolio securities to cover
such purchase commitments than when it sets aside cash. In addition, because a
Fund will set aside cash or liquid portfolio securities to satisfy its purchase
commitments in
B-4
<PAGE> 40
the manner described above, such Fund's liquidity and the ability of the
Adviser to manage it might be affected in the event its commitments to purchase
"when-issued" securities ever exceeded 25% of its total assets. Under normal
market conditions, however, each Fund's commitment to purchase "when-issued" or
"delayed-delivery" securities will not exceed 25% of its total assets.
When a Fund engages in "when-issued" transactions, it relies on the
seller to consummate the trade. Failure of the seller to do so may result in
that Fund's incurring a loss or missing the opportunity to obtain a price
considered to be advantageous. Each Fund will engage in "when-issued" delivery
transactions only for the purpose of acquiring portfolio securities consistent
with such Fund's investment objectives and policies and not for investment
leverage.
REPURCHASE AGREEMENTS. Securities held by each Fund may be subject to
repurchase agreements. Under the terms of a repurchase agreement, a Fund would
acquire securities from banks and registered broker-dealers which the Adviser
deems creditworthy under guidelines approved by the Group's Board of Trustees,
subject to the seller's agreement to repurchase such securities at a mutually
agreed-upon date and price. The repurchase price would generally equal the
price paid by the Fund plus interest negotiated on the basis of current
short-term rates, which may be more or less than the rate on the underlying
portfolio securities. The seller under a repurchase agreement will be required
to maintain continually the value of collateral held pursuant to the agreement
at not less than the repurchase price (including accrued interest). This
requirement will be continually monitored by the Adviser. If the seller were to
default on its repurchase obligation or become insolvent, the Fund would suffer
a loss to the extent that the proceeds from a sale of the underlying portfolio
securities were less than the repurchase price under the agreement, or to the
extent that the disposition of such securities by such Fund were delayed
pending court action. 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.
Securities subject to repurchase agreements will be held by the Fund's
custodian or another qualified custodian or in the Federal Reserve/Treasury
book-entry system.
REVERSE REPURCHASE AGREEMENTS. As discussed in the Prospectus, each
Fund may borrow funds by entering into reverse repurchase agreements in
accordance with its investment restrictions. Pursuant to such agreements, a
Fund would sell portfolio securities to financial institutions such as banks
and broker-dealers, and agree to repurchase the securities at a mutually
agreed-upon date and price. At the time a Fund enters into a reverse repurchase
agreement, it will place in a segregated
B-5
<PAGE> 41
custodial account assets such as U.S. Government securities or other liquid
securities consistent with that Fund's investment restrictions having a value
equal to the repurchase price (including accrued interest), and will
subsequently continually monitor the account to ensure that such equivalent
value is maintained at all times. Reverse repurchase agreements involve the
risk that the market value of the securities sold by a Fund may decline below
the price at which that Fund is obligated to repurchase the securities. Reverse
repurchase agreements are considered to be borrowings by a Fund under the 1940
Act and therefore a form of leveraging.
SHORT SALES. The Government Securities Fund will from time to time
sell securities short. Short sales are effected when it is believed that the
price of a particular security will decline, and involves the sale of a
security which the Government Securities Fund does not own in the hope of
purchasing the same security at a later date at a lower price. To make delivery
to the buyer, the Government Securities Fund must borrow the security, and the
Government Securities Fund is obligated to return the security to the lender,
which is accomplished by a later purchase of the security by the Government
Securities Fund. The frequency of short sales will vary substantially in
different periods, and it is not intended that any specified portion of the
Government Securities Fund's assets will as a matter of practice be invested in
short sales.
At any time that the Government Securities Fund has an open short sale
position, the Government Securities Fund is required to segregate with its
custodian (and to maintain such amount until the Government Securities Fund
replaces the borrowed security) an amount of cash or U.S. Government securities
or other liquid securities equal to the difference between (i) the current
market value of the securities sold short and (ii) any cash or U.S. Government
securities required to be deposited with the broker in connection with the
short sale (not including the proceeds from the short sale). As a result of
these requirements, the Government Securities Fund will not gain any leverage
merely by selling short, except to the extent that it earns interest on the
immobilized cash or government securities while also being subject to the
possibility of gain or loss from the securities sold short. The total amount of
cash or liquid securities deposited with the broker (not including the proceeds
of the short sale) and segregated by the Government Securities Fund with the
Government Securities Fund's custodian may not at any time be more than 25% of
the Government Securities Fund's net assets. These deposits do not have the
effect of limiting the amount of money the Government Securities Fund may lose
on a short sale -- the Government Securities Fund's possible losses may exceed
the total amount of deposits.
B-6
<PAGE> 42
The Government Securities Fund will incur a loss as a result of the
short sale if the price of the security increases between the date of the short
sale and the date on which the Government Securities Fund purchases the
security to replace the borrowed security. The Government Securities Fund will
realize a gain if the security declines in price between those dates. The
amount of any gain will be decreased and the amount of any loss increased by
any premium or interest the Government Securities Fund may be required to pay
in connection with a short sale. It should be noted that possible losses from
short sales differ from those that could arise from a cash investment in a
security in that the former may be limitless while the latter can only equal
the total amount of the Government Securities Fund's investment in the
security. For example, if the Government Securities Fund purchases a $10
security, the most that can be lost is $10. However, if the Government
Securities Fund sells a $10 security short, it may have to purchase the
security for return to the lender when the market value is $50, thereby
incurring a loss of $40.
SECURITIES OF OTHER INVESTMENT COMPANIES. The Government Securities
Fund may invest in securities issued by other investment companies, including
money market funds advised by the Adviser. The Government Securities Fund
currently intends to limit its investments so that, as determined immediately
after a securities purchase is made: (a) not more than 5% of the value of its
total assets will be invested in the securities of any one investment company;
(b) not more than 10% of the value of its total assets will be invested in the
aggregate in securities of investment companies as a group; and (c) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by such Fund. As a shareholder of another investment company, the
Government Securities Fund would bear, along with other shareholders, its pro
rata portion of that company's expenses, including advisory fees. These
expenses would be in addition to the advisory and other expenses that such Fund
bears directly in connection with its own operations. Investment companies in
which the Government Securities Fund may invest may also impose a distribution
charge in connection with the purchase or redemption of their shares and other
types of commissions or charges. Such charges will be payable by such Fund and,
therefore, will be borne directly by shareholders of such Fund.
INVESTMENT RESTRICTIONS
The Funds' investment objectives are non-fundamental policies and may
be changed without a vote of the shareholders of the applicable Fund. In
addition to the fundamental investment policies listed in the Prospectus, the
following investment restrictions may be changed only by a vote of the majority
of the outstanding Shares of a Fund (as defined under "ADDITIONAL INFORMATION -
Vote of a Majority of the Outstanding Shares").
B-7
<PAGE> 43
In addition to the investment restrictions set forth in the
Prospectus, each Fund may not:
1. Purchase securities on margin, except for use of short- term
credit necessary for clearance of purchases of portfolio securities and except
as may be necessary to make margin payments in connection with derivative
securities transactions;
2. Underwrite the securities issued by other persons, except to
the extent that the Fund may be deemed to be an underwriter under certain
securities laws in the disposition of "restricted securities;"
3. Purchase or sell real estate (although investments in
marketable securities of companies engaged in such activities and securities
secured by real estate or interests therein are not prohibited by this
restriction); and
4. Purchase or sell commodities or commodities contracts, except
to the extent disclosed in the current Prospectus of such Fund.
The following additional investment restrictions may be changed
without the vote of a majority of the outstanding Shares of the Funds. Each
Fund may not:
1. Purchase securities of other investment companies, except (a)
in connection with a merger, consolidation, acquisition or reorganization, and
(b) to the extent permitted by the 1940 Act, or pursuant to any exemptions
therefrom; and
2. Mortgage or hypothecate the Fund's assets in excess of
one-third of such Fund's total assets.
In addition, the Treasury Money Market Fund may not engage in any
short sales. However, the Government Securities Fund may not engage in short
sales of any securities at any time if, immediately after and as a result of
the short sale, the market value of securities sold short by the Government
Securities Fund would exceed 25% of the value of such Fund's total assets.
If any percentage restriction or requirement described above is
satisfied at the time of investment, a later increase or decrease in such
percentage resulting from a change in asset value will not constitute a
violation of such restriction or requirement. However, should a change in net
asset value or other external events cause a Fund's investments in illiquid
securities, repurchase agreements with maturities in excess of seven days and
other instruments in such Fund which are not readily marketable to exceed the
limit set forth in the Prospectus for its investment in illiquid securities,
such Fund will act to cause the aggregate
B-8
<PAGE> 44
amount of such securities to come within such limit as soon as reasonably
practicable. In such an event, however, no Fund would be required to liquidate
any portfolio securities where such Fund would suffer a loss on the sale of
such securities.
PORTFOLIO TURNOVER
The portfolio turnover rate for each Fund is calculated by dividing
the lesser of a Fund's purchases or sales of portfolio securities for the year
by the monthly average value of the portfolio securities. The Commission
requires that the calculation exclude all securities whose remaining maturities
at the time of acquisition were one year or less.
Because the Treasury Money Market Fund intends to invest substantially
all of its assets 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 Treasury Money Market Fund is expected to be 0%.
The portfolio turnover rates for the Government Securities Fund for
its first fiscal period ending June 30, 1998, is estimated to be less than
100%. The portfolio turnover rate for the Government Securities Fund may vary
greatly from year to year as well as within a particular year, and may also be
affected by cash requirements for redemptions of Shares. High portfolio
turnover rates will generally result in higher transaction costs, including
brokerage commissions, to 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.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds are sold on a continuous basis by BISYS, and BISYS
has agreed to use appropriate efforts to solicit all purchase orders. In
addition to purchasing Shares directly from BISYS, Shares may be purchased
through procedures established by BISYS in connection with the requirements of
accounts at the Adviser or the Adviser's affiliated entities or correspondents
(collectively, "Entities"). Customers purchasing Shares of the Funds may
include officers, directors, or employees of the Adviser or the Entities.
The Group may suspend the right of redemption or postpone the date of
payment for Shares during any period when (a) trading on the Exchange is
restricted by applicable rules and regulations of the Commission, (b) the
Exchange is closed for other than customary weekend and holiday closings, (c)
the Commission has by order permitted such suspension, or (d) an emergency
exists as a result of which (i) disposal by the Group of securities owned by it
is not
B-9
<PAGE> 45
reasonably practical, or (ii) it is not reasonably practical for the Group to
determine the fair value of its net assets.
NET ASSET VALUE
The Treasury 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 Treasury Money Market Fund would
receive if it sold the instrument. The value of securities in the Treasury
Money Market Fund can be expected to vary inversely with changes in prevailing
interest rates.
Pursuant to Rule 2a-7, the Treasury Money Market Fund will maintain a
dollar-weighted average portfolio maturity appropriate to the Treasury Money
Market Fund's objective of maintaining a stable net asset value per share,
provided that the Treasury 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 Treasury Money Market Fund, to stabilize the net asset value
per share of the Treasury 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 Treasury 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 Treasury
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 Treasury Money Market Fund's outstanding Shares without monetary
consideration, or utilizing a net asset value per share determined by using
available market quotations.
B-10
<PAGE> 46
MANAGEMENT OF THE GROUP
TRUSTEES AND OFFICERS
Overall responsibility for management of the Group rests with its
Board of Trustees. The Trustees elect the officers of the Group to supervise
actively its day-to-day operations.
The names of the Trustees and officers of the Group, their addresses,
and principal occupations during the past five years are as follows:
Position(s) Held Principal Occupation
Name, Address and Age With the Group During Past 5 Years
- --------------------- ---------------- --------------------
Walter B. Grimm* Chairman, From June, 1992 to present,
3435 Stelzer Road President and employee of BISYS Fund
Columbus, Ohio 43219 Trustee Services Limited Partnership;
Age: 51 from July, 1981 to June, 1992,
President of Leigh Investments
Consulting (investment firm).
Nancy E. Converse* Trustee and Since July, 1990, employee of
3435 Stelzer Road Assistant BISYS Fund Services Limited
Columbus, Ohio 43219 Secretary Partnership or BISYS Fund
Age: 47 Services Ohio, Inc.
Maurice G. Stark Trustee Consultant; from 1979 to
7662 Cloister Drive December, 1994, Vice
Columbus, Ohio 43235 President-Finance and Chief
Age: 61 Financial Officer, Battelle
Memorial Institute (scientific
research and development
service corporation).
James H. Woodward, Ph.D. Trustee Since July 1991, Chancellor of
The University of North The University of North
Carolina at Charlotte Carolina at Charlotte.
Charlotte, NC 28223
Age: 56
Chalmers P. Wylie Trustee From April, 1993 to present,
754 Stonewood Court of Counsel with Emens, Kegler,
Columbus, Ohio 43235 Brown, Hill & Ritter (law
Age: 75 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.
B-11
<PAGE> 47
J. David Huber Vice President Since January, 1996, President
3435 Stelzer Road of BISYS Fund Services Limited
Columbus, Ohio 43219 Partnership; from June, 1987
Age: 50 to December, 1995, employee of
BISYS Fund Services Limited
Partnership; from September,
1988 to present, Vice
President of BISYS Fund
Services Ohio, Inc.
William J. Tomko Vice President From April, 1987 to present,
3435 Stelzer Road employee of BISYS Fund
Columbus, Ohio 43219 Services Limited Partnership.
Age: 37
Stephen G. Mintos Treasurer From January, 1987 to present,
3435 Stelzer Road employee of BISYS Fund
Columbus, Ohio 43219 Services Limited Partnership.
Age: 42
George L. Stevens Secretary From September, 1996 to
3435 Stelzer Road present, employee of BISYS
Columbus, Ohio 43219 Fund Services Limited
Age: 45 Partnership; from September,
1995 to August, 1996,
consultant on bank investment
products and activities; from
June 1980 to September, 1995,
employee of AmSouth Bank.
Alaina V. Metz Assistant From June, 1995 to present,
3435 Stelzer Road Secretary employee of BISYS Fund
Columbus, Ohio 43219 Services Limited Partnership;
Age: 30 prior to June, 1995,
supervisor at Alliance Capital
Management, L.P. (investment
management firm).
- -------------------
*Mr. Grimm and Ms. Converse are each considered to be an "interested
person" of the Group as defined in the 1940 Act.
As of the date of this Statement of Additional Information, the
Group's officers and trustees, as a group, own less than 1% of either Fund's
Shares.
No officer or employee of BISYS or BISYS Fund Services, Inc. receives
any compensation from the Group for acting as trustee of the Group. The
officers of the Group receive no compensation directly from the Group for
performing the duties of their offices. BISYS receives fees from each Fund for
acting as Administrator and may receive fees pursuant to the Administrative
Services Plan described below. BISYS Fund Services, Inc. receives fees from the
Funds for acting as transfer agent and for providing certain fund accounting
services. Messrs. Grimm, Huber, Mintos, Tomko and Stevens, Ms. Converse and
Ms. Metz are employees of BISYS.
B-12
<PAGE> 48
The following table sets forth information regarding all compensation
paid by the Group to its Trustees for their services as trustees during the
fiscal year ended June 30, 1996. The Group has no pension or retirement plans.
<TABLE>
<CAPTION>
COMPENSATION TABLE
Aggregate Total Compensation
Name and Position Compensation From the Group
With the Group From the Group and the Fund Complex*
- -------------- -------------- ---------------------
<S> <C> <C>
Walter B. Grimm $0 $0
Trustee
Nancy E. Converse $0 $0
Trustee
Maurice G. Stark $7,772.17 $7,772.17
Trustee
Michael M. VanBuskirk(1) $7,772.17 $7,772.17
Trustee
James H. Woodward, Ph.D. $0 $0
Trustee
Chalmers P. Wylie $7,772.17 $7,772.17
Trustee
</TABLE>
- ---------------------
*For purposes of this Table, Fund Complex means one or more mutual
funds, including the Funds, which have a common investment adviser or
affiliated investment advisers or which hold themselves out to the public as
being related.
(1) Mr. VanBuskirk resigned his position as a trustee of the
Group effective May 3, 1996.
Ms. Converse and Dr. Woodward were elected trustees of the Group on
June 28, 1996.
INVESTMENT ADVISER
Investment advisory and management services are provided to the Funds
by Martindale, Andres & Company, Inc. (the "Adviser"), pursuant to an
Investment Advisory Agreement dated as of July 9, 1996, as amended as of June
30, 1997. Under the Investment Advisory Agreement, the Adviser has agreed to
provide investment advisory services as described in the Prospectus. For the
services provided and expenses assumed pursuant to the Investment Advisory
Agreement, the Treasury Money Market Fund pays the Adviser a fee, computed
daily and paid monthly, at the annual rate of forty one-
B-13
<PAGE> 49
hundredths of one percent (.40%) of the average daily net assets of the
Treasury Money Market Fund, and the Government Securities Fund pays the Adviser
a fee, computed daily and paid monthly, at the annual rate of sixty
one-hundredths of one percent (.60%) of the average daily net assets of the
Government Securities Fund. Pursuant to such Investment Advisory Agreement, the
Adviser also provides investment advisory and management services to five other
funds of the Group: The KeyPremier Prime Money Market Fund (the "Prime Money
Market Fund"), The KeyPremier Pennsylvania Municipal Bond Fund (the
"Pennsylvania Bond Fund"), The KeyPremier Established Growth Fund (the
"Established Growth Fund"), The KeyPremier Intermediate Term Income Fund (the
"Income Fund"), and The KeyPremier Aggressive Growth Fund (the "Aggressive
Growth Fund"). The Money Market Fund pays the Adviser a fee, computed daily and
paid monthly, at the annual rate of forty one-hundredths of one percent (.40%)
of the average daily net assets of the Money Market Fund; the Pennsylvania Bond
Fund and the Income Fund each pays the Adviser a fee, computed daily and paid
monthly, at the annual rate of sixty one-hundredths of one percent (.60%) of
the average daily net assets of that Fund; the Established Growth Fund pays the
Adviser a fee, computed daily and paid monthly, at the annual rate of
seventy-five one-hundredths of one percent (.75%) of the average daily net
assets of the Established Growth Fund; and the Aggressive Growth Fund pays the
Adviser a fee, computed daily and paid monthly, at the annual rate of one
percent (1.00%) of the average daily net assets of the Aggressive Growth Fund.
The Adviser may from time to time voluntarily reduce all or a portion of its
advisory fee with respect to a Fund to increase the net income of that Fund
available for distribution as dividends.
For the year ended June 30, 1996, the Adviser had not received any
compensation under the Advisory Agreement since none of the Funds had yet
commenced operations.
Unless sooner terminated, the Investment Advisory Agreement will
continue in effect with respect to a Fund until July 9, 1998, and from year to
year thereafter, for successive annual periods ending on July 9th, if, as to
that Fund, such continuance is approved at least annually by the Group's Board
of Trustees or by vote of a majority of the outstanding Shares of that Fund (as
defined under "GENERAL INFORMATION - Miscellaneous" in such Fund's Prospectus),
and a majority of the Trustees who are not parties to the Investment Advisory
Agreement or interested persons (as defined in the 1940 Act) of any party to
the Investment Advisory Agreement by votes cast in person at a meeting called
for such purpose. The Investment Advisory Agreement is terminable as to a Fund
at any time on 60 days' written notice without penalty by the Trustees, by vote
of a majority of the outstanding Shares of that Fund, or by the Adviser. The
Investment Advisory Agreement also terminates automatically in the event of any
assignment, as defined in the 1940 Act.
B-14
<PAGE> 50
The Investment Advisory Agreement provides that the Adviser shall not
be liable for any error of judgment or mistake of law or for any loss suffered
by a Fund in connection with the performance of the Investment Advisory
Agreement, except a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith, or gross negligence on the part of the Adviser in the
performance of its duties, or from reckless disregard by the Adviser of its
duties and obligations thereunder.
The Adviser has agreed that the Funds and the Group may use the name
"KeyPremier" on a royalty-free basis and the Adviser has reserved to itself the
right to grant the non-exclusive right to use the name "KeyPremier" to any
other person. At such time as the Investment Advisory Agreement is no longer in
effect, the Adviser may require the Funds to cease using the name "KeyPremier."
PORTFOLIO TRANSACTIONS
Pursuant to the Investment Advisory Agreement, the Adviser determines,
subject to the general supervision of the Board of Trustees of the Group and in
accordance with the Funds' investment objectives and restrictions, which
securities are to be purchased and sold by each Fund, and which brokers and
dealers are to be eligible to execute the Funds' portfolio transactions.
Purchases and sales of portfolio securities with respect to each 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.
Allocation of transactions, including their frequency, to various
brokers and dealers is determined by the Adviser in its best judgment and in a
manner deemed fair and reasonable to Shareholders. The primary consideration is
prompt execution of orders in an effective manner at the most favorable price.
Subject to this consideration, brokers and dealers who provide supplemental
investment research to the Adviser may receive orders for transactions on
behalf of the Funds. The Adviser is authorized to pay a broker-dealer who
provides such brokerage and research services a commission for executing each
such Fund's brokerage transactions which is in excess of the amount of
commission another broker would have charged for effecting that transaction if,
but only if, the Adviser determines in good faith that such commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker viewed in terms of that particular transaction or in
terms of all of the accounts over which it exercises investment discretion. Any
such research and
B-15
<PAGE> 51
other statistical and factual information provided by brokers to a Fund or to
the Adviser is considered to be in addition to and not in lieu of services
required to be performed by the Adviser under its agreement regarding
management of the Fund. The cost, value and specific application of such
information are indeterminable and hence are not practicably allocable among
the Funds and other clients of the Adviser who may indirectly benefit from the
availability of such information. Similarly, the Funds may indirectly benefit
from information made available as a result of transactions effected for such
other clients. Under the Investment Advisory Agreement, the Adviser is
permitted to pay higher brokerage commissions for brokerage and research
services in accordance with Section 28(e) of the Securities Exchange Act of
1934. In the event the Adviser does follow such a practice, it will do so on a
basis which it believes is fair and equitable to the Group and the Funds.
While the Adviser generally seeks competitive commissions, the Group
may not necessarily pay the lowest commission available on each brokerage
transaction, for reasons discussed above. Information so received is in
addition to and not in lieu of services required to be performed by the Adviser
and does not reduce the advisory fees payable to the Adviser by a Fund. Such
information may be useful to the Adviser in serving both the Fund and other
clients and, conversely, supplemental information obtained by the placement of
business of other clients may be useful to the Adviser in carrying out its
obligations to a Fund.
Except as otherwise disclosed to the Shareholders of the Funds and as
permitted by applicable laws, rules and regulations, the Group will not, on
behalf of a Fund, execute portfolio transactions through, acquire portfolio
securities issued by, make savings deposits in, or enter into repurchase or
reverse repurchase agreements with the Adviser, Keystone, BISYS, or their
affiliates, and will not give preference to the Adviser's or Keystone's
correspondents with respect to such transactions, securities, savings deposits,
repurchase agreements, and reverse repurchase agreements.
Investment decisions for each Fund are made independently from those
for other funds of the Group or any other investment company or account managed
by the Adviser. Any such other fund, investment company or account may also
invest in the same securities as the Group on behalf of a Fund. When a purchase
or sale of the same security is made at substantially the same time on behalf
of a Fund and another fund of the Group, investment company or account, the
transaction will be averaged as to price and available investments will be
allocated as to amount in a manner which the Adviser believes to be equitable
to the Fund and such other fund, investment company or account. In some
instances, this investment procedure may adversely affect the price paid or
received by a Fund
B-16
<PAGE> 52
or the size of the position obtained by a Fund. To the extent permitted by law,
the Adviser may aggregate the securities to be sold or purchased for a Fund
with those to be sold or purchased for other funds of the Group, investment
companies or accounts in order to obtain best execution. As provided by the
Investment Advisory Agreement, in making investment recommendations for the
Funds, the Adviser will not inquire or take into consideration whether an
issuer of securities proposed for purchase or sale by the Group is a customer
of the Adviser, its parent or its subsidiaries or affiliates and, in dealing
with its customers, the Adviser, its parent, subsidiaries, and affiliates will
not inquire or take into consideration whether securities of such customers are
held by the Funds or any other fund of the Group.
GLASS-STEAGALL ACT
In 1971, the United States Supreme Court held in Investment Company
Institute v. Camp that the Federal statute commonly referred to as the
Glass-Steagall Act prohibits a national bank from operating a mutual fund for
the collective investment of managing agency accounts. Subsequently, the Board
of Governors of the Federal Reserve System (the "Board") issued a regulation
and interpretation to the effect that the Glass-Steagall Act and such decision:
(a) forbid a bank holding company registered under the Federal Bank Holding
Company Act of 1956 (the "Holding Company Act") or any non-bank affiliate
thereof from sponsoring, organizing, or controlling a registered, open-end
investment company continuously engaged in the issuance of its shares, but (b)
do not prohibit such a holding company or affiliate from acting as investment
adviser, transfer agent, and custodian to such an investment company. In 1981,
the United States Supreme Court held in Board of Governors of the Federal
Reserve System v. Investment Company Institute that the Board did not exceed
its authority under the Holding Company Act when it adopted its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisers to registered closed-end investment companies. In
the Board of Governors case, the Supreme Court also stated that if a national
bank complied with the restrictions imposed by the Board in its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisers to investment companies, a national bank
performing investment advisory services for an investment company would not
violate the Glass-Steagall Act.
The Adviser believes that it possesses the legal authority to perform
the services for the Funds contemplated by the Prospectus, this Statement of
Additional Information and the Investment Advisory Agreement without violation
of applicable statutes and regulations. Future changes in either Federal or
state statutes and regulations relating to the permissible activities of banks
or bank holding companies and the subsidiaries or affiliates of those
B-17
<PAGE> 53
entities, as well as further judicial or administrative decisions or
interpretations of present and future statutes and regulations, could prevent
or restrict the Adviser from continuing to perform such services for the Group.
In addition, current state securities laws on the issue of the registration of
banks as brokers or dealers may differ from the interpretation of federal law,
and banks and financial institutions may be required to register as dealers
pursuant to the laws of a specific state. Depending upon the nature of any
changes in the services which could be provided by the Adviser, the Board of
Trustees of the Group would review the Group's relationship with the Adviser
and consider taking all action necessary in the circumstances.
Should future legislative, judicial, or administrative action prohibit
or restrict the proposed activities of the Adviser and/or the Adviser's
affiliated and correspondent banks in connection with Customer purchases of
Shares of a Fund, those banks might be required to alter materially or
discontinue the services offered by them to Customers. It is not anticipated,
however, that any change in the Group's method of operations would affect its
net asset value per share or result in financial losses to any Customer.
ADMINISTRATOR
BISYS serves as administrator (the "Administrator") to the Funds
pursuant to a Management and Administration Agreement dated July 9, 1996, as
amended as of June 30, 1997 (the "Administration Agreement"). The Administrator
assists in supervising all operations of the Funds (other than those performed
by the Adviser under the Investment Advisory Agreement, by The Bank of New York
under the Custody Agreement and by BISYS Fund Services, Inc. under the Transfer
Agency Agreement and Fund Accounting Agreement). The Administrator is a
broker-dealer registered with the Commission, and is a member of the National
Association of Securities Dealers, Inc. The Administrator provides financial
services to institutional clients.
Under the Administration Agreement, the Administrator has agreed to
maintain office facilities; furnish statistical and research data, clerical,
certain bookkeeping services and stationery and office supplies; prepare the
periodic reports to the Commission on Form N-SAR or any replacement forms
therefor; compile data for, prepare for execution by the Funds and file all of
the Funds' federal and state tax returns and required tax filings other than
those required to be made by the Funds' custodian and Transfer Agent; prepare
compliance filings pursuant to state securities laws with the advice of the
Group's counsel; assist to the extent requested by the Group with the Group's
preparation of its Annual and Semi-Annual Reports to Shareholders and its
Registration Statement (on Form N-1A or any replacement therefor); compile data
for, prepare and file timely Notices to the Commission required
B-18
<PAGE> 54
pursuant to Rule 24f-2 under the 1940 Act; keep and maintain the financial
accounts and records of the Funds, including calculation of daily expense
accruals; determine the actual variance from $1.00 of the Treasury Money Market
Fund's net asset value per share; and generally assist in all aspects of the
Funds' operations other than those performed by the Adviser under the
Investment Advisory Agreement, by The Bank of New York under the Custody
Agreement and by BISYS Fund Services, Inc. under the Transfer Agency Agreement
and Fund Accounting Agreement. Under the Administration Agreement, the
Administrator may delegate all or any part of its responsibilities thereunder.
The Administrator receives a fee from each Fund for its services as
Administrator and expenses assumed pursuant to the Administration Agreement,
equal to a fee, calculated daily and paid periodically, at the annual rate
equal to eleven and one-half one-hundredths of one percent (.115%) of that
Fund's average daily net assets.
For the fiscal year ended June 30, 1996, the Administrator had not
received any compensation under the Administration Agreement since neither of
the Funds had yet commenced operations.
Unless sooner terminated as provided therein, the Administration
Agreement has an initial term expiring on July 9, 1999, and thereafter shall be
renewed automatically for successive one-year terms, unless written notice not
to renew is given by the non-renewing party to the other party at least 60 days
prior to the expiration of the then-current term. The Administration Agreement
is terminable with respect to a Fund upon mutual agreement of the parties to
the Administration Agreement; through a failure to renew at the end of a
one-year term; upon 180 days' written notice by the Group after the initial
term but only in connection with the reorganization of the Funds into another
registered management investment company; and for cause (as defined in the
Administration Agreement) by the party alleging cause, on not less than 60
days' notice by the Group's Board of Trustees or by the Administrator.
The Administration Agreement provides that the Administrator shall not
be liable for any error of judgment or mistake of law or any loss suffered by a
Fund in connection with the matters to which the Administration Agreement
relates, except a loss resulting from willful misfeasance, bad faith, or
negligence in the performance of its duties, or from the reckless disregard by
the Administrator of its obligations and duties thereunder.
DISTRIBUTOR
BISYS serves as agent for each Fund in the distribution of its Shares
pursuant to a Distribution Agreement dated July 9, 1996, as amended as of June
30, 1997 (the "Distribution Agreement"). Unless
B-19
<PAGE> 55
otherwise terminated, the Distribution Agreement has an initial term expiring
on July 9, 1998, and thereafter shall be renewed automatically for successive
annual periods ending July 9th if approved at least annually (i) by the Group's
Board of Trustees or by the vote of a majority of the outstanding Shares of the
Funds, and (ii) by the vote of a majority of the Trustees of the Group who are
not parties to the Distribution Agreement or interested persons (as defined in
the 1940 Act) of any party to the Distribution Agreement, cast in person at a
meeting called for the purpose of voting on such approval. The Distribution
Agreement also terminates automatically in the event of any assignment, as
defined in the 1940 Act.
In its capacity as Distributor, BISYS solicits orders for the sale of
Shares, advertises and pays the costs of advertising, office space and the
personnel involved in such activities. BISYS receives no compensation under the
Distribution Agreement with the Group but retains all or a portion of any sales
charge imposed upon a purchase of the Shares.
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
affiliates and their correspondent banks, and BISYS (a "Service Organization"),
to provide certain ministerial, record keeping, and administrative support
services to their customers who own of record or beneficially Shares in the
Funds. Payments to such Service Organizations are made pursuant to Servicing
Agreements between the Group and the Service Organization. The Services Plan
authorizes each Fund to make payments to Service Organizations in an amount, on
an annual basis, of up to 0.25% of the average daily net asset value of that
Fund. The Services Plan has been approved by the Board of Trustees of the
Group, including a majority of the Trustees who are not interested persons of
the Group (as defined in the 1940 Act) and who have no direct or indirect
financial interest in the operation of the Services Plan or in any Servicing
Agreements thereunder (the "Disinterested Trustees"). The Services Plan may be
terminated as to a Fund by a vote of a majority of the Disinterested Trustees.
The Trustees review quarterly a written report of the amounts expended pursuant
to the Services Plan and the purposes for which such expenditures were made.
The Services Plan may be amended by a vote of the Trustees, provided that any
material amendments also require the vote of a majority of the Disinterested
Trustees. For so long as the Services Plan is in effect, selection and
nomination of those Disinterested Trustees shall be committed to the discretion
of the Group's Disinterested Trustees. All Servicing Agreements may be
terminated at any time without the payment of any penalty by a vote of a
majority of the Disinterested Trustees. The
B-20
<PAGE> 56
Services Plan will continue in effect for successive one-year periods, provided
that each such continuance is specifically approved by a majority of the Board
of Trustees, including a majority of the Disinterested Trustees. As of the date
hereof, no Servicing Agreements have been entered into by the Group on behalf
of the Funds.
CUSTODIAN
The Bank of New York, 48 Wall Street, New York, New York, 10286,
serves as custodian (the "Custodian") to the Funds pursuant to the Custody
Agreement dated as of July 9, 1996, as amended as of June 30, 1997. The
Custodian's responsibilities include safeguarding and controlling each Fund's
cash and securities, handling the receipt and delivery of securities, and
collecting interest and dividends on each Fund's investments.
TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
BISYS Fund Services, Inc. serves as transfer agent and dividend
disbursing agent (the "Transfer Agent") for the Funds pursuant to the Transfer
Agency Agreement dated July 9, 1996, as amended as of June 30, 1997. Pursuant
to such Agreement, the Transfer Agent, among other things, performs the
following services in connection with the Funds' Shareholders of record:
maintenance of shareholder records for each of the Funds' Shareholders of
record; processing Shareholder purchase and redemption orders; processing
transfers and exchanges of Shares of the Funds on the Shareholder files and
records; processing dividend payments and reinvestments; and assistance in the
mailing of Shareholder reports and proxy solicitation materials. For such
services the Transfer Agent receives a fee based on the number of shareholders
of record. For the fiscal year ended June 30, 1996, the Transfer Agent received
no compensation from the Group for services as transfer agent for the Funds
since the Funds had not yet commenced operations.
In addition, BISYS Fund Services, Inc. provides certain fund
accounting services to each of the Funds pursuant to a Fund Accounting
Agreement dated July 9, 1996, as amended as of June 30, 1997. BISYS Fund
Services, Inc. receives a fee from each Fund for such services equal to the
greater of (a) a fee computed at an annual rate of three one-hundredths of one
percent (.03%) of that Fund's average daily net assets, or (b) the annual fee
of $30,000. Under such Agreement, BISYS Fund Services, Inc. maintains the
accounting books and records for the Funds, including journals containing an
itemized daily record of all purchases and sales of portfolio securities, all
receipts and disbursements of cash and all other debits and credits, general
and auxiliary ledgers reflecting all asset, liability, reserve, capital, income
and expense accounts, including interest accrued and interest received,
B-21
<PAGE> 57
and other required separate ledger accounts; maintains a monthly trial balance
of all ledger accounts; performs certain accounting services for the Funds,
including calculation of the net asset value per share, calculation of the
dividend and capital gain distributions, if any, and of the yield,
reconciliation of cash movements with the Funds' custodian, and verification
and reconciliation with the Funds' custodian of all daily trade activity;
provides certain reports; obtains dealer quotations, prices from a pricing
service or matrix prices on all portfolio securities in order to mark the
portfolio to the market; and prepares an interim balance sheet, statement of
income and expense, and statement of changes in net assets for the Funds.
Unless sooner terminated as provided therein, the Fund Accounting
Agreement has an initial term expiring on July 9, 1999, and thereafter shall be
renewed automatically for successive one-year terms, unless written notice not
to renew is given by the non- renewing party to the other party at least 60
days prior to the expiration of the then-current term. The Fund Accounting
Agreement is terminable with respect to a Fund upon mutual agreement of the
parties to the Fund Accounting Agreement; upon 180 days' written notice by the
Group after the initial term but only in connection with the reorganization of
the Funds into another registered management investment company; and for cause
(as defined in the Fund Accounting Agreement) by the party alleging cause, on
not less than 60 days' notice by the Group's Board of Trustees or by BISYS Fund
Services, Inc.
The Fund Accounting Agreement provides that BISYS Fund Services, Inc.
shall not be liable for any error of judgment or mistake of law or any loss
suffered by a Fund in connection with the matters to which the Fund Accounting
Agreement relates, except a loss resulting from willful misfeasance, bad faith,
or negligence in the performance of its duties, or from the reckless disregard
by BISYS Fund Services, Inc. of its obligations and duties thereunder.
For the fiscal year ended June 30, 1996, BISYS Fund Services, Inc.
earned no fees with respect to its fund accounting services to the Funds since
the Funds had not yet commenced operations.
AUDITORS
KPMG Peat Marwick LLP, Two Nationwide Plaza, Columbus, Ohio 43215, has
been selected as the independent auditors for the Funds and as such will audit
the financial statements of the Funds.
LEGAL COUNSEL
Baker & Hostetler LLP, 65 East State Street, Columbus, Ohio 43215 is
counsel to the Group and will pass upon the legality of the Shares offered
hereby.
B-22
<PAGE> 58
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 nineteen series
of shares, one of which represents interests in the Treasury Money Market Fund
and one of which represents interests in the Government Securities Fund. The
other seventeen series are Riverside Capital Money Market Fund, Riverside
Capital Value Equity Fund, Riverside Capital Fixed Income Fund, Riverside
Capital Tennessee Municipal Obligations Fund, Riverside Capital Low Duration
Government Securities Fund, Riverside Capital Growth Fund, the Money Market
Fund, the Pennsylvania Bond Fund, the Established Growth Fund, the Income Fund,
the Aggressive Growth Fund, 1st Source Monogram U.S. Treasury Obligations Money
Market Fund, 1st Source Monogram Diversified Equity Fund, 1st Source Monogram
Income Equity Fund, 1st Source Monogram Special Equity Fund, 1st Source
Monogram Income Fund and 1st Source Monogram Intermediate Tax-Free Bond Fund.
The Group's Declaration of Trust authorizes the Board of Trustees to divide or
redivide any unissued shares of the Group into one or more additional series by
setting or changing in any one or more respects their respective preferences,
conversion or other rights, voting power, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption.
Shares have no subscription or preemptive rights and only such
conversion or exchange rights as the Board of Trustees may grant in its
discretion. When issued for payment as described in the 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
B-23
<PAGE> 59
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 the date immediately preceding the public offering of the Funds'
Shares, BISYS Fund Services Ohio, Inc. owned all of the issued and outstanding
Shares of each of the Funds. It is anticipated that, upon commencement of the
public offering of the Funds' Shares, BISYS Fund Services Ohio, Inc.'s holdings
of Shares in each Fund will be reduced below 5%.
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 such Fund are represented in person or by proxy, or
(b) the holders of more than 50% of the outstanding votes of Shareholders of
that Fund.
ADDITIONAL GENERAL TAX INFORMATION
Each of the nineteen funds of the Group is treated as a separate
entity for federal income tax purposes and intends to qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"), for so long as such qualification is in the best interest of that
fund's shareholders. In order to qualify as a regulated investment company, a
Fund must, among other things: derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities, or currencies; derive less than 30% of its gross income from the
sale or other disposition of stock, securities, options, future contracts or
foreign currencies held less than three months; and diversify its investments
within certain prescribed limits. In addition, to utilize the tax provisions
specially applicable to regulated investment companies, a Fund must distribute
to its Shareholders at least 90% of its investment company taxable income for
the year. In general, the Fund's investment company taxable income will be its
taxable income subject to certain adjustments and excluding the excess of any
net
B-24
<PAGE> 60
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, the
Fund would be subject to a non-deductible excise tax equal to 4% of the
deficiency.
Although each Fund expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all federal income taxes,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
located, or in which it is otherwise deemed to be conducting business, a Fund
may be subject to the tax laws of such states or localities. In addition, if
for any taxable year a Fund does not qualify for the special tax treatment
afforded regulated investment companies, all of its taxable income will be
subject to federal tax at regular corporate rates (without any deduction for
distributions to its Shareholders). In such event, dividend distributions would
be taxable to Shareholders to the extent of earnings and profits, and would be
eligible for the dividends received deduction for corporations.
It is expected that each Fund will distribute annually to Shareholders
all or substantially all of that Fund's net ordinary income and net realized
capital gains and that such distributed net ordinary income and distributed net
realized capital gains will be taxable income to Shareholders for federal
income tax purposes, even if paid in additional Shares of that Fund and not in
cash.
Distribution by a Fund of the excess of net long-term capital gain
over net short-term capital loss, if any, is taxable to Shareholders as
long-term capital gain in the year in which it is received, regardless of how
long the Shareholder has held the Shares. Such distributions are not eligible
for the dividends-received deduction.
Federal taxable income of individuals is subject to graduated tax
rates of 15%, 28%, 31%, 36% and 39.6%. Further, the marginal tax rate may be in
excess of 39.6%, because adjustments reduce or eliminate the benefit of the
personal exemption and itemized deductions for individuals with gross income in
excess of certain threshold amounts.
B-25
<PAGE> 61
Capital gains of individuals are subject to tax at the same rates
applicable to ordinary income; however, the tax rate on long-term capital gains
of individuals cannot exceed 28%. Capital losses may be used to offset capital
gains. In addition, individuals may deduct up to $3,000 of net capital loss
each year to offset ordinary income. Excess net capital loss may be carried
forward and deducted in future years.
Federal taxable income of corporations in excess of $75,000 up to $10
million is subject to a 34% tax rate; however, because the benefit of lower tax
rates on a corporation's taxable income of less than $75,000 is phased out for
corporations with income in excess of $100,000 but lower than $335,000, a
maximum marginal tax rate of 39% may result. Federal taxable income of
corporations in excess of $10 million is subject to a tax rate of 35%. Further,
a corporation's federal taxable income in excess of $15 million is 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 that Fund for its taxable year that qualifies for the dividends received
deduction. Because all of the Funds' net investment income is expected to be
derived from earned interest, it is anticipated that no distributions from
either Fund will qualify for the 70% dividends received deduction.
Investment by a Fund in securities issued at a discount or providing
for deferred interest or for payment of interest in the form of additional
obligations could, under special tax rules, affect the amount, timing and
character of distributions to Shareholders. For example, a Fund could be
required to take into account annually a portion of the discount (or deemed
discount) at which such securities were issued and to distribute such portion
in order to maintain its qualification as a regulated investment company. In
that case, that Fund may have to dispose of securities which it might otherwise
have continued to hold in order to generate cash to satisfy these distribution
requirements.
Each Fund may be required by federal law to withhold and remit to the
U.S. Treasury 31% of taxable dividends, if any, and capital gain distributions
to any Shareholder, and the proceeds of redemption or the values of any
exchanges of Shares of the Fund, if
B-26
<PAGE> 62
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 generally affecting purchasers
of Shares of the Funds. No attempt has been made to present a detailed
explanation of the Federal income tax treatment of the Funds or their
Shareholders and this discussion is not intended as a substitute for careful
tax planning. Accordingly, potential purchasers of Shares of a Fund are urged
to consult their tax advisers with specific reference to their own tax
situation. In addition, the tax discussion in the 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. As of the date hereof, several proposals have been
introduced by the 105th Congress, which if enacted, could affect much of the
information contained in this section. However, it is not possible at this time
to assess which, if any, of such proposals will be acted upon and the effect
thereof, if any, on this information.
Information as to the federal income tax status of all distributions
will be mailed annually to each Shareholder.
SEVEN-DAY YIELD OF THE TREASURY MONEY MARKET FUND
The standardized seven-day yield for the Treasury Money Market Fund is
computed by determining the net change, exclusive of capital changes, in the
value of a hypothetical preexisting account in the Treasury 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 Treasury
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 Treasury 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
B-27
<PAGE> 63
calculated as described above except that the base period is 30 days rather
than seven days.
The effective yield for the Treasury 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.
30-DAY YIELD OF THE GOVERNMENT SECURITIES FUND
As summarized in the Prospectus under the heading "PERFORMANCE
INFORMATION," the yield of the Government Securities Fund will be computed by
annualizing net investment income per share for a recent 30-day period and
dividing that amount by the Government Securities Fund's Shares' maximum
offering price (reduced by any undeclared earned income expected to be paid
shortly as a dividend) on the last trading day of that period. Net investment
income will reflect amortization of any market value premium or discount of
fixed income securities (except for obligations backed by mortgages or other
assets) and may include recognition of a pro rata portion of the stated
dividend rate of dividend paying portfolio securities. The yield of the
Government Securities Fund will vary from time to time depending upon market
conditions, the composition of the Government Securities Fund's portfolio and
operating expenses of the Group allocated to such Fund. These factors and
possible differences in the methods used in calculating yield should be
considered when comparing the Government Securities Fund's yield to yields
published for other investment companies and other investment vehicles. Yield
should also be considered relative to changes in the value of the Government
Securities Fund's Shares and to the relative risks associated with the
investment objectives and policies of the Government Securities Fund.
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 that Fund immediately rather
than paid to the investor in cash. Average annual total return will be
calculated by: (1) adding to the total number of Shares purchased by a
hypothetical $1,000 investment in a Fund (less the maximum sales charge, if
any) all additional Shares which would have been purchased if all dividends and
distributions paid or distributed during the period had been immediately
reinvested; (2) calculating the value of the hypothetical initial investment of
$1,000 as of the end of the period by multiplying the total number of Shares
owned at the end of the period by the net asset value per share on
B-28
<PAGE> 64
the last trading day of the period; (3) assuming redemption at the end of the
period; and (4) dividing this account value for the hypothetical investor by
the initial $1,000 investment and annualizing the result for periods of less
than one year. A Fund, however, may also advertise aggregate total return in
addition to average annual total return.
For the one year period ended March 31, 1997, and the period from
commencement of operations to March 31, 1997, the average annual total returns
for the Government Securities Fund's predecessor CIFs have been restated to
reflect the estimated fees for such Fund for the current fiscal year and are as
follows:
AVERAGE ANNUAL TOTAL RETURN
With Maximum Sales Load(1) Without Sales Load
Since Since
1 Year Inception(2) 1 Year Inception(2)
------ ------------ ------ ------------
1.29% 2.39% 4.43% 4.61%
1 The maximum sales load for the Government Securities Fund is
3.00%.
2 Commenced operations October 31, 1995.
Such performance figures are not those of the Government Securities
Fund. And, of course, past performance is no guarantee as to future
performance.
DISTRIBUTION RATES
The Government Securities Fund may from time to time advertise current
distribution rates which are calculated in accordance with the method disclosed
in the Prospectus.
PERFORMANCE COMPARISONS
Investors may judge the performance of the Funds by comparing them to
the performance of other mutual funds or mutual fund portfolios with comparable
investment objectives and policies through various mutual fund or market
indices such as those prepared by Dow Jones & Co., Inc. and Standard & Poor's
Corporation and to data prepared by Lipper Analytical Services, Inc., a widely
recognized independent service which monitors the performance of mutual funds.
Comparisons may also be made to indices or data published in Money Magazine,
Forbes, Barron's, The Wall Street Journal, Morningstar, Inc., Ibbotson
Associates, CDA/Wiesenberger, The New York Times, Business Week, U.S.A. Today
and local periodicals. In addition to performance information, general
B-29
<PAGE> 65
information about the Funds that appears in a publication such as those
mentioned above may be included in advertisements, sales literature and reports
to shareholders. The Funds may also include in advertisements and reports to
shareholders information discussing the performance of the Adviser in
comparison to other investment advisers and to other institutions.
From time to time, the Group may include the following types of
information in advertisements, supplemental sales literature and reports to
Shareholders: (1) discussions of general economic or financial principles (such
as the effects of inflation, the power of compounding and the benefits of
dollar cost averaging); (2) discussions of general economic trends; (3)
presentations of statistical data to supplement such discussions; (4)
descriptions of past or anticipated portfolio holdings for the Funds; (5)
descriptions of investment strategies for the Funds; (6) descriptions or
comparisons of various investment products, which may or may not include the
Funds; (7) comparisons of investment products (including the Funds) with
relevant market or industry indices or other appropriate benchmarks; (8)
discussions of fund rankings or ratings by recognized rating organizations; and
(9) testimonials describing the experience of persons that have invested in a
Fund. The Group may also include calculations, such as hypothetical compounding
examples, which describe hypothetical investment results in such
communications. Such performance examples will be based on an express set of
assumptions and are not indicative of the performance of a Fund.
Current yields or total return will fluctuate from time to time and
are not necessarily representative of future results. Accordingly, a Fund's
yield or total return may not provide for comparison with bank deposits or
other investments that pay a fixed return for a stated period of time. Yield
and total return are functions of a Fund's quality, composition and maturity,
as well as expenses allocated to that Fund. Fees imposed upon Customer accounts
by the Adviser, its affiliates or its affiliated or correspondent banks for
cash management services or other services will reduce a Fund's effective yield
and total return to Customers.
MISCELLANEOUS
Individual Trustees are generally elected by the shareholders and,
subject to removal by the vote of two-thirds of the Board of Trustees, serve
for a term lasting until the next meeting of shareholders at which Trustees are
elected. Such meetings are not required to be held at any specific intervals.
Generally, shareholders owning not less than 20% of the outstanding shares of
the Group entitled to vote may cause the Trustees to call a special meeting.
However, the Group has represented to the Commission that the Trustees will
call a special meeting for the purpose of considering the removal of one or
more Trustees upon written
B-30
<PAGE> 66
request therefor from shareholders owning not less than 10% of the outstanding
votes of the Group entitled to vote. At such a meeting, a quorum of
shareholders (constituting a majority of votes attributable to all outstanding
shares of the Group), by majority vote, has the power to remove one or more
Trustees.
The Group is registered with the Commission as a management investment
company. Such registration does not involve supervision by the Commission of
the management or policies of the Group.
The Prospectus and this Statement of Additional Information omit
certain of the information contained in the Registration Statement filed with
the Commission. Copies of such information may be obtained from the Commission
upon payment of the prescribed fee.
The Prospectus and this Statement of Additional Information are not an
offering of the securities herein described in any state in which such offering
may not lawfully be made. No salesman, dealer, or other person is authorized to
give any information or make any representation other than those contained in
the Prospectus and this Statement of Additional Information.
B-31
